The number of plaintiffs suing Qualcomm in the United States District Court for the Northern District of California has just increased by a factor of roughly a quarter billion--from one (the Federal Trade Commission) to approximately 250 million (the FTC plus all U.S. smartphone purchasers since February 11, 2011)--due to a single court order certifying a class with the following definition:
"All natural persons and entities in the United States who purchased, paid for, and/or provided reimbursement for some or all of the purchase price for all UMTS, CDMA (including CDMAone and cdma2000) and/or LTE cellular phones ('Relevant Cellular Phones') for their own use and not for resale from February 11, 2011, through the present (the 'Class Period') in the United States. This class excludes (a) Defendant, its officers, directors, management, employees, subsidiaries, and affiliates; (b) all federal and state governmental entities; (c) all persons or entities who purchased Relevant Cellular Phones for purposes of resale; and (d) any judges or justices involved in this action and any members of their immediate families or their staff."
If they were all just seeking a few cents per person, that would be much less of a problem. But they seek, besides injunctive relief against Qualcomm's conduct, to be compensated for having been overcharged whenever they bought a smartphone in the U.S. during the relevant period. A report by the plaintiffs' licensing expert "found that the incremental overcharge for each of these five OEMs ranged from 1.13% to 3.84% of the total cost of the device." Maybe some more specific numbers will become known during the further proceedings, but it already appears to be a safe assumption that this is about many billions of dollars (as is Apple's lawsuit in the Southern District of California).
Here's the order (this post continues below the document):
18-09-27 Order Granting Sma... by on Scribd
Qualcomm opposed class certification on different grounds. The fact that Qualcomm's opposition failed doesn't mean Qualcomm is more or less certain to lose on the merits. However, Judge Koh's order doesn't bode well for Qualcomm. There are some parallels between the above order and last year's order--by the same federal judge--denying Qualcomm's motion to dismiss the Federal Trade Commission's antitrust lawsuit; and last month's order denying without prejudice--and more or less an invitation to try again later, if necessary at all--a motion by these consumers seeking an antisuit (anti-enforcement) injunction against Qualcomm's pursuit of an ITC exclusion order (U.S. import ban). Coincidentally, a final initial determination by an Administrative Law Judge on Qualcomm's first ITC complaint against Apple is scheduled for today.
The way I read all three of those orders is that Judge Koh simply looks through all the smokescreens Qualcomm's world-class lawyers have produced so far. She'll hold a bench trial on ten days in January and thereafter she'll rule, but it's fair to say she's in the mainstream (among U.S. judges and also in the U.S. tech sector) with respect to the need to ensure access to standard-essential patents on fair, reasonable and non-discriminatory (FRAND) terms. On other occasions I've described Judge Koh as very patentee-friendly, at least in connection with invalidity questions. But there's no contradiction between generally favoring strong intellectual property rights and recognizing the risk of overleveraging and overcompensation when the value of a patent, or an entire portfolio, is not primarily in its contribution to the state of the art but in the market relevance of the industry standards at issue.
Qualcomm is currently opposing a summary judgment motion by the FTC that would have just the effect of opening up the wireless chipset market by reminding Qualcomm of obligations it once entered into when it made FRAND licensing declarations to two U.S. standard-setting bodies. The class certification order doesn't indicate how Judge Koh will rule on that one, but she does find that Qualcomm's overall behavior--a "grand evil scheme" according to German counsel for Apple--may entitle those class action plaintiffs (hundreds of millions of people) to damages payments. Here are some key quotes from the order that show the consumer class has a plausible case, starting with the extremely important issue of Qualcomm refusing to grant licenses to competing baseband chipset makers:
"[...] Plaintiffs set forth significant evidence that Qualcomm has adopted a uniform policy of refusing to offer exhaustive licenses for its cellular SEPs to competing modem chip manufacturers."
"[T]estimony and documents from both Apple and Intel confirm that, in the absence of Qualcomm's exclusivity payments, Apple likely would have started using Intel modem chips in Apple’s devices at an earlier date."
"[T]he extensive documentary evidence suggests that Qualcomm imposed an industry-wide above-FRAND royalty rate on OEMs."
The sheer size of the class that has now been certified raises the question of how a potential damages recovery could be handled in practice (should plaintiffs prevail, which presupposes at least some degree of success for the FTC at trial; the cases were consolidated). But Qualcomm's argument that it just wouldn't be manageable to make this work failed to convince Judge Koh. Class administrators estimate they can notify about 70% of all members of the class.
Interestingly, the laws of its home state of California are unfavorable to Qualcomm's interests. In many other states, indirect purchasers couldn't recover damages from an antitrust violator, and since Qualcomm doesn't sell directly to consumers, this here is about indirect damages (because of device makers passing Qualcomm's supra-FRAND prices and fees through, which Judge Koh finds plaintiffs may be able to prove at trial):
"[B]ased on the expert reports, the Court concludes that Plaintiffs have presented a methodology that supports a finding that evidence common to the class will be utilized in demonstrating impact to both direct and indirect purchasers."
If only 1% of all class action plaintiffs wanted to attend the January FTC v. Qualcomm trial, they could fill Stanford Stadium 50 times...
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