Sunday, January 6, 2019

Overview of references to other industry players on first day of FTC v. Qualcomm trial

This is the second follow-up to Day One of the FTC v. Qualcomm antitrust trial in the Northern District of California. Various companies were mentioned in the parties' opening statements and the testimony heard and evidence presented on Friday.

Microsoft: In a pre-emptive strike against Qualcomm's argument that prices for wireless devices and services are coming down (thus, Qualcomm says, there is no anticompetitive harm), the FTC recalled that prices (of personal computers) were also coming down at the time of the Microsoft antitrust case, yet antitrust law applied.

Samsung: Interestingly, both opening statements announced testimony from Samsung that would support their positions. The FTC named Samsung among roughly half a dozen companies whose testimony would prove that Qualcomm received supra-FRAND royalties by exercising its "no license-no chips" leverage. But Qualcomm's counsel said Samsung would confirm that licensing negotiations resulting in last year's new agreement between the two companies "were fair." I saw media reports before the trial that said the FTC had Samsung's support, a claim based on a (really great) amicus curiae brief submitted by Samsung in 2017 in support of the FTC's opposition to Qualcomm's motion to dismiss the complaint. However, at the time Samsung was also an active party to the Korean antitrust investigation, from which it withdrew after the aforementioned new deal (LG just joined instead). The relationship between Samsung and Qualcomm is complex and multifaceted (see this infographic). So let's wait and hear from them.

Apple: One of the four types of behavior the FTC seeks to address is the exclusive deal Qualcomm used to have in place with the iPhone maker. Apple, too, is one of the companies the FTC says will testify that Qualcomm extracted supra-FRAND license fees. We learned on Friday that Apple allegedly referred to Qualcomm by the code name of "Eureka" in some internal documents and that Qualcomm was worried about Apple "whittling away" at its business model, potentially through seeking a judicial FRAND rate determination.

Pegatron: This is one of Apple's contract manufacturers, and the FTC said its testimony would prove that supra-FRAND patent royalties were extracted because of the "no license-no chips" leverage. Qualcomm's patent enforcement campaign against Apple is not at issue (it started well after the FTC complaint), but it's worth noting that Pegatron's name repeatedly came up in connection with Qualcomm's patent suits against Apple in Germany and China. There are some patents that Pegatron is licensed to, while other Apple contract manufacturers are not. Those license agreements have "capture periods" and Pegatron apparently has a license to some patents that are too young to fall inside some other contract manufacturers' capture periods. According to what I learned in the Munich court on December 20, the envelope tracker patent that is now being enforced in Germany is not covered.

Lenovo / Motorola Mobility: Some of what Lenovo's Ira Blumberg said in vieotaped testimony shown on Friday was mentioned in another post. I'd like to add here that Mr. Blumberg sometimes gave answers that amounted to unsolicited legal conclusions. For an example, when asked about why Qualcomm received such high patent royalties from the industry at large, he attributed it to them being "wildly successful in their illegal activity." For that reason, he believes Qualcomm's license agreements are all "tainted" and can't serve to show that its royalty rates are fair. As for Qualcomm's alleged "no license-no chips" threats, Mr. Blumberg said Qualcomm had made it clear that it would view Lenovo's contemplated termination of a license agreement "as a hostile act" that it "would not receive kindly." Also, when asked why Lenovo didn't switch to a contract manufacturing model, he said they weren't aware of the option until they acquired Motorola Mobility's wireless device business, and their old Qualcomm contract wouldn't have given them this option anyway.

MediaTek: Step by step the relevance of that company to the FTC case becomes clearer. On Friday, it was actually Lenovo's testimony that shed some more light on it. Apparently Lenovo does, or at least in 2013 did, buy chips from Qualcomm for high-end devices but from MediaTek for mid-range and lower-end devices. MediaTek had an agreement in place with Qualcomm, and Lenovo originally thought it was a license agreement that would also benefit MediaTek's customers, but under that contract MediaTek was "not authorized" to sell its chipsets to device makers that didn't have a license agreement with Qualcomm. Therefore, the worst-case scnario for Lenovo was that, after terminating or not renewing its license agreement with Qualcomm, it would neither get any more chips from Qualcomm for higher-end phones nor any from MediaTek, given that Qualcomm would have been in a position to enjoin MediaTek from supplying chips to an unlicensed Lenovo.

Huawei: Videotaped testimony by Huawei's senior legal counsel Nancy Yu was shown on Friday, and I reported on it yesterday. Here I just wanted to add that Qualcomm's counsel attacked the FTC's licensing expert, Michael Lasinski, for his methodology and complained that Mr. Lasinski is not "neutral" but testifies regularly for Huawei, and his company allegedly advises Huawei in licensing negotiations with Qualcomm. While the alleged business relationship with Huawei would (if the assertions are correct, and I assume they are) preclude Mr. Lasinski from testifying as a court-appointed expert, he's just going to testify on the FTC's behalf here. It's hard to imagine that the FTC could possibly have found an expert in this field who wouldn't have, or wouldn't have had, some sort of relationship with one or more industry players. As far as Huawei is concerned, they're actually not just a licensee, but also a rather aggressive licensor as their dispute with Samsung (pending in the same district) shows. Interestingly, a Sidley Austin lawyer represented Huawei on Friday (he appeared in connection with a sealing matter), and that's the same firm that's asserting patents against Samsung on Huawei's behalf.

Mr. van Nest (Qualcomm's lead counsel in this case) also claimed "Huawei had an extremely favorable license to begin with, sponsored in effect by the Chinese government."

ZTE: The other major Chinese device maker to be mentioned on Friday is ZTE. Apparently some document shows that ZTE viewed so-called "strategic funds" from Qualcomm as simply a reduction (rebate) of patent royalties.

Intel: According to Qualcomm's lead counsel, it would be "nuts" to think that companies like Intel at any point in time lacked the resources to compete with Qualcomm in the baseband chipset market. Qualcomm intends to present some evidence according to which Intel thought they were spending about the same amount of money on baseband chipset development as Qualcomm, but making less headway. Mr. van Nest claims Intel dropped out of the CDMA chipset business for that reason, and as a result wasn't ready to supply such chips when Apple needed them in 2013. Intel has filed amicus briefs, public interest statements etc. in various cases, and its representations about why it couldn't compete with Qualcomm more effectively sooner sound different. We'll need to hear both sides, as always.

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