Wednesday, October 11, 2017

Decision by Taiwanese antitrust authority: huge setback for Qualcomm, breakthrough for industry

The Taiwan Fair Trade Commission's decision to impose a record fine of more than $700 million on Qualcomm and to demand a departure from some of Qualcomm's longstanding, problematic practices is really huge. If I didn't believe so, I wouldn't be writing this blog post about two hours after receiving approval from Apple to publish my iOS game, after three years of development. We're initially making the game available in 24 countries now and will do our U.S. launch (after a bit more fine-tuning) next month, at which time I'll be more specific about category, name, features, everything.

Taiwan is such a strategic region in the context of Qualcomm's dual-monopoly strategy involving standard-essential patents as well as chipsets. In Taiwan you have three types of key industry stakeholders suffering under what Qualcomm has been doing for a long time:

With a view to pending lawsuits, the biggest impact will be in the Southern District (contract manufacturers) and the Northern (FTC) District of California.

The Taiwan Fair Trade Commission has now joined the Korea Fair Trade Commission, the FTC, and the European Commission, and who knows what trouble Qualcomm may still face in the People's Republic of China, considering that there is speculation about Huawei having ceased to make royalty payments to Qualcomm.

As one would have expected, Qualcomm is fighting the decision. The Bloomberg story I linked to further above says Qualcomm will seek a stay and appeal. It was recently denied a stay in South Korea, by the way.

This has been a very eventful ten months for Qualcomm in antitrust terms. It's hard to identify the tipping point, but my prediction is Qualcomm will have to fundamentally change its patent licensing and other business practices in the not too distant future, and when that happens, today's Taiwanese decision will be considered to have been among the more important events in that regard.

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Monday, October 9, 2017

Qualcomm forced to offer commitments in order to obtain EU clearance of NXP deal

There have been strong indications that the European Commission's Directorate-General for Competition (DG COMP) has serious concerns about the potentially anti-competitive effects of Qualcomm's proposed acquisition of NXP Semiconductors. By now, there can be no doubt about that: the Commission's website states that Qualcomm submitted commitments four days ago. No one offers commitments if unconditional clearance is achievable.

Typically, companies discuss such proposed commitments with the Commission beforehand. If the Commission believes the commitments might be useful, it puts them to a market test, giving stakeholders an opportunity to comment. Here, there is no official confirmation--just rumors--of an ongoing market test.

As I've said earlier in the process, the only meaningful remedy here would be an obligation for Qualcomm to extend licenses (obviously on fair, reasonable and non-discriminatory terms) to rival chipset makers. That would help Qualcomm's competitors and customers alike. With the licensed product being a chipset, the royalty base alone makes it very hard, if not practically impossible, for Qualcomm to charge anywhere near the license fees it appears to demand from device makers. But it would have been out of character for Qualcomm to propose such a commitment. I guess Qualcomm would rather walk out on the NXP deal, but I wish I turned out to have been wrong on the effectiveness of its proposed commitments, though merger remedies (other than a divestment of certain assets) are rarely helpful--in most cases they just look like they would ensure fair competition while they actually don't, either because they don't go far enough or because they lack specificity.

No matter whether Qualcomm's proposed merger remedies are helpful, the fact that Qualcomm apparently felt forced to offer any commitments in order to obtain clearance is the latest indication that regulators in different parts of the world are concerned about some aspects of Qualcomm's business model and practices.

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Thursday, October 5, 2017

DoJ backs Apple, says Supreme Court should deny Samsung's most recent cert petition

Just this week, the Wall Street Journal reported on the high-volume business Apple is doing with Samsung, a key supplier of components for various products including the new flagship iPhone, the iPhone X, on which Samsung will reportedly make $110 per unit. But as device makers, the two remain fierce competitors--and adversaries in court.

A few months after the Supreme Court of the United States requested the Trump Administration's perspective on Samsung's most recent petition for writ of certiorari, the Solicitor General of the United States, Noel Francisco, has expressed the views of the U.S. federal government (this post continues below the document):

16-1102 Views of the United States by Florian Mueller on Scribd

The short version is this: the DoJ tells the Supreme Court to deny all three parts of Samsung's petition, but it's not a ringing endorsement of the Federal Circuit's controversial en banc decision. Not at all. It's completely based on procedural and standard-of-review considerations.

The following passages show that the DoJ doesn't necessarily agree with the Fed. Cir. majority:

"The sufficiency-of-the-evidence question presented on appeal was a close one, and the court of appeals may have erred in concluding that substantial evidence supported aspects of the jury's verdict."

"If the Federal Circuit continues to develop and enforce rigid rules for demonstrating obviousness, this Court's review may ultimately be warranted. This case, however, would be an unsuitable vehicle for addressing that issue. Because petitioners did not preserve any objection that the jury instructions [...]"

"Although the phrase 'some connection' may be infelicitous, [...]"

In the famous design patents case, the DoJ agreed with Samsung on the key legal question (article of manufacture). It additionally brought up a procedural question that could have enabled Apple to defend the original damages award. Now, with respect to the more recent petition relating to invalidity, injunctive relief, and infringement, the DoJ cautiously distances itself from the en banc opinion and indicates only between the lines that it may disagree, to some extent, from a policy perspective ("rigid rules for demonstrating obviousness" etc.). It would have been nice if the DoJ had been clearer about the implications of this for U.S. tech companies and for the work of the United States Patent and Trademark Office, which is supposed to protect real technological progress, which is hard to do if even weak evidence of non-obviousness gets a lot of weight. The DoJ could have expressed more clearly a concern over what this means for patent quality, but unfortunately it didn't.

So what does this mean for the prospects of Samsung's cert petition?

The George Mason Law Review published an empirical analysis of cert procedures (PDF), according to which the Supreme Court became more likely to grant certiorari in a case where the Solicitor General was invited to file a brief regardless of whether the SG recommended cert or not. It's a fact that the Supreme Court grants more petitions following a Call for Views of the Solicitor General than the SG recommends should be granted.

Of course, it's too early to have statistics on how the Supreme Court views Solicitor General Francisco's recommendations. But it's not like it's over for Samsung. It's a setback for them and, conversely, a significant intermediate victory for Apple, but the Supreme Court can still decide either way.

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