Judge Koh's high-profile summary judgment order doesn't bode well for Qualcomm's efforts to elude patent exhaustion finding

This is a follow-up (as I promised) to Judge Lucy Koh's summary judgment order according to which Qualcomm must meet its self-imposed obligation to license its cellular standard-essential patents (SEPs) to rival chipset makers. On Tuesday I mostly wanted to publish the news quickly, and I focused on the commercial consequences.

The legal standard applied by Judge Koh was stated as follows in the Ninth Circuit's 2006 opinion in Miller v. Glenn Miller Prods., Inc.: summary judgment is warranted "[i]f, after considering the language of the contract and any admissible extrinsic evidence, the meaning of the contract is unambiguous." (emphasis added)

Qualcomm unsuccessfully argued that an alleged need for two U.S. standard-setting organizations (ATIS and TIA) to be consistent with policies established by other organizations supported its position that there was no obligation to extend a SEP license to rival chipset makers, and that baseband chips don't actually implement the standards in question.

Not only did Judge Koh find that the FRAND licensing pledges Qualcomm had entered into were unambiguous, but she also saw that a right to withhold SEP licenses from competitors would allow someone to monopolize a market, which is precisely what all those FRAND declarations are meant to avoid. And she drew the inevitable conclusions from how Qualcomm and its executives had previously characterized their chips as "the heart of a cellphone," or testified that key cellular technologies were "implemented" in modem chips. The following two passages are particularly important:

"Despite having SEP licenses for its own modem chips, Qualcomm argues that its FRAND obligations for SEPs extend only to device suppliers and not modem chip suppliers because only device suppliers 'practice' or 'implement' standards. However, that distinction not only violates the non-discrimination obligation, but also makes little sense. As Qualcomm's founder conceded and Qualcomm's own documents demonstrate, modem chips may be 'compliant' with cellular standards."

"Moreover, undisputed evidence in Qualcomm's own documents demonstrates that a modem chip is a core component of the cellular handset, which only underscores how a SEP license to supply modem chips is for the purpose of practicing or implementing cellular standards and why Qualcomm cannot discriminate against modem chip suppliers. In an amicus brief filed in the Federal Circuit, Qualcomm characterized its own modem chips as 'the heart of a cellphone.' [...] Qualcomm's founder testified in a deposition that key cellular technologies were 'implemented' in modem chips. [...] In Qualcomm's own Annual Report, Qualcomm stated that Qualcomm is a 'leading developer and supplier' of circuits, including modem chips, 'based on' the CDMA family of cellular standards. [...] Qualcomm also represents that Qualcomm's modem chips 'perform the core modem functionality in wireless devices.'"

Those statements will presumably also bear significant weight with the appeals court.

From Qualcomm's point of view, Judge Koh's conclusion that baseband chips are indeed the heart of a cellphone (and implemented cellular SEPs) is unhelpful beyond the FTC v. Qualcomm case and the desire of companies like Intel to secure a FRAND license to Qualcomm's SEPs:

• Qualcomm is trying hard to avoid a ruling on whether its SEPs are exhausted by chipset sales, but if and when a court looks into this question, Qualcomm will argue that baseband chips don't implement standards all by themselves--just like Qualcomm did in its opposition to the FTC's summary judgment motion.

• Patent exhaustion and standard-essential patents are not at issue in the investigations of Qualcomm's two ITC complaints against Apple, but in connection with the ITC's statutory public interest factors (see this recent post on the related procedures) Qualcomm also argues that the focus should be on entire mobile devices, not baseband chips. Qualcomm's ITC complaints target only iPhones without a Qualcomm baseband chip, which in practical terms means Intel-powered iPhones.

The order Judge Koh handed down on Tuesday is likely to be cited a lot going forward.

Finally, there are three recent media reports related to the Qualcomm antitrust and patent matters that I'd like to draw your attention to:

• About two weeks ago, Bloomberg reported on a San Diego hearing (Apple v. Qualcomm) at which Qualcomm's lead counsel Evan "Fire!" Chesler reiterated last year's "house on fire" claim. According to Mr. Chesler, Apple is "now $7 billion behind in royalties."

• On Wednesday, Reuters reported that, according to "a source familiar with the matter," Apple is not in settlement talks with Qualcomm and, instead, "gearing up for trial."

• German news agency dpa reported on Thursday that a chipset technology expert appointed by the Munich I Regional Court, Professor Stefan van Waasen, sided with Qualcomm at a trial (which I couldn't attend, though I did attend the related first hearing in February) over Qualcomm's European Patent EP2724461 on a low-voltage power-efficient envelope tracker. According to the report, the expert couldn't see how Apple realized certain power savings without infringing on that patent. (Note that the envelope tracker in the accused iPhones is supplied by Qorvo.) I'll try to find out more about how that trial went.

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Qualcomm must license patents to rival chipset makers: Judge Koh grants FTC's partial summary judgment motion

BREAKING NEWS

Judge Lucy H. Koh of the United States District Court for the Northern District of California has just granted the Federal Trade Commission's motion for partial summary judgment against Qualcomm regarding the latter's self-imposed obligation to license, on FRAND (fair, reasonable and non-discriminatory) terms, its cellular standard-essential patents (SEPs) to rival chipset makers such as Intel (this post continues below the document):

18-11-06 Order Granting Par... by on Scribd

The motion was strongly supported by the rest of the industry, apart from Nokia and Ericsson (companies that actually used to take the same position against Qualcomm many years back).

As the FTC clarified in response to Nokia's filing, the motion was specific to FRAND licensing promises Qualcomm made to two U.S. standard-development organizations--the Telecommunications Industry Association (TIA) and the Alliance for Telecommunications Industry Solutions (ATIS)--as opposed to arguing that all FRAND licensing promises must be construed as benefiting rival chipset makers. In this FTC v. Qualcomm antitrust case pending in Northern California, the FTC also took the position that Qualcomm had the same obligation under the ETSI (European Telecommunications Standards Institute) FRAND declaration, but the FTC sought (successfully, as we know now) to simplify and streamline the case by obviating the need for interpreting a document under French law when the relevant obligation, as Judge Koh has agreed, already exists under FRAND declarations Qualcomm made under U.S. law.

This is the outcome I had predicted. I've said all along that the FTC had a very strong case, with this particular motion for partial summary judgment having represented a sweet spot in terms of focusing on an issue that the court can resolve ahead of trial while tackling one of the most problematic aspects of Qualcomm's (and, to be fair, not only Qualcomm's) conduct.

Nothing made the importance of this motion clearer than a procedural motion brought by the FTC and Qualcomm asking the court to go forward with all other aspects of the case except this one, which the parties didn't want to have adjudicated before November 14. Fortunately, Judge Koh denied that administrative motion right away. In a subsequent post on FTC officials who are against this case I wrote that the likelihood of the motion being granted had increased.

Judge Koh has now made a decision that will presumably result in some other companies, such as Intel, telling Qualcomm again that they want a FRAND license to its cellular SEPs. I guess those renewed requests will happen rather shortly.

What's hard to analyze from the outside is the impact of this on settlement talks between the FTC and Qualcomm. Just a few days ago the Capitol Forum (a subscription service) broke the news that FTC chairman Joseph J. Simons is recused from the matter. This successful motion is, in its own right, a major accomplishment by the FTC's litigators. Qualcomm will definitely want to avoid the January antitrust trial, but the FTC is on the winning track.

Today's order also strengthens the position of consumer plaintiffs in their class action against Qualcomm (in which they're seeking $5 billion in damages, which would have to be paid out to up to 250 million consumers). The fact of the matter is that Qualcomm consistently refused to extend a SEP license to rival chipset makers, but the market would definitely have been more competitive if Qualcomm had complied with the obligation it actually had (according to Judge Koh).

I wanted to publish the decision immediately, and I'll read it carefully tomorrow and may do a follow-up post then.

