Saturday, May 13, 2017

Samsung joins the fray, supports FTC against Qualcomm: "directly harmed" in two capacities

In today's opposition to a Qualcomm motion to dismiss the FTC's antitrust complaint, the FTC says "[o]ther chipmakers may not wish to sue Qualcomm for a number of reasons, including fear of countersuit for infringement, escalation, litigation fees, disrupted relationships with OEMs [...]." While all of that can affect a chipmaker's calculus, the situation is far worse for device makers: they have to fear massive disruption should Qualcomm cease to supply its chipsets to them. Also, Qualcomm's rebate deals (that effectively result in some patent royalties being paid back) appear to be tied to total abstention from any kind of antitrust action against Qualcomm. All in all, it's like a strangehold on an entire industry.

Without the fears described above, I'm sure Qualcomm would face even more antitrust lawsuits than it currently has to deal with (the FTC case plus complaints by Apple in several jurisdictions around the globe). It's too early to tell, but it could be that Qualcomm itself will at some point conclude that certain practices (such as entering into agreements under which other companies are not allowed to take antitrust action) aren't advisable. Courts and competition enforcers now get to see those contracts and they learn about other ways in which Qualcomm tries to prevent those affected by its conduct from complaining. Regardless of legality and enforceability (important questions, but this is not the time and place to address them), what will judges and regulators think? This is psychological, not legal, but common sense suggests that someone who goes to extreme lengths to prevent others from raising a whole category (antitrust) of issues may really have something to hide.

After the FTC sued Qualcomm in January, Apple also brought a complaint, followed up by parallel complaints in other jurisdictions. At this point, Apple is still the only private-sector plaintiff against Qualcomm on antitrust grounds (not the first one, but the only one at the moment). But Apple is not alone among device makers. In a clear sign of how widespread concerns over Qualcomm's practices are, major automotive and information technology companies wrote an open letter to President Trump about the Qualcomm matter, urging the Trump Administration to pursue the antitrust case in the Northern District of California. And now Samsung has gone a very meaningful step further than answering questions from the Korea Fair Trade Commission: Samsung has just filed an amicus curiae brief in support of the FTC's opposition to Qualcomm's motion to dismiss the antitrust complaint (this post continues below the document):

17-05-12 Samsung Amicus Brief Iso FTC Opp to QCOM m2d by Florian Mueller on Scribd

For formal reasons, Samsung also had to request permission to file that brief. Since Qualcomm doesn't even object, that permission will hardly be withheld.

The two-pronged nature of the competitive harm Samsung has suffered at Qualcomm's hands is reflected by the legal entities making the submission: Samsung Electronics Co. Ltd. (the world's largest mobile device maker) and Samsung Semiconductor (a chipset maker allegedly kept out of the wireless baseband chipset market, at least with respect to certain markets, by Qualcomm's behavior, which appears to have to do with some old contracts as well as the way Qualcomm leverages its patents).

Apple and Samsung are doing the industry at large, and (by extension) consumers, a great service. They are doing what many others presumably would like to do but don't dare. But a few years ago, Samsung was aggressively asserting FRAND-pledged standard-essential patents against Apple, and now it's actually citing Judge Koh herself (who is presiding over FTC v. Qualcomm as well as two Apple v. Samsung cases) on the "legal distinction between a normal patent—to which antitrust market power is generally not conferred on the patent owner, and a patent incorporated into a standard—to which antitrust market power may be conferred on the patent owner." When Judge Koh wrote this, Samsung was trying to gain undue leverage from its SEPs. But those efforts came to an end, and in any event, companies can cite decisions even if the shoe was on the other foot at the time.

In the following sentence from the request for permission to file a brief, the two Samsung entities are explaining what they bring to the table as "friends of the court":

"As a Qualcomm licensee ([Samsung Electronics'] handset manufacturing business) and an excluded competitor ([Samsung Semiconductor's] chipset sales arm, to which Qualcomm refuses to grant a license to make and sell licensed chipsets), proposed amici are uniquely positioned to assist the Court in understanding the impact of Qualcomm's conduct on competition in the upstream market to make and sell chipsets and in the downstream handset market."

In the amicus brief itself, Samsung stresses this role of a dual victim as well:

"Samsung, which employs approximately 17,000 people in the United States, is both Qualcomm's customer (as a handset supplier) and Qualcomm's potential competitor (as a manufacturer and potential seller of chipsets). In both capacities, Samsung has directly experienced, and been directly harmed by, the exclusionary conduct alleged in the FTC's Complaint [...]: Qualcomm refuses to license its SEPs on fair, reasonable, and non-discriminatory ('FRAND') terms so that Samsung can make and can sell licensed chipsets."

Samsung explains that licensing "all comers" (including rival chipset makers) is an essential part of the standardization bargain (FRAND licensing commitment in exchange for having one's technologies included in a standard). By not doing so (and by seeking supra-FRAND royalties from device makers), "Qualcomm not only violated FRAND but its conduct excluded potential competitors (like Samsung) and harmed consumers."

The Korea Fair Trade Commission is also concerned about Qualcomm's dealings with device makers as well as the ways in which Qualcomm prevents Samsung's chipset business from competing with it. Footnote 11 of Samsung's amicus brief points to a Qualcomm SEC filing and notes that "Qualcomm reports it has over 300 licensees, none of which are chipset rivals."

Probably the most important chipset rival that should get a FRAND license to Qualcomm's patents is (with the greatest respect for Samsung's huge semiconductor business) Intel. And while I was writing this post, Intel also submitted an amicus brief in support of the FTC. With so much going on, I'm going to need more time to digest all of this, but I will do a follow-up next week.

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