Saturday, July 27, 2019

Qualcomm's motion to stay enforcement of FTC's remedies fully briefed: outcome-determinative questions

This month's Ninth Circuit motions panel (consisting of Judge Mary M. Schroeder, Judge William C. Canby, and Judge Morgan B. Christen) now has all the briefing in front of it to decide on Qualcomm's motion for a partial stay of the FTC's antitrust remedies, filed earlier this month after Judge Lucy H. Koh in the Northern District of California denied a motion for a stay. Former Qualcomm attorney and now-DOJ antitrust chief Makan Delrahim's division, with support from Department of Defense and Department of Energy officials, unsurprisingly spoke out in favor of Qualcomm's motion by filing a statement of interest. Amicus curiae briefs were submitted by Ericsson and former Federal Circuit Chief Judge Paul Michel.

The FTC naturally opposed, and industry body ACT | The App Association was quick to support the FTC's opposition. Meanwhile, chipmaker MediaTek has also made a filing in support of the FTC's position. While Qualcomm's attack on Judge Koh's decision stands on its own, the FTC's opposition brief would be incomplete without the ACT and MediaTek briefs. ACT is basically playing the "attack dog" (in a smart way, however) for the FTC, and MediaTek addresses a variety of legal and factual questions that the FTC presumably ran out of pages to discuss. The problem here is not the quality of the FTC's opposition brief, but quantitative constraints can fully explain why it would be insufficient without ACT's and MediaTek's submissions.

On Thursday, Qualcomm filed its reply brief (this post continues below the document):

19-07-25 Qualcomm Reply ISO... by Florian Mueller on Scribd

Let's look at the three key factors: merits, irreparable harm, and the public interest.


In an effort to counter Qualcomm's attempts to separate different aspects of its conduct ("no license-no chips" and refusal to license rival chipset makers), MediaTek's brief seeks to refocus the Ninth Circuit on the grand picture, citing to the Supreme Court's 1962 Continental Ore decision, which held that "plaintiffs should be given the full benefit of their proof without tightly compartmentalizing the various factual components and wiping the slate clean after scrutiny of each." Indeed, one of the most important strengths of Judge Koh's ruling is that it never loses sight of how interlocked and interdependent the different aspects of Qualcomm's business model are.

The merits-related part of Qualcomm's reply focuses on the question of whether Qualcomm has an antitrust duty to deal with other chipset makers in terms of extending SEP licenses to them on FRAND terms. Qualcomm's lawyers say "the FTC looks to sidestep rather than embrace that ruling, arguing that 'the district court's finding of antitrust liability does not hinge' on an antitrust duty to deal, though the FTC says somewhere else that Qualcomm's refusal to grant such licenses is "not 'just' a breach of contract."

It's hyperbole on Qualcomm's part to say "the FTC declines to defend that [duty-to-deal] holding," but the FTC does appear to hedge its bets, as plaintiffs seeking to defend a trial win often do. The injunction requiring Qualcomm to extend SEP licenses to rival chipset makers can be upheld on the basis of a straightforward antitrust duty to deal, but also on the basis of the role the related refusal to deal plays in the greater scheme of things here.

In a footnote, Qualcomm notes that "in its opposition the FTC never cites either Aspen Skiing Co. v. Aspen Highland Skiing Corp. [Supreme Court, 1985], or MetroNet Servs. Corp. v. Qwest Corp. [...] (9th Cir. 2004), which formed the basis for the District Court's flawed finding of an antitrust duty to deal." I agree with Qualcomm to the extent that this kind of omission is counterintuitive. However, I wouldn't describe this as conceding away the chipset-licensing part of the case, especially not since the FTC may simply have known all along that MediaTek would take care of this part of the debate. As for MediaTek, Qualcomm criticizes that its brief "elides the fact that Qualcomm never licensed SEPs exhaustively at the chip level." But regardless of this denial, Qualcomm

  • made FRAND licensing commitments that the district court found to have scope for exhaustive SEP licenses to rival chipset makers,

  • secured licenses from other SEP owners that protect Qualcomm's customers by way of exhaustion, and

  • as ACT's brief notes, Qualcomm "even sued a rival chipmaker for breach of FRAND based on the rival's refusal to license [Qualcomm]." (ACT's brief also contains some quotes from the Qualcomm-Broadcom litigation of about a decade ago.)

A more interesting point that Qualcomm raises in the duty-to-deal context is that "a 'price squeeze' claim is not cognizable under antitrust law without a duty to deal or below-cost pricing" under the Supreme Court's 2009 linkLine ruling. The alleged "price squeeze" in that case was that AT&T charged competitors a wholesale (= for other vendors) price for the use of its phone lines that didn't leave those rivals enough of a margin if they were to match AT&T's retail (= end-user) price point. The Supreme Court held that one can't claim an antitrust violation on the basis of an allegedly unprofitable difference between wholesale and retail prices unless there's something wrong on at least one end (which for the wholesale price would require that a duty to deal exists, and for the retail price there would have to be a case for predatory pricing).

