Friday, September 25, 2020

FTC petitions for rehearing en banc of Qualcomm antitrust decision, tells Ninth Circuit "panel opinion tears the fabric of antitrust law"

Today, competition authorities on both sides of the Atlantic made filings with appeals courts after deciding not to give up after negative decisions by three-judge panels. First, the European Commission brought a further appeal after losing the first round to Apple and Ireland in a tax policy matter styled as a "state aid" case. Second, the United States Federal Trade Commission filed a petition for rehearing en banc (meaning an enlarged panel of 11 circuit judges) by the Ninth Circuit of its Qualcomm case (this post continues below the document):

20-09-25 FTC Petition for N... by Florian Mueller

The FTC won in district court, but a three-judge panel ruled for Qualcomm on all counts last month. Given the Republican 3-2 majority, it was uncertain whether the FTC would defend its decision, but institutional reasons (the implications of the panel decision not only for this particular case, but also for many other antitrust cases to be litigated in the future) may have been the reason for which at least one Republican sided with the two Democratic commissioners in seeking a rehearing.

A cornerstone of the FTC's strategy is to stress that "panel did not overturn any of Judge Koh’s factual findings." Indeed, Judge Lucy H. Koh of the United States District Court for the Northern District of California had made a clear distinction in her ruling between findings of fact and conclusions of law, and her factual determinations are entitled to a great deal of deference. But the Ninth Circuit panel thought it could reverse based on purely legal questions.

In attacking the appellate panel's ruling, the FTC says it "conflicts with Supreme Court precedent on three questions of exceptional importance to the Nation's antitrust laws":

  1. The panel took the position that whatever could theoretically be addressed in patent litigation (such as royalty amounts) wasn't an antitrust issue. The FTC finds this inconsistent with "the Supreme Court's instruction that courts must apply the antitrust laws based on economic substance, not formal labels [by which the FTC particularly means the term 'patent royalties']." The FTC's petition criticizes the panel's "form-over-substance approach." In the same context, the FTC points to the Supreme Court's Apple v. Pepper decision on consumer standing in an App Store antitrust case as well as a 2013 decision according to which patent-related agreements can be evaluated under antitrust law (FTC v. Actavis).

    The FTC may have been concerned that by accepting the panel decision the agency would find it extremely hard to apply the antitrust laws to patent-related business models in the future. Toward the end of the petition, the FTC says "{t]he panel's errors have cast doubt on fundamental matters of antitrust principle and will encourage monopolists to cloak anticompetitive practices beneath false invocations of patent law and the appearance of neutrality."

  2. The FTC's second point involves the old United Shoe decision. Earlier this year I explained why I tend to agree with Qualcomm that it's inapposite. I will read the FTC's petition in detail and see whether it changes my mind regarding United Shoe (which I doubt, but you never know).

  3. The FTC's third point is that the panel erred in holding that harm to Qualcomm's customers (smartphone makers) is "outside the relevant antitrust markets." Here again, the FTC points to Apple v. Pepper as a very recent Supreme Court antitrust ruling that described "protecting consumers from monopoly prices" as the "central concern of antitrust."

The issues in this case are reasonably likely to spark the interest of enough circuit judges for the rehearing en banc to happen. The far harder part for the FTC will be to get a better outcome.

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