Four months prior to the FTC v. Qualcomm antitrust bench trial in the Northern District of California, the U.S. Federal Trade Commission has brought a motion for partial summary judgment that has the potential to make a far greater contribution to fair competition in the wireless baseband chipset market than the procedural context (a pretrial motion) suggests. The FTC is asking Judge Lucy Koh to hold that, under certain (F)RAND licensing obligations it entered into when it participated in wireless standard-setting, Qualcomm must license its CDMA, UMTS and 4G/LTE standard-essential patents (SEPs) to rival chipset makers (such as Intel).
This is an unusual situation in which a summary judgment motion is legally extremely simple, yet has the potential for truly transformative impact on the marketplace. In most situations where a party is seeking a game changer, reasonably tricky question of law and/or fact are involved. Here, the FTC is just seeking clarification that Qualcomm's FRAND licensing commitments say what they say. But if Judge Koh agreed with the FTC and reminded Qualcomm of its obligations,
Intel (and likely others, such as MediaTek and Samsung's Exynos division) would immediately ask for a license to Qualcomm's wireless standard-essential patents on FRAND terms,
Qualcomm would have to content itself with royalties representing a FRAND percentage of baseband chipset prices (as opposed to a percentage of the price of an entire mobile device),
Qualcomm's leverage would be reduced because (as the FTC notes) Qualcomm couldn't threaten with a chipset supply disruption while negotiating with competitors,
due to patent exhaustion, Qualcomm wouldn't be able to "double-dip" by collecting license fees from its licensees' customers (the device makers), and
those who would still buy Qualcomm's baseband processors could decline to pay royalties in excess of what baseband chipset makers are required to pay (anything else would be discriminatory).
A number of problems would be solved, and prices would come down. Consumers would benefit. Competitors would benefit. Device makers (especially in the premium segment) would benefit. But Qualcomm would have to get used to doing business on FRAND terms, at long last. It could still make a ton of money, but obviously less than before.
Hypothetically speaking, if the FTC achieved the above with its motion for partial summary judgment (which I believe it will), but subsequently failed to make further headway at the January 2019 bench trial (which is not a prediction), it would have accomplished a great deal. In that hypothetical scenario, it would actually have achieved far more than with the average consent decree. The trial might not even take place: after such a strategic breakthrough for the FTC, Qualcomm would be under significant pressure to settle.
After assessing the potential impact of this motion, let's take a look at the basis on which the FTC is trying to make such tremendous headway (this post continues below the document):
In a legal sense, the motion is as narrowly tailored as it could be. The FTC's broader case against Qualcomm's policies, including the "no-license-no-chips" approach, targets a host of issues and their anticompetitive effects. The above motion for partial summary judgment, however, does not even raise a single antitrust issue in a strict sense: it's exclusive about Qualcomm's contractual obligations to license rival chipset makers. And it's not about the entirety of Qualcomm's contractual licensing commitments: it's just about Qualcomm's obligations and third-party beneficiaries' rights emanating from Qualcomm's FRAND licensing promises to two U.S. standard-setting organizations, the Telecommunications Industry Association (TIA) and the Alliance for Telecommunications Industry Solutions (ATIS).
In other wireless SEP cases, the commitments that patent holders made to the European Telecommunications Standards Institute (ETSI) are front and center. Here, the FTC is trying to eliminate the need to make a determination in San Jose under French law. Qualcomm presented expert reports according to which it allegedly, under French law, doesn't have to extend SEP licenses to other wireless chipset makers. The FTC completely disagrees, but if Qualcomm's commitments to U.S. standards bodies cover the standards at issue in the case (CDMA, UMTS, 4G/LTE), Judge Koh won't even have to dig into a foreign country's law under Rule 44.1.
A duty to deal, under antitrust law, would also require Qualcomm to extend SEP licenses to rival chipset makers. Here, too, the FTC believes it has a stronge case: but the motion for partial summary judgment does not involve an antitrust-based duty to deal; at this point, it's just about Qualcomm's existing contractual obligations. By contrast, it involves a lot more on a court's part to determine that a duty to deal exists on antitrust grounds.
Technically, if Qualcomm has an obligation on one legal basis (its commitments to TIA and ATIS), and if the court confirms that this is the case, that's all it takes for good things (more competition in the baseband chip set market) to happen. The FTC's motion has the potential to streamline and simplify a very critical part of the case. As the motion explains, Qualcomm's commitments to TIA and ATIS can be interpreted under California contract law (which is particularly clear here, given Qualcomm's legal domicile in San Diego). That's much easier for Judge Koh than to form an opinion based on expert reports on what a certain term may or may not mean in French in light of a wealth of contract law rulings made by courts in that country over the last decades. Why do so if there are U.S. standard-setting organizations that adopted the standards in questions (no matter how important ETSI was in the creation of certain standards)?
Qualcomm's commitment to both TIA and ATIS undoubtedly require it to license all comers. The official guidelines to TIA's IPR policy even explicitly state that "[a]n example of conduct that would constitute discrimination is a willingness to license all applicants except for competitors of the licensor" (which is obvious, but it helps that the obvious has been stated this unambiguously).
The name of the game is contract interpretation. The motion per se doesn't even require the court to find Qualcomm in breach of those commitments (which would involve factual questions relating to Qualcomm's interactions with the likes of Intel).
Long passages of the motion have been redacted out, which is why the context of the following isn't clear, but it's interesting nonetheless: in 2014, Judge Koh herself held in GPNE Corp. v. Apple "as a matter of law that in [that] case, the baseband processor [was] the proper smallest salable patent-practicing unit." It will be hard for Qualcomm to distinguish the FTC's case from that one should the royalty base have to be determined in the further proceedings (certainly not necessary for deciding this motion).
The FTC has made a smart tactical choice by requesting a ruling on this pivotal question. Things aren't looking good for Qualcomm anyway (also considering what Judge Koh stated in her dismissal without prejudice of a motion brought by consumers), but if the FTC prevails on this motion (which I believe it very probably will; at a mimimum, it would score this strategic victory at trial), Qualcomm will have to admit that the noose is tightening around the most problematic aspects of its business model.
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