Monday, December 3, 2018

FTC seeking to "redress and prevent recurrence of Qualcomm's conduct" through antitrust injunction

The FTC and Qualcomm once intended to settle the antitrust litigation pending before Judge Lucy H. Koh in the Northern District of California by November 14, but we're now just one month and one day away from the trial date and no agreement has been reached. But there's been tremendous progress in the form of Judge Koh's recent summary judgment order on Qualcomm's obligation to extend standard-essential patent (SEP) licenses to rival chipset makers such as Intel.

On Thursday, the FTC and Qualcomm filed a joint final pretrial statement, which outlines (on page 4 of the PDF document) the remedies the FTC is going to fight for (this post continues below the document):

18-11-29 FTC v. Qualcomm Jo... by on Scribd

Let's look at the injunctive relief sought by the FTC item by item:

  • "Prohibit Qualcomm from conditioning the supply of modem chips on a customer’s patent-license status"

    This would be the end of Qualcomm's "no license, no chips" policy. Qualcomm's going to argue that it shouldn't have to tolerate that its chipset customers infringe on its patents, but as a monopolist it's not allowed to engage in tying and, regardless of market share, patents embodied by its chip are simply exhausted. Last year's Lexmark ruling by the Supreme Court makes this pretty clear, one would think.

  • "Require Qualcomm to negotiate or renegotiate, as applicable, license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical, software, or other support;"

    This, too, would prevent Qualcomm from leveraging its chipset market position when negotiating license terms.

  • "Require Qualcomm to submit, as necessary, to arbitral or judicial dispute resolution to determine reasonable royalties and other license terms should a customer choose to pursue such resolution;"

    I've warned against arbitration on unfair terms on various occasions and in different ocntexts (most recently, Huawei v. Samsung). What's good here is the requirement that a Qualcomm customer would "choose to pursue such [dispute] resolution." This way, customers preferring to have an Article III court make a FRAND determination can't be forced to arbitrate.

  • "Require Qualcomm to make exhaustive SEP licenses available to modem-chip suppliers on fair, reasonable, and non-discriminatory terms and to submit, as necessary, to arbitral or judicial dispute resolution to determine such terms;"

    The second reference to arbitration must be seen in light of the first one: it's up to the licensee whether the matter is arbitrated or litigated.

    This prayer for injunctive relief goes beyond the summary judgment victory the FTC has already scored. As the FTC clarified in August, the summary judgment motion was merely about contract interpretation, not about a general requirement on antitrust grounds. Now they're shooting for a bright-line rule.

  • "Prohibit Qualcomm from discriminating or retaliating in any way against any modem-chip customer or modem-chip supplier because of a dispute with Qualcomm over license terms or because of a customer's license status;"

    The intention behind this one is good and clear. However, Qualcomm's criticism of the FTC's requested relief lacking specificity is not entirely unfounded with respect to this broad and vague terminology: "retaliating in any way" could also involve legitimate forms of intellectual property enforcement. Maybe the FTC will provide greater clarity.

  • "Prohibit Qualcomm from making payments or providing other value contingent on a customer's agreement to license terms;"

    This one is meant to close a loophole: Qualcomm has previously entered into rebate/kickback agreements in order to get companies to accept contract terms with anticompetitive implications.

  • "Prohibit Qualcomm from entering express or de facto exclusive-dealing agreements for the supply of modem chips;"

    Here, the FTC is seeking to prevent Qualcomm from monopolization through contracts.

  • "Prohibit Qualcomm from interfering with the ability of any customer to communicate with a government agency about a potential law enforcement or regulatory matter;"

    This issue is well-known because of Apple's dispute with Qualcomm. Qualcomm promised Apple some rebates, but then withheld a billion-dollar amount just because of Apple allegedly having violated a "business cooperation and patent agreement" (BCPA) by talking to regulators, which Apple says was in some cases merely about responding to questions from competition enforcers and in the remaining cases happened after the BCPA expired. Apple argues that it didn't violate the agreement while it was in force, and didn't emphasize the policy implications of such contract terms too much; fortunately, the FTC is now trying to establish a general rule that Qualcomm's customers must remain free to talk to regulators,even proactively as complainants.

  • "Require Qualcomm to adhere to compliance and monitoring procedures and appropriate 'fencing in' provisions, including but not limited to a potential firewall between patent licensing and chip personnel;"

  • I'm not sure this would work in practice. In either division, employees would likely try to optimize the result for Qualcomm as a whole.

  • "Impose any other relief that the Court finds necessary and appropriate to redress and prevent recurrence of Qualcomm's conduct"

    This is just meant to give Judge Koh greater flexibility. What it means, and whether it will give rise to any particular injunction after the bench trial, remains to be seen.

These prayers for injunctive relief suggest that the trial is going to be extremely interesting, and what will happen afterwards may be very significant. Parties sometimes settle on the eve of the trial, so it's not certain yet that the trial will happpen. But, at a minimum, any settlement (consent decree) would have to be viewed against the background of the above proposals. If the FTC settled on a basis that would fall far short of the above, the agency's credibility would be compromised...

In other news from last week, Judge Gonzalo P. Curiel scheduled the Apple v. Qualcomm trial in the Southern District of California to begin on April 15. It's a safe assumption that Judge Koh, who is known to work both smart and hard, will hand down her decision on the FTC case before the San Diego trial between Apple and Qualcomm. If Qualcomm's "no license, no chips" policy and other tying and various forms of threatening or discriminatory behavior came to an end and/or if Qualcomm's contract terms prohibiting antitrust complaints were held illegal ahead of the trial in Southern California, Judge Curiel could presumably streamline his case in different ways, narrowing the issues to be put before the jury.

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