Tech, Auto, Consumer Groups Call for Rehearing in FTC-Qualcomm Case

The 9th U.S. Circuit Court of Appeals should grant the FTC’s request for en banc review in its antitrust case against Qualcomm (see 2009250068), tech groups, auto manufacturers, consumers and scholars told the court in briefs filed through Tuesday (in Pacer). The agency is appealing a three-judge panel’s decision in favor of Qualcomm (see 2008190043).

Standard essential patent abuse is a “real-world” problem for the app industry, and the district court’s order “protects fair competition and access to SEP licenses,” said ACT|The App Association. “The harm to the marketplace and consumers associated with SEP abuse justifies carefully-tailored competition law remedies, including those entered by the district court.” It’s vital licenses be available on fair, reasonable and nondiscriminatory (FRAND) terms “to all market participants at any level of the supply chain,” ACT wrote.

MediaTek wrote in support. The 9th Circuit held that raising rival “costs can be exclusionary conduct when it allows the defendant to charge higher prices,” it argued. Qualcomm’s practices have resulted in time-delayed entry to “already-mature markets where the available profits could not fund research and development of next-generation chips,” MediaTek said. This has been central to MediaTek’s “difficulty in the marketplace, despite its sales of mature low-end chips,” it added.

An SEP holder’s refusal to license chipmakers harms competition by encouraging rivals to exit the market, blocking rival entry and hampering rival success, wrote auto and parts manufacturers including Continental Automotive Systems, Denso, American Honda, Toyota and Tesla. Qualcomm has been able to demand “supra-FRAND” royalty rates because, as the district court noted, “a rival cannot sell modem chips with any assurance that Qualcomm will not sue the rival and its customers for patent infringement,” the auto group wrote.

A class of plaintiffs who purchased cellphones with CDMA modem chips, for which Qualcomm has SEPs, wrote in support. The three-judge panel ignored the central question, they argued: whether Qualcomm’s licensing terms for OEMs harmed competition and maintained Qualcomm’s chip monopolies. Like Microsoft in the 1990s, Qualcomm used its licensing terms to insulate its monopolies from rivals “not by improving its own product but, rather, by preventing OEMs from taking actions that could increase rivals’” market share, the group wrote: These practices harm competition and consumers.

The panel wrongly found that harm to customers falls outside the relevant market, wrote 46 law and economics scholars in support of rehearing. They cited the district court’s finding that Qualcomm used monopoly power to effectuate its no license/no chip “policy and artificially raise the costs to OEMs of purchasing chips from rivals, thereby suppressing demand for those rival chips.” A monopolist that uses its power “over customers to prevent them from switching to rival suppliers, or to otherwise suppress demand for rival products in the relevant market” is in violation of Sherman Act Section 2, the group argued.

The Fair Standards Alliance also wrote in support. It contended the panel ignored the “key role” of FRAND commitments in “maintaining competition among products practicing standardized technologies.”