Sunday, December 1, 2019

In filing with Ninth Circuit, Intel draws analogy between Qualcomm's business model and Dr. Frankenstein's monster

This is already the fifth post on some amicus curiae briefs filed with the Ninth Circuit in support of the Federal Trade Commission's answer to Qualcomm's appeal--and it won't be the last with at least a couple of submissions from the automotive industry still in my editorial queue.

These are the previous posts on amicus briefs supporting the FTC:

  1. 40 law and economics professors supporting FTC against Qualcomm's appeal contradict themselves just two pages apart

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

  3. Former Secretary of Homeland Security, former FTC chairman, and conservative think tank dismiss Qualcomm's and DOJ's "national security" arguments

  4. Former Secretary of Homeland Security, former FTC chairman, and conservative think tank dismiss Qualcomm's and DOJ's "national security" arguments

  5. Four IT industry bodies support FTC against Qualcomm's appeal: once again, The Industry v. Qualcomm

There's significant overlap between the briefs, but also unique elements to each of them. Every such filing serves a purpose, even the one that George Soros funded--as the latter makes, apart from some far-fetched theories and overregulatory ideology, a number of surprisingly reasonable points (like a limited dose of a poisonous substance potentially serving a medical purpose) and may appeal to any ultraliberal(s) on the panel (a political inclination the Ninth Circuit has a reputation for, though President Trump--the most profilic nominator of federal judges in history--has already brought some balance to that bench).

A strong showing by amici curiae was definitely needed here as Qualcomm technically has "the United States [Government]" on its side, though Antitrust AAG Makan "Macomm" Delrahim is simply a former (and presumably future) Qualcomm lawyer shamelessly--and often absurdly--acting against overall U.S. economic and national security interests in this context. That he has gotten away with this for such a long time is all the more astounding considering that his boss, Attorney General William Barr, once testified against Qualcomm and its business practices.

As I just said, each of those many pro-FTC submissions serves a purpose. For an example, the Computer & Communications Industry Association's brief, in addition to the CCIA having some members that are not involved with the three other industry bodies who made such filings, is a pretty good primer on the case (especially together with Professor Jorge Contreras's brief), while the Fair Standard Alliance brief presupposes a certain level of understanding--and ACT | The App Association made a particularly forceful submission that warns against the consequences of an acquittal.

But if forced to pick only two briefs from the 14 that have already been filed, I'd probably choose the filings that Qualcomm's victims Intel and MediaTek made, because those may be particularly impactful provided the Ninth Circuit reads them attentively. Those two briefs explain the issues very well, and they drive home a number of points on outcome-determinative legal questions (this post continues below the two documents):

19-11-29 Intel acb by Florian Mueller on Scribd

19 11 29 MediaTek Acb by Florian Mueller on Scribd

Given that those two companies have a similar perspective--Intel was forced out of the market for premium modem chips by Qualcomm, and MediaTek succeeded against Qualcomm at the lower end of the market but can't compete at the top--, it's not surprising that their stories overlap. Three examples:

  1. Both Intel and MediaTek warn against viewing the different aspects of Qualcomm's business model separately (which would make it easier for Qualcomm to downplay or deny the impact of the scheme as a whole) and urge a holistic perspective. MediaTek says "Qualcomm incorrectly compartmentalizes the [district] court's findings of its extensive, multifaceted anticompetitive conduct," and Intel says the following:

    "Qualcomm would defend the pieces of its scheme in isolation, but that is like arguing that the dismembered parts of Dr. Frankenstein's monster were harmless on the laboratory table."

  2. In that context, both filings use the verb "to reinforce" and its present participle. MediaTek puts the adverb "mutually" in front of "reinforcing," as I already did in an almost three-year-old post on the competition issues raised by Qualcomm's conduct.

  3. Intel's brief explains inhowfar Qualcomm's business model is highly unusual:

    "Qualcomm links chips and IP, and it charges separate prices for the chips and the IP substantially embodied in the chips. Qualcomm says it does this to capture the full value of its IP. Nonsense; no other patentee does the things Qualcomm does. For example, one way for SEP holders to earn revenue from their inventions is to sell products that use their inventions. The standard, efficient manner is selling products at a price that reflects both the hardware and IP. No other modem chip maker charges a separate price for chips and the IP substantially embodied in the chips. Even Qualcomm itself doesn't charge two prices for products other than its modem chips.