But MediaTek argues that "the District Court was correct to reject Qualcomm's analogy to linkLine and to treat Qualcomm's policies of refusing to license modem chip supply competitors and 'no license-no chips' as a multifaceted campaign of coercion, exclusive dealing, and tying, rather than a mere price squeeze." It's typical of MediaTek's number one priority, which is to help the appeals court see the forest and not just the trees.

From a commercial point of view, there are huge differences between the fact pattern in linkLine and Qualcomm imposing a high patent tax on device makers that effectively diminishes the competitiveness of other chipset makers. If the linkLine plaintiffs had gotten their way, they'd have been able to buy AT&T's product and sell it at the same or a lower price to consumers. By contrast, the likes of MediaTek wouldn't buy Qualcomm's chipsets at a discount only to sell them to OEMs. Instead, they develop and manufacture their own products, and they need SEP licenses from a variety of patent holders, one of whom is Qualcomm.

This is how Qualcomm describes the legal standard for the merits-related part of the analysis:

"The FTC claims that Qualcomm must show that it is 'likely to succeed on the merits of the appeal.' [...] That is incorrect. [...] But as detailed below, Qualcomm readily clears the higher bar of showing a likelihood of success."

I conditionally agree with the first part: if Qualcomm persuaded the appeals court that there was irreparable harm, then the requirement for the merits would be lower and might come down to just raising a question that gives the Ninth Circuit pause. But the second part--that Qualcomm has already shown it will prevail on appeal--amounts to wishful thinking.

As I already wrote last week, the motions panel will have to reach a conclusion now based on an analysis of limited depth. In the combination of the FTC's opposition brief and the ACT and MediaTek submissions as well as Judge Koh's very well-reasoned and (relative to the issues in the case) easy-to-understand ruling, the motions panel may be able to see through those smokescreens and conclude that Qualcomm is rather unlikely to prevail. But given the complexity of the case, the panel may simply be unsure at this stage. The latter is more likely than the former, and in that case the other two factors (irreparable harm and public interest) will effectively be dispositive.

Irreparable harm

I agree with MediaTek that "Qualcomm can readily avoid irreparable harm if it comes to the table in good faith and applies the same creativity in negotiating that it has in devising schemes to thwart competition." That's because there can be contractual solutions such as putting the parties to an agreement concluded during the appellate proceedings into the situation they faced before (status quo ante), and because the contract (re)negotiation-related injunction doesn't force Qualcomm to enter into agreements with a specific set of terms and conditions (which, if such a terms sheet existed, might or might not cause irreparable harm).

While Qualcomm has in my opinion failed to establish any irreparable harm of an inevitable kind, I do agree with Qualcomm's lawyers on a couple of questions in this context. The FTC argues that the fact the Ninth Circuit expedited the appeal "substantially reduces any impact on Qualcomm from compliance with the antitrust laws as ordered by the district court." If one agreed (as I don't) with Qualcomm's lawyers that the injunction would force them to enter into agreements that cause irreparable harm, then those contracts would do damage way beyond the duration of the appellate proceedings. And Qualcomm's lawyers are right that the FTC at some point conflates merits and irreparable harm, or at least appears to do so. As Qualcomm accurately notes, "the harm the stay is intended to mitigate is the harm Qualcomm would suffer while the appeal is pending if the District Court was wrong." (emphasis in original)

If the motions panel had more time (including that they'd hold a hearing to discuss any irreparable-harm theories), I'd be confident they'd disagree with Qualcomm either entirely or for the most part. However, under the circumstances under which the circuit judges will have to reach a decision on a stay, it's possible that Qualcomm will be deemed to have satisfied this factor.

Public interest

The "national security" argument is really very unconvincing because this here is just a question of degree with respect to Qualcomm's profitability, not a cloud over its viability. As MediaTek puts it with reference to what the FTC also wrote in its opposition brief, "Qualcomm has devoted significantly more cash to dividends and stock repurchases ($25.63 billion in 2015-2017) than to R&D expenditures ($16.2 billion)."

But the Ninth Circuit may be swayed by the federal government's submission, unless they realize pretty quickly that attaching too much importance to it would reward Qualcomm for its DC lobbying efforts and would enable Antitrust AAG Delrahim to successfully represent Qualcomm as if it were (as it used to be before his current job) his client.

Should the Ninth Circuit agree with Qualcomm and its supporters on the public-interest part, it would reward them for a FUD strategy (fear, uncertainty and doubt) as opposed to actually substantiating a serious and plausible national-security issue.

Having watched this litigation unfold for 30 months, including that I attended all eleven trial days from opening statements to closing arguments, I still agree with Judge Koh's thorough and holistic analysis as much as I did when I first read it. And I don't think the irreparable-harm and national-security arguments hold water. But the motions panel has been looking at this now for less than 30 days, so anything's possible. If Qualcomm failed to win a stay, it would be off to a bad start in Round 2. If a stay was granted, Qualcomm would probably overstate what this means for its chances concerning the future decision on the merits--the real thing.

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