Wednesday, October 17, 2018

Why would the Federal Trade Commission snatch defeat from the jaws of victory over Qualcomm?

This is a follow-up to yesterday's post on Judge Lucy H. Koh's decision to deny a joint administrative motion by the Federal Trade Commission and Qualcomm asking her not to rule on a motion for partial summary judgment on the obligation to extend standard-essential patent (SEP) licenses on FRAND terms to rival chipset makers (such as Intel).

I didn't want to jump to conclusions from a case management decision, but in purely probabilistic terms it's a fact that Judge Koh's order increases the likelihood of summary judgment being granted. There's no harder-working judge than her, and she wouldn't have decided to cancel the hearing and take this motion (as well as several other, less important motions) under submission if there had been any questions left to ask. However, if she had been inclined to deny the actual motion, she might just have given the parties four weeks to work out a settlement--the sole remaining plausible explanation would be that she wanted to make it clear her court is nobody's tool, much less a restaurant that serves litigation à la carte where you can put one motion on hold while letting the process continue on the same schedule in all other respects.

This antitrust litigation has been going very, very well for the FTC for a long time. It wouldn't make sense to let Qualcomm off the hook now that there is a near-term opportunity (with respect to the summary judgment motion, "near-term" is actually a gross understatement) to restore fair competition in the market for baseband chipsets and with respect to cellular SEP licensing.

There's probably a lot of fighting going on in DC behind the scenes, inside and outside the FTC. Prior to the latest twist I had already tried to find out about where the current five commissioners stand on FRAND, but haven't found any information that would enable me to predict the outcome of a vote on a hypothetical settlement proposal tantamount to the agency's surrender. In the past, the positions of Commissioners Maureen Ohlhausen and Joshua D. Wright were well-known (I mentioned Mrs. Ohlhausen on several occasions, and in 2013 I dedicated a blog post to Mr. Wright's stance), but they aren't in office anymore. So I extended my search for clues to high-ranking FTC officials. It turns out that two of them--Alden Abbott (the FTC's General Counsel) and Bruce H. Kobayashi--have a certain proximity to Qualcomm and are sympathetic to Qualcomm's unFRANDly positions to a degree that is clearly a minority opinion in the legal community. While I don't have the slightest indication of any impropriety, there is a conspicuous lack of impartiality.

In Mr. Abbott's case, I didn't even have to look far. The "Speeches, Articles, and Statements" section at the bottom of his official bio page mentions a May 2018 interview conducted by two people, one of whom is "Koren Wong-Ervin (Qualcomm)." Her title, according to LinkedIn and Twitter, is Director of IP & Competition Policy. I'll mention her again further below.

Mr. Abbott was already trying hard to make a case against the case against Qualcomm before his appointment, a fact that Bloomberg Law reported on ("Critic of FTC Qualcomm Suit Named Agency General Counsel").

While at the Heritage Foundation, Mr. Abbott organized antitrust conferences at which then-Commissioner Ohlhausen explained why she dissented from the FTC's complaint against Qualcomm. In January 2018, both Mr. Abbott and Qualcomm's Mrs. Wong-Ervin both spoke at a Heritage Foundation conference.

On the Heritage Foundation's website, I googled up this article by Mr. Abbott on the Qualcomm case. He predicted that foreign competition authorities would leverage this U.S. antitrust matter against innovative U.S. companies, something which hasn't happened to date. He wanted Mrs. Ohlhausen to lead the FTC (which she did only on an interim basis).

In March 2018, Mr. Abbott spoke at the "IP Leadership" conference, whose sponsors included Qualcomm and the law firm representing it against Apple in the Southern District of California, Cravath Swaine & Moore.

The FTC's chief economist, Mr. Kobayashi, crossed paths with Qualcomm's Mrs. Wong-Ervin at George Mason University. According to the FTC's website, he had been a law professor there since 1992, and she was the Director of George Mason's Global Antitrust Institute and an adjunct law professor from November 2015 to September 2017 (according to her LinkedIn profile).

In 2016, the two teamed up with DC Circuit Jugge Douglas Ginsburg and former FTC commissioner Joshua Wright to co-author at least a couple of articles one can find with Google: an article on "extra-jurisdictional remedies involving patent licensing" (PDF; published by Competition Policy International), and a paper (SSRN) on "the Korea Fair Trade Commission's Amendment to Its Review Guidelines on Unfair Exercise of Intellectual Property Rights."

Those people's views on SEP licensing boil down to saying that patents are legal monopolies, thus there's no room for the notion of overcharging--which is misguided for various reasons, including but not limited to

  • the fact that one must separate the value of someone's technical contribution to the state of the art from the value of a standard as a whole (as so many others, such as Judge Posner, explained before), and

  • the policy consideration that, without antitrust-based restrictions, a single SEP would enable any given patent holder to prevent an entire industry from implementing a standard on a commercially viable basis (or at all), and typically there's a plurality of SEP owners, especially in the field of cellular telecommunications where hundreds and often even thousands of patents are declared to be essential to a single standard.

Qualcomm's FTC friends hold views outside the mainstream--and contrary to the public interest. Let's hope the five commissioners won't adopt those views.

Share with other professionals via LinkedIn: