Sunday, December 22, 2019

Qualcomm's reply brief in appeal of FTC antitrust win makes misleading citation in attempt to discredit customer testimony

Due to a lot of activity related to German patent reform I have a backlog containing a number of recent U.S. patent and antitrust developments to comment on. And that's what I plan to focus on over the next week or two, which will fortunately be slow on the European front.

On Monday, December 16, Qualcomm filed its reply brief in the FTC case with the Ninth Circuit (this post continues below the document):

19-12-16 Qualcomm Reply Brief by Florian Mueller on Scribd

The United States Court of Appeal for the Ninth Circuit recently scheduled oral argument in this appeal for February 13, 2020. In the post I just linked to, you can find links to numerous amicus curiae briefs supporting the FTC, and subsequently I commented on a couple of submissions from the automotive industry.

The FTC clearly got more (in qualitative and quantitative terms) support from amici than Qualcomm did. And a Korean court affirmed an antitrust ruling by the Korea Fair Trade Commission (KFTC). Qualcomm tries to focus on what has recently gone well for the chipmaker: the FTC didn't even make an attempt to defend Judge Lucy H. Koh's reasoning on chipset licensing, presenting a right-for-the-wrong-reasons theory instead.

Qualcomm seeks to leverage that fact to discredit Judge Koh's ruling as a whole, and in this context reminds the appeals court of FTC commissioner Wilson's dissent, and support for Qualcomm from the DOJ Antitrust Division (which is run by a lawyer who previously represented Qualcomm). However, all of that is meta-level: it's not about law, facts, or policy in the slightest, just about raising doubts.

Intel's Frankenstein analogy (the dissected monster is innocuous)--a funny way of encouraging the appeals court to see the forest among the trees--applies not only to Qualcomm's opening brief but also to the reply brief. The outcome of the appeal will hinge on whether the appeals court looks at the aggregate effect of a web of interrelated and mutually-reinforcing practices--or gets bogged down somewhere along the way.

This won't be my last post on this case before the appellate hearing. For now I'd just like to highlight two parts of Qualcomm's reply brief--one that I found ridiculous, and one that is misleading:

  • First, the most preposterous sentence in the reply brief (page 47 based on the numbering of the document, or page 58 based on the numbering of the PDF):

    "Having the contractual protection of a license in place before selling chips legitimately protects Qualcomm from claims that the chip sale 'exhausted' Qualcomm's patents and relieved OEMs of the need to pay for those rights."

    The answer is simply that those selling products must keep exhaustion in mind and set their prices accordingly. They can't justify "No License-No Chips" this way, as it's all too obvious they could sell their chips at a price that compensates for both the circuitry and the patent license.

  • With customer testimony having been a disaster for Qualcomm in the January trial, it's understandable that Qualcomm argues the appeals court shouldn't give it infinite weight. But the particular way in which Qualcomm's reply brief makes that point is misleading:

    "See United States v. AT&T Inc., 310 F. Supp. 3d 161, 211 (D.D.C. 2018) (in weighing evidence of competitive harm, 'competition authorities and courts . . . refus[e] to take the views expressed by customers at face value and insist[] that customer testimony be combined with economic evidence providing objective support for those views'), aff’d, 916 F.3d 1029 (D.C. Cir. 2019)."

    No one can blame Qualcomm for failing to state that those "customers" aren't merely customers, but most of them hold very significant cellular standard-essential patent portfolios of their own. What I do find objectionable, however, is that Qualcomm suggests the passage from "competition authorities" to "support for those views" was written by a court. In reality, the D.C. District Court merely wrote in the AT&T decision that "[c]aution is [...] necessary in evaluating the probative value of the proffered third-party competitor testimony," and then cited to a treatise (Ken Heyer, Predicting the Competitive Effects of Mergers by Listening to Customers). The relevant passage is from the treatise, not from any court's opinion. And the D.C. Circuit, when affirming the decision, didn't even talk about the probative value of customer testimony at such a general level.

    The difference between what the D.C. District Court actually wrote itself and what it merely quoted is key, as Judge Koh arguably exercised caution, while the quote from Mr. Heyer's treatise sounds like customer testimony should be afforded no weight in its own right.

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