Saturday, November 10, 2018

Judge Koh's high-profile summary judgment order doesn't bode well for Qualcomm's efforts to elude patent exhaustion finding

This is a follow-up (as I promised) to Judge Lucy Koh's summary judgment order according to which Qualcomm must meet its self-imposed obligation to license its cellular standard-essential patents (SEPs) to rival chipset makers. On Tuesday I mostly wanted to publish the news quickly, and I focused on the commercial consequences.

The legal standard applied by Judge Koh was stated as follows in the Ninth Circuit's 2006 opinion in Miller v. Glenn Miller Prods., Inc.: summary judgment is warranted "[i]f, after considering the language of the contract and any admissible extrinsic evidence, the meaning of the contract is unambiguous." (emphasis added)

Qualcomm unsuccessfully argued that an alleged need for two U.S. standard-setting organizations (ATIS and TIA) to be consistent with policies established by other organizations supported its position that there was no obligation to extend a SEP license to rival chipset makers, and that baseband chips don't actually implement the standards in question.

Not only did Judge Koh find that the FRAND licensing pledges Qualcomm had entered into were unambiguous, but she also saw that a right to withhold SEP licenses from competitors would allow someone to monopolize a market, which is precisely what all those FRAND declarations are meant to avoid. And she drew the inevitable conclusions from how Qualcomm and its executives had previously characterized their chips as "the heart of a cellphone," or testified that key cellular technologies were "implemented" in modem chips. The following two passages are particularly important:

"Despite having SEP licenses for its own modem chips, Qualcomm argues that its FRAND obligations for SEPs extend only to device suppliers and not modem chip suppliers because only device suppliers 'practice' or 'implement' standards. However, that distinction not only violates the non-discrimination obligation, but also makes little sense. As Qualcomm's founder conceded and Qualcomm's own documents demonstrate, modem chips may be 'compliant' with cellular standards."

"Moreover, undisputed evidence in Qualcomm's own documents demonstrates that a modem chip is a core component of the cellular handset, which only underscores how a SEP license to supply modem chips is for the purpose of practicing or implementing cellular standards and why Qualcomm cannot discriminate against modem chip suppliers. In an amicus brief filed in the Federal Circuit, Qualcomm characterized its own modem chips as 'the heart of a cellphone.' [...] Qualcomm's founder testified in a deposition that key cellular technologies were 'implemented' in modem chips. [...] In Qualcomm's own Annual Report, Qualcomm stated that Qualcomm is a 'leading developer and supplier' of circuits, including modem chips, 'based on' the CDMA family of cellular standards. [...] Qualcomm also represents that Qualcomm's modem chips 'perform the core modem functionality in wireless devices.'"

Those statements will presumably also bear significant weight with the appeals court.

From Qualcomm's point of view, Judge Koh's conclusion that baseband chips are indeed the heart of a cellphone (and implemented cellular SEPs) is unhelpful beyond the FTC v. Qualcomm case and the desire of companies like Intel to secure a FRAND license to Qualcomm's SEPs:

  • Qualcomm is trying hard to avoid a ruling on whether its SEPs are exhausted by chipset sales, but if and when a court looks into this question, Qualcomm will argue that baseband chips don't implement standards all by themselves--just like Qualcomm did in its opposition to the FTC's summary judgment motion.

  • Patent exhaustion and standard-essential patents are not at issue in the investigations of Qualcomm's two ITC complaints against Apple, but in connection with the ITC's statutory public interest factors (see this recent post on the related procedures) Qualcomm also argues that the focus should be on entire mobile devices, not baseband chips. Qualcomm's ITC complaints target only iPhones without a Qualcomm baseband chip, which in practical terms means Intel-powered iPhones.

The order Judge Koh handed down on Tuesday is likely to be cited a lot going forward.

Finally, there are three recent media reports related to the Qualcomm antitrust and patent matters that I'd like to draw your attention to:

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