This is a follow-up to yesterday's post on the Federal Trade Commission's answering brief to Qualcomm's opening brief on appeal. Before talking about another aspect--national security--I'd like to share some further thoughts about the FTC's right-for-the-wrong reasons strategy.
I believe a private party would have been fairly likely to defend Judge Lucy H. Koh's ruling on either ground: her Aspen Skiing approach and the FTC's Third Circuit Broadcom logic. That's because private parties--and especially their counsel--try to leave no stone unturned. It would have been possible for the FTC to argue that the Aspen Skiing standard is too high, but that it's met regardless if one makes a certain effort to shoehorn this case into that pattern (by arguing that Qualcomm might not have known what it was doing when it temporarily granted exhaustive licenses to chipset makers, but it didn't do so involuntarily). But it appears that the FTC's litigation team felt it was prudent to focus completely on a Third Circuit precedent that the Ninth Circuit doesn't have to, but may very well adopt. The fact that Qualcomm won a (partial) stay of the injunction likely played a role here. At the stay stage, the FTC didn't attempt to defend the Aspen Skiing reasoning (as Qualcomm noted in its reply brief), but now it's clear that the FTC is rather confident that the summary judgment on contract interpretation regarding licenses to rival chipset makers will stand (that's a precondition now for the chipset licensing-related antitrust theory), and is more optimistic that the Ninth Circuit will agree with the Third Circuit.
Maybe some amici curiae will still defend the chipset licensing part of the district court's ruling. But the focus is now going to be on what the FTC has chosen as its appellate strategy for chipset licensing. As I wrote yesterday, it comes down to viewing the FRAND licensing commitments that participants in standard-setting enter into as a cartel remedy, and the fact that there already is a remedy in place under competition law then lowers the hurdle for finding non-compliance to be an antitrust violation (not every non-compliance, but under certain conditions).
The likelihood of this case going all the way up to the Supreme Court (where Oracle v. Google has finally arrived, by the way) has just increased. Should the Ninth Circuit decide along similar lines as the Third Circuit, Qualcomm will point to other circuits (such as the Fifth Circuit) to argue there's a circuit split. The FTC could argue the same if it had to appeal, but whether the FTC, given its internal stalemate, could actually bring an appeal is another question.
What helped Qualcomm tremendously when seeking a stay from the Ninth Circuit was the national security argument that the Antitrust Division of the Department of Justice--run by a former Qualcomm lawyer--stressed. Statements by officials from the Department of Defense and the Department of Energy were attached to the DOJ's filing.
It's hard to think of a more important factor in the public-interest context of an injunction than national security. It's a big term. But here it rings hollow. It's a non sequitur.
The FTC case has the potential to reduce Qualcomm's margins, but not to render it unprofitable. The security concern relates to Qualcomm's chips, not patents (a patent can't be secure or insecure, but an embodiment of an invention can be). So Qualcomm would have to lose such a huge part of its revenues that it couldn't be competitive in the chipset business (where it's currently the undisputed leader).
In its intragovernmental quarrel with the DOJ's Antitrust Division, the FTC points to the DOJ Antitrust Division's poor timing: just like a request for a separate hearing on remedies was made months after the trial, the DOJ also raised those national-security concerns late in the game.
According to the FTC, "Qualcomm alluded in passing to national security in a pretrial filing, it introduced no evidence on the topic," which is why the FTC says Qualcomm "abandoned it."
Qualcomm simply couldn't have shown that the viability of the company was at stake, much less in light of its financials. The FTC says in a footnote what it noted on at least one prior occasion: "Qualcomm spends more on stock buybacks and dividends than it does on R&D. [...] (showing 2015-2017 R&D of $16.13 billion versus combined stock buybacks and dividends of $25.63 billion)."
Qualcomm's (and its Antitrust Assistant Attorney General friend's) "national security" strategy is not about rules of procedure or economic logic. It's all about diverting attention away from the merits and, more than anything else, about politicizing what should be a straightforward matter of competition law.
It worked for Qualcomm at the stay stage: a motions panel with a conservative majority explicitly placed a lot of emphasis on the Administration's input. Now they hope it will help again--or, at the latest, when this matter reaches the Supreme Court.
When politics is the name of the game Qualcomm is trying to play, who cares about whether an argument was presented to the district court in time? Who cares about evidence, or abandonment as a result of not introducing evidence? It's all just about influencing the judges. The FTC makes a compelling argument that there's no substance to Qualcomm's national security concern, and that there's a strong public interest in competition enforcement. As the FTC recalls, competition also works wonders for product quality, so having more than one U.S. baseband chipset maker is ultimately also the best-case outcome for national security. I hope the Ninth Circuit will see through the "national security" smokescreen, and not be swayed by it when adjudicating the antitrust issues before it.
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