Friday, October 5, 2018

20-year-old court filing comes back to haunt Qualcomm in antitrust dispute with Federal Trade Commission

Before I'll share the latest documents and observations relating to the FTC's motion for partial summary judgment on Qualcomm's obligation to grant standard-essential patent (SEP) licenses to rival chipset makers, an update on Qualcomm's attempts to gain leverage over Apple (and, by extension, Intel) through injunctive relief in Germany:

  • In Wednesday's "Mannheim Steamroller" post, I've meanwhile corrected a typo: I obviously meant to say that the Mannheim Regional Court doesn't take stays of patent infringement cases lightly (not "likely").

  • Another Qualcomm v. Apple trial was held in Munich yesterday. I missed it because I assumed the wrong starting time--my bad. But I'll be sure to attend next Thursday's announcement of a decision (unusually soon!) and report on it.

20 years back from tomorrow, Qualcomm itself brought a motion for partial summary judgment in a SEP dispute with Ericsson in the Eastern District of Texas. The objective: obtain a SEP license from Ericsson on fair, reasonable and non-discriminatory (FRAND) terms for Qualcomm's baseband chipsets. The legal basis: a promise Ericsson had made to the Telecommunications Industry Association (TIA), a U.S. standard-setting body. In other words, Qualcomm was doing essentially the same thing (same objective, same contractual basis, same stage of proceeding) as the Federal Trade Commission (FTC) in its late-August motion in the Northern District of California that Qualcomm is fighting tooth and nail because it would rather have a monopoly now.

From the perspective of those of us who'd like to see the FTC open up the wireless chipset market even ahead of the January 2019 trial, this may seem too good to be true, but here's the FTC's reply brief in support of its motion, including all public exhibits (Exhibit 14, starting on PDF page 87, is Qualcomm's October 1998 filing; this post continues below the document):

18-10-04 FTC Reply Iso Moti... by on Scribd

What the FTC filed yesterday evening is a very strong reply to Qualcomm's attempt to extricate from its commitments to TIA and ATIS. Basically, Qualcomm argued

  • that the relevant FRAND declarations could be interpreted differently (by conveniently omitting at least one key passage according to which licenses also apply to "portions" of a standard),

  • that their meaning had to be reconciled with the ETSI FRAND promise (which in turn has to be interpreted under French law),

  • that baseband chipsets, unlike complete devices, wouldn't be able to implement cellular telecommunications standards, and

  • that so-called parol evidence--the industry at large allegedly not extending SEP licenses to chipset makers--supported Qualcomm's position.

As I already wrote in my post on Qualcomm's opposition, Qualcomm itself has actually positioned itself as a SEP clearinghouse. The FTC explains that, under California law, parol evidence only matters if a given practice is "certain and uniform," and then points to how Qualcomm's own agreements with SEP holders prove the opposite:

"Over 100 companies, including major SEP holders, have licensed Qualcomm itself to make and sell modem chips. Given Qualcomm's market position, this means that major SEP holders have licensed a substantial portion of relevant modem chips sold."

The FTC goes on to point to Qualcomm's 1998 motion and the fact that Qualcomm actually ended up obtaining the desired license through a settlement.

Just like I did in my commentary, the FTC completely disagrees with Qualcomm's theory that modem chips would not implement cellular standards. I drew an analogy to the "mastermind" component in a divided-infringement case, and the FTC accurately notes that "[m]odem chips serve no purpose at all if they fail to implement cellular standards." Various exhibits show how Qualcomm itself--on its website, in SEC filings, and in other documents--portrays baseband chipsets as "the heart of a cellphone" or as being "[a]t the heart of mobility." Regardless of the role that other components (CPU, antenna, memory etc.) may play in a mobile device, "modem chips are 'based on' cellular standards and 'designed' to achieve standard-compliant cellular communications."

In the context of the 1998 Qualcomm-Ericsson dispute, the FTC's lawyers have recently deposed Qualcomm founder Dr. Irwin Jacobs, and his testimony also buttresses the FTC's position.

Two companies that are now supporting Qualcomm through testimony and, in Nokia's case, an amicus brief (uploaded to Scribd), actually sought in 2006 to require Qualcomm to continue extending a SEP license to Texas Instruments. By the way, Nokia's amicus brief was filed on the eve of the FTC's reply deadline, so the FTC reserves the right to seek permission to respond, but I doubt there's even a need for that. The FTC has the support of two industry bodies, and Nokia's amicus brief doesn't appear to present facts or theories that are likely to persuade Judge Lucy H. Koh to side with Qualcomm.

The FTC's exhibits are very good, but the competition enforcement agency could additionally have leveraged a presentation by an Ericsson executive that I blogged about in 2014 and also mentioned in connection with the summary judment process in the Northern District of California. That Ericsson presentation makes it clear that there are only tactical--not technical or legal--reasons for which such companies as Ericsson, Nokia and Qualcomm now refuse to extend SEP licenses to chipset makers. One of the tactical reasons Ericsson cited is that chipset makers would be more likely to own patents with which they could retaliate against them than device makers, which also contradicts Qualcomm's idea that the implementation of cellular standards is not a responsibility of modem chips.

A motion hearing is currently scheduled for October 18.

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