Saturday, November 30, 2019

Antitrust think tanks urge Ninth Circuit to affirm Judge Koh's FTC v. Qualcomm ruling

As of Saturday morning, 14 (!) amicus curiae briefs supporting the FTC against Qualcomm before the Ninth Circuit have been filed. The previous post discussed Professor Jorge Contreras's submission as well as a brief signed by 40 law and economics professors. It'll take a few more posts before I'm done with that flood of filings...

The American Antitrust Institute (AAI) and Public Knowledge (PK)--the latter is, as the name suggests, more IP-focused, while the former is all about competition enforcement and has more than 130 antitrust lawyers, professors, economists and executives on its advisory board--made a joint submission (this post continues below the document):

19-11-29 AAI and Public Kno... by Florian Mueller on Scribd

The AAI/PK brief is largely about the evidentiary standard for finding one or more antitrust violations in a case like this. The evidentiary standard already came up in Qualcomm's opening statement on the very first day of the January trial. Qualcomm disagreed then, and still disagrees now, with the FTC that a Section 2 Sherman Act violation can be established based on conduct that reasonably appears capable of making a significant contribution to maintaining monopoly power--which was the standard in United States v. Microsoft Corp. (D.C. Cir., 2001). Instead, Qualcomm would like direct evidence of an actual anticompetitive effect--with a highly specific causal nexus between certain conduct and the effects on competition--to be required.

In their joint filing, the AAI and PK accuse Qualcomm of "insisting on unavailable and unnecessary evidence [while] urg[ing] the [Ninth Circuit] to disaggregate or ignore the available, relevant evidence." They also say that Qualcomm's "demand that plaintiffs [here, the FTC] reconstruct the but-for world absent the defendant's conduct also has been rejected, because it would convert a recurring 'proof problem' into an insurmountable defense."

The distinction that the AAI/PK brief stresses is the one between the initial acquisition of a monopoly and the maintenance of a monopoly. The latter is what applies here. The case is not about how Qualcomm originally became so very powerful. It's about conduct that threatens to perpetuate the monopoly by means that have nothing to do with competition on the merits.

In two somewhat interrelated ways, the AAI/PK brief disagrees with Qualcomm's perspective on price as an indication of anticompetitive conduct. The first one is the "Price-Up Trap", defined in an earlier publication as "[m]istaking a firm's inability to profitably raise price above the current level for an inability to exercise market power by preventing competitors' conduct that otherwise would reduce price below the current level, thereby mislabeling a maintenance of market power as a lack of market power":

"In a monopoly maintenance case, the relevant benchmark is a competitive price, not the pre-existing monopoly price, and the anticompetitive effect is not that prices rise or output falls but rather that pre-existing monopoly conditions persist. Qualcomm's failure to account for this dynamic causes it to make several analytical errors."

This is consistent with Professor Contreras's warning--based on a write-up by Professor Cotter--against "circular logic" by comparing current prices (here, royalty rates) with former prices that already resulted from a monopoly position.

In this context, the AAI and PK explain the difference between the two most common types of disclosure: raising rivals' costs ("RRC") and predatory pricing. They agree with Judge Koh that this here is an RRC case.

Toward the end, the AAI/PK brief says Qualcomm "makes a category error in comparing this case to price-based monopolization claims." The AAI and PK seek to (re)focus the Ninth Circuit on "the fact that the royalty imposes a tax on rivals sales," and "[t]he elevated royalties are evidence of an anticompetitive effect, not the anticompetitive effect itself.

That's an important point because Qualcomm likes to argue that nothing is per se illegal about maximizing patent licensing income.

All in all, the AAI/PK brief takes positions that I consider very reasonable and far from overreaching. I also like the position that prospective Section 2 remedies have to be ordered because "to delay suit until harm has actually occurred would be to increase the social cost of monopoly unnecessarily." The analogy to drunk driving (quoting Phillip Areeda & Herbert Hovenkamp) is interesting: "The point is that drunken driving is highly likely to cause social harm, and it is less costly to arrest such a driver before rather than after that harm occurs."