    "Another way SEP holders earn revenue from their inventions is by licensing them for use in others' products (e.g., licensing Qualcomm's SEPs for use in a handset with an Intel chip). The usual way to do that is to simply negotiate a royalty rate in the shadow of what a court would award as damages for infringement. No other cellular SEP holder comes to that negotiation making threats about cutting off its supply of products. In truth, Qualcomm takes a radically different approach from other SEP holders because it has a radically different purpose: to maintain its chip monopoly." (emphases in original, but not in bold face)

    MediaTek explains the uniqueness of Qualcomm's "No License-No Chips" policy as follows:

    "Labeling a threat 'ordinary' does not render it any less a threat, especially where the record evidence shows that the 'ordinary' practice to which Qualcomm points is not only unique to Qualcomm, but even unique to Qualcomm's supply of monopoly chips." (emphases in original, but not in bold face)

    That is a distinction between Qualcomm's cellular baseband chips ("monopoly chips") and other chips, such as WiFi chips.

The most striking difference is that Intel's brief has a very coherent and well-structured storyline--with many rhetorical highlights--while MediaTek's machine gun type of submission looks like someone was playing Space Invaders (an arcade classic of which there are mobile-game imitations) with Qualcomm's opening brief: there are many dozens of surface-to-air missiles in that brief, each of them designed to debunk and destroy one of Qualcomm's criticims of Judge Lucy H. Koh's ruling.

There's really a ton of material that the Ninth Circuit's clerks could almost copy and paste from MediaTek's brief to compose an opinion resulting in affirmance. Intel's brief--authored by a legal team led by former U.S. Solicitor General Donald Verrilli--takes a very strategic perspective: the FTC's case came too late for them, but they hope that affirmance will at least help with a view to future generations of mobile chips. The strength of MediaTek's brief is in the many powerful details, and what I found particularly impressive is how that amicus brief makes many detailed references to the evidentiary record (Boies Schiller was present on each day of the January trial, and that firm represents MediaTek here). In closing I'll quote how MediaTek summarizes the factual findings Judge Koh made in order to not only "infer" harm to competition (as Qualcomm claims it did) but actually identified harm to the competitive process (I'll leave out the "ER" numbers; you can find them in the PDF):

  1. Qualcomm has maintained a high share of CDMA chip sales.]

  2. Qualcomm has maintained supra-competitive pricing for CDMA chips.

  3. Qualcomm’s conduct has created artificial entry barriers.

  4. Qualcomm has maintained a high share of premium LTE chips.

  5. Qualcomm has maintained supra-competitive pricing for premium LTE chips.

  6. Qualcomm used its monopoly power to eliminate technology competition from WiMAX and ensure that the industry adopted a standard preferred by Qualcomm, thereby reinforcing its chip power.

  7. Qualcomm's refusal to offer MediaTek an exhaustive license delayed MediaTek's entry in successive generations of chips.

  8. Qualcomm's refusal to offer Samsung an exhaustive license prevented Samsung from entering the modem chip market as part of a joint venture.

  9. Qualcomm’s subsequent refusal to offer Samsung an exhaustive license prevented Samsung from selling modem chips to other OEMs.

  10. Qualcomm’s refusal to offer VIA Telecom an exhaustive license prevented VIA from reaching a large portion of the CDMA chip market and caused OEMs to view VIA as an ineffective competitor.

  11. Qualcomm's refusal to offer Intel an exhaustive license delayed Intel's entry into modem chip markets.

  12. Qualcomm's refusal to offer Huawei an exhaustive license prevented Huawei's entry into modem chip markets.

  13. Qualcomm's failure to offer an exhaustive license to Broadcom hastened Broadcom's exit from modem chip markets.

  14. Qualcomm’s chip supply threats caused VIVO to stop buying MediaTek chips that were better suited for VIVO’s handsets.

  15. Qualcomm's royalty discrimination imposed a tax on MediaTek chips that caused Wistron to stop buying from MediaTek.

  16. Qualcomm's supra-FRAND royalties on handsets incorporating non-Qualcomm chips impose an artificial surcharge on all sales of rivals' modem chips, resulting in reduced margins and exclusivity.

  17. Qualcomm's exclusivity conditions created a strong disincentive for Apple to use competitors' chips, foreclosing Intel at Apple for several years.

  18. Qualcomm's exclusivity-based foreclosure of Intel had broad market impact because of Apple's prominence as a validating customer.

  19. Qualcomm's incentive funds, which discriminatorily reduced Qualcomm royalties based on purchase of Qualcomm chips, prevented Blackberry from using competitors' chips and prompted LGE, Samsung, Lenovo, Motorola, and Huawei to shift chip purchases away from competitors, resulting in exclusivity.

  20. The cumulative impact of Qualcomm's exclusive deals suppressed sales available to modem chip competitors.

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