Sunday, September 29, 2019

Qualcomm makes "more equal than others"-like argument in Ninth Circuit appeal of Judge Koh's summary judgment on chipset licensing of SEPs

Component-level (including, but not limited to, chipset-level) licensing of standard-essential patents (SEPs) is the hot topic for the technology industry, especially in the Internet of Things era, for its standard-setting organizations, for regulators, and--increasingly--for Article III courts in the U.S. and their counterparts in other jurisdictions.

Approximately four months ago, I announced my plans to organize conferences on this subject on both sides of the Atlantic. Here's an update on those plans before discussing the subject in connection with Qualcomm's Ninth Circuit appeal of the FTC's antitrust win in the Northern District of California:

  • In a couple of days, registration will begin for FOSS Patents' Brussels conference on November 12, 2019 at the Sofitel Le Louise. I will publish the detailed conference program--we'll cover the legal, regulatory, policy, economic, and technical aspects--and registration links in a very few days.

  • I had also said there would be such an event in the San Francisco Bay Area. I can't go into specifics regarding the latter. Suffice it to say that there will soon be a related announcement for mid-January, and you'll read about it on this blog, too.

Now, back to Qualcomm's antitrust appeal. On August 24, the San Diego-based chipmaker won a stay (for the duration of the appellate proceedings) of the injunction Judge Lucy H. Koh had issued. Later that day, Qualcomm filed its opening brief. A week later, the DOJ and various other Qualcomm allies filed their amicus curiae briefs.

Judge Koh had identified two different legal bases on which Qualcomm has an obligation to extend chipset-level SEP licenses on FRAND terms to its rivals:

Qualcomm's procedural objective is for the November 2018 summary judgment to be vacated. In that case, the district court would have to consider all sorts of evidence Qualcomm would like to present. I'm sure that in the hypothetical event of a remand for this purpose, Qualcomm would again appeal any finding in the FTC's favor, but for now, Qualcomm firstly wants a second bite at the apple--possibly also hoping to just settle the case with the FTC in that scenario.

I don't recall whether this was Qualcomm or one of its allies, but someone had even made a jurisdiction-related argument in recent months, according to which the FTC's summary judgment motion on a matter of contract interpretation was out of place in an antitrust case. Qualcomm's Ninth Circuit opening brief doesn't say that, however.

Qualcomm does not--as it could not--argue that the language of those ATIS and TIA FRAND declarations unambiguously rules out chipset-level licensing. Instead, the common denominator of Qualcomm's attack vectors against the summary judgment decision is that there was extrinsic evidence that the district court allegedly failed to consider. Such evidence would be partly technical (related to whether or not a baseband chip practices and implements a cellular standard), partly related to other SEP policies (ETSI--which would raise questions under French law--and ANSI) that Qualcomm says the ATIS and TIA FRAND declarations must be compatible with, and partly about industry practice and, closely related to that one, the industry's understanding of SEP licensing obligations.

Qualcomm engages in hair-splitting when it says, after conceding "that some modem chips infringe some Qualcomm SEPs," that "infringement of a patent does not determine what 'implements' or 'practices' an ATIS or TIA standard," which Qualcomm argues are two "legally and factually distinct" questions. However, the definition of a SEP is that it's inevitably infringed by implementing the relevant standard. Theoretically, one can also infringe a SEP without practicing or implementing any standard it's been declared essential to--but the reason those modem chips do infringe is because they do just that.

The argument that only complete devices can implement an entire standard ignores that the modem chip in a smartphone is simply the mastermind that controls all of the technical operations and functions that make the device as a whole standards-compliant.

Qualcomm's #1 vulnerability is that virtually the entire industry testified at trial that Qualcomm insists on license grant-backs that exhaustively licenses Qualcomm's baseband chips. Qualcomm tries to explain this dual standard away now by stressing that it "has received incoming cross-licenses pursuant to outgoing licenses it has granted to OEMs that manufacture complete cellular devices," and "patent holders will not grant outbound portfolio-wide licenses while leaving themselves exposed to opportunistic claims of infringement by their licensees."

What Qualcomm seeks to portray as a perfectly reasonable kind of symmetry is actually a massive asymmetry. The asymmetrical effect is that the customers of Qualcomm's baseband chips are covered (thanks to exhaustion) with respect to patents held by the likes of Samsung (which is also a chipmaker, not only a device maker) and Ericsson (which makes network infrastructure, not handsets at this stage), while no one can buy a chipset and be covered with respect to Qualcomm's patents. Even buying a Qualcomm chipset doesn't ensure this because Qualcomm (never mind that notion called patent exhaustion) will collect a patent royalty on top of the selling price of the chip.

What's good for the goose is good for the gander. If others are required to grant exhaustive chipset-level SEP licenses to Qualcomm, it can work the other way round as well. But Qualcomm's Orwellian logic is that all patent holders are equal, and one--Qualcomm--is more equal than all others.

If the Ninth Circuit figures this out, Qualcomm will have a huge credibility problem. That wouldn't be formally dispositive, of course, but it wouldn't help them.

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