Before I show you--and comment on--another filing by an antitrust-focused think tank, I have to point out that the Open Markets Institute is a radical group funded by none other than George Soros. Their ideas of breaking up various major technology companies are extremist and unrealistic, though a Democratic senator and presidential candidate the President sometimes (and for good reason) calls "Fauxcahontas" has embraced them.

The name "Open Markets Institute" is misleading because, in reality, they want hyperenforcement and overregulation. Soros made a fortune from shortselling, and I wish he could just buy some island, turn it into a sovereign state run on the basis of his crazy, unworkable proposals (especially, but not only, on migration, where he's basically in favor of adverse selection), go public and let others short his stock--it would be a huge opportunity. But instead he uses his money with an agenda to ruin existing countries. As the great Rush Limbaugh said a few years ago:

"George Soros' objective is to agitate and vibrate the United States into a crumbling state of disrepair."

In a panel discussion on the EU's software patents directive (which I successfully campaigned against) shortly before the decisive July 2005 vote in the European Parliament, a patent attorney baselessly claimed that I was funded by Soros--seriously, I'd much rather be linked to Vladimir Putin. I wasn't on that panel, but one of the companies supporting my campaign was and clarified that they were a backer, they knew the other backers, and Soros was nowhere to be seen...

But even Soros's hacks and stooges occasionally--though those instances are few and far between--say something that makes sense. Despite my apprehensions regarding anything Soros funds, I did find a few good passages in the "Open Markets" (again, they're about the opposite most of the time) Institute's brief (this post continues below the document):

19-11-27 Open Markets Insti... by Florian Mueller on Scribd

What I consider hyperbole in that "Open Markets" Institute brief is the emphasis on "deception" ("bait and switch") as the type of antitrust violation at issue here. They argue that Qualcomm's breach of its FRAND licensing pledges amounts to deception. But not every kind of abusive behavior--or every broken promise--constitutes deception. The question is what Qualcomm really intended when it participated in standardization. I'm sure that at least for some time, Qualcomm didn't have any deceptive intention. What's debatable, however, is whether Qualcomm's continued participation in standards development was possibly deceptive because of Qualcomm not intending to honor the promise to license all implementers, as the ATIS and TIA declarations unambiguously require. It's a tricky question, and in Qualcomm's defense it's important to note that they always made their intentions (not to license other chipset makers) perfectly clear, so who was really deceived?

That said, the "Open Markets" Institute's brief is worth reading. It contains a variety of interesting references to antitrust cases in other centuries, and the following quote from 19th-century Republican Senator George Frisbie Hoar about distinguishing between market success on the merits and the result of exclusionary conduct:

"I suppose, therefore, that the courts of the United States would say in the case put by the Senator from West Virginia that a man who merely by superior skill and intelligence, a breeder of horses or raiser of cattle, or manufacturer or artisan of any kind, got the whole business because nobody could do it as well as he could was not a monopolist, but that it involved something like the use of means which made it impossible for other persons to engage in fair competition, like the engrossing, the buying up of all other persons engaged in the same business."

That quote is also interesting with a view to the recently-filed Intel and Apple v. Fortress case.

There are some good points in the "Open Markets" Institute's brief, and my favorite passage explains why it's usually a very good deal for a patent holder to contribute a patented technique to a standard despite then losing the exclusionary (monopoly) rights that normally come with patents:

"For the owner of this patent, the voluntarily foregone monopoly royalties can often be more than made up through fair, non-discriminatory royalties paid by manufacturers on countless standard-compliant products and components. [...] In other words, for the owner of a patent incorporated into a standard in exchange for a FRAND licensing pledge, the gain in royalty volumes can more than offset the reduction in unit-specific royalty margins."

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