The United States Court of Appeals for the Ninth Circuit heard oral argument in FTC v. Qualcomm this morning. Just as I expected, Qualcomm went into that hearing on a far stronger basis than the one on which last year's trial had ended. The purpose of this post is to share some observations. So shortly after the hearing, it obviously can't provide an in-depth analysis.
The FTC, Qualcomm, and the DOJ (intervening on Qualcomm's side) all faced tough questions, but from different judges and of varying relevance to the forthcoming decision. For instance, the fact that the panel is somewhat skeptical of the DOJ's national security argument (though a remand to consider national security was also mentioned as a procedural possibility) doesn't have a bearing on the underlying merits of the antitrust case. It would just be about tailoring the injunction. One has to weight the questions--and there's always a possibility of a judge asking a party tough questions to encourage it to present its best arguments, but I don't think that happened today.
Circuit Judge Consuelo Callahan appears to be strategically lost for the FTC's purposes. Some of her questions were clearly designed to support Qualcomm as opposed to looking for answers. In a way, Qualcomm had three different lawyers arguing its case: Thomas C. Goldstein (absolutely world-class), Michael Murray from the DOJ's Antitrust Division, and... Judge Callahan, who made such points as saying that Qualcomm's business practices may be capitalistic, but not necessarily anticompetitive, and stressed that being unique in an industry shouldn't be conflated with being anticompetitive. Nobody would disagree with the distinctions, but this case is about line-drawing.
Assuming that Judge Callahan is indeed totally on Qualcomm's side, the chipmaker just needs one more judge to join her--maybe not on all counts, but on some.
Judge Rawlinson appears open-minded and undecided. Her questions to both sides were very balanced and reflected a genuine effort to develop a better understanding of what she noted in closing is a challenging case for the court to resolve. Once I obtain a transcript and re-read it, I may find that Judge Rawlinson has a certain inclination, but just based on watching the livestream of the hearing, I think she hasn't formed a definitive opinion yet.
Judge Murphy III (from the Eastern District of Michigan, sitting by designation) appeared most deferential to the district court, and relatively speaking, more likely to support affirmance than the other members of the panel. But "more likely" doesn't mean that that's what he's going to do. He just seemed somewhat more receptive to certain parts of the FTC's theory, such as the point that Qualcomm's licensees can't practically challenge Qualcomm's patents in court when they depend on uninterrupted chip supplies.
One factor that is clearly working out in Qualcomm's favor is that the FTC's decision not to defend Judge Lucy H. Koh's holding of an antitrust duty to deal under Aspen Skiing created a vacuum. The FTC's special counsel, Professor Brian Fletcher (who talked very fast, a habit I'm also known for, but wasn't very persuasive except for the last few minutes), mentioned United Shoe.
If Judge Rawlinson joins Judge Callahan on one or more of the fundamental issues, it may be "game over" for the FTC. Otherwise, I guess Judge Murphy III is more likely to join Judge Rawlinson than Judge Callahan. In that event, Judge Callahan's Plan B appears to be to get a remand of the summary judgment on chipset licensing because of triable issues. That remand would be mission-critical for the FTC because its alternative theory for affirmance of the chipset-licensing decision depends on the contractual duty established on summary judgment.
It's not even certain that the Ninth Circuit will ever have to adjudge the case, as the Federal Trade Commission might consider a settlement with Qualcomm. The way today's hearing went certainly encourages the parties to give serious consideration to a settlement. The FTC will have to take into consideration that whatever the Ninth Circuit affirms may still be challenged (and potentially successfully) by Qualcomm, with the Supreme Court being very likely to hear the case--but whatever the FTC loses at this point, it may not even be able to appeal to the Supreme Court (and if so, there would be the potential issue of the DOJ representing the FTC, though that would be the Solictor General's--not the Antitrust Division's--job).
The FTC had a very strong trial. But the appellate game is different. It's of a nature that favors Qualcomm. And Qualcomm has one judge firmly on its side. There is hope for the FTC with respect to the other two members of the panel. But none of the judges defended the district court's judgment the way Judge Callahan attacked it.
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