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Federal Trade Commission makes important clarifications in reply to Nokia's amicus brief supporting Qualcomm

While Qualcomm's patent infringement lawsuits against Apple (and, by extension Intel) are merely a sideshow to the antitrust matters pending on three continents, let's start with a brief follow-up to yesterday's Munich judgment. The court has meanwhile, thankfully, provided a redacted copy of the decision. I've read it, and the most interesting part is that Qualcomm had submitted two expert reports in support of its claim construction, while Apple had provided only one, but the deficiencies of Qualcomm's reports were massive while Apple's expert provided instructive, helpful information. I'll publish a translation of the relevant passages soon.

Meanwhile, Judge Lucy H. Koh of the United States District Court for the Northern District of California has granted the Federal Trade Commission of the United States permission to file a reply to Nokia's recent amicus curiae brief in support of Qualcomm with respect to the FTC's motion for partial summary judgment regarding Qualcomm's obligation to extend FRAND licenses to its cellular standard-essential patents (SEPs) to rival chipset makers. In its reply brief in support of its motion (that post also contained a link to Nokia's brief), the FTC had already reserved the right to request leave to file such a reply since Nokia's brief was filed just on the eve of the FTC's reply to Qualcomm's opposition.

The FTC's reply must not be misperceived as an implicit concession that Nokia's brief contained anything that has the potential to be outcome-determinative in Qualcomm's favor. The legal question for Judge Koh to resolve is purely one of contract interpretation, and the FTC notes at the very start of its reply brief that Nokia "does not present any argument regarding the plain language of the two IPR policies that are the subject of the FTC's motion for partial summary judgment." Nokia's brief does not even present parol evidence (which would be irrelevant anyway under California law unless the whole industry had consistently taken a certain perspective on SEP licensing). Finally, Nokia's credibility is minimal in this context since Nokia itself told the European Commission in a February 13, 2006 complaint that Qualcomm breached its FRAND duty by terminating a license deal with a chipset maker (Texas Instruments).

The reason why the FTC elected to submit a reply--and which appeared significant enough to me to warrant a follow-up post--is simply that the FTC doesn't want the actual scope of its summary judgment motion to be blown out of proportion. The FTC states once again that "[its] motion [for partial summary judgment] asks the Court to interpret the plain language of Qualcomm's commitments under the IPR policies as written, pursuant to California contract law, not to determine what FRAND means in the abstract or to declare how SSOs ought to draft their IPR policies."

In the second paragraph, the FTC makes a point that is incredibly important in connection with FRAND licensing obligations (in this case and far beyond): it's one thing whether certain obligations (here, to extend licenses to chipset makers upon their request) exist, but another what the market will ultimately make of those obligations: "If Qualcomm's anticompetitive conduct is addressed and remedied, market forces will decide whether modem-chip or handset-level licensing (or some combination of the two) is most efficient."

There's a parallel here to an argument made by Huawei in its defense against (Pan)Optis Wireless in the Eastern District of Texas. In that dispute, Huawei accurately argues that a SEP holder shouldn't be able to choose one venue (here, the Eastern District) for a global FRAND rate-setting process, but in practical terms, global license agreements may very well be the most common result of free negotiations between parties. (Huawei takes the opposite position in its dispute with Samsung in the Northern District of California, but schizophrenia doesn't render its point in Texas any less well-taken.)

The FTC just wants to achieve judicial clarification that Qualcomm itself made FRAND licensing promises that also extend to rival chipset makers should they seek a license (which applies to a company like Intel). If no one made such a request, or if Qualcomm extended FRAND licenses to all device makers, then there would simply be no demand. It's a hypothetical scenario because there obviously is demand; but the bottom line is that the FTC wants to set market forces free as opposed to using an antitrust litigation in order to restrict anyone's freedom (apart from Qualcomm's freedom not extending to anticompetitive, exclusionary conduct, of course).

Again, an analogy: Huawei's opposition to a global FRAND determination in the Eastern District of Texas (a venue that has a reputation for being particularly sympathetic to patent holders, particularly non-practicing entities) doesn't mean that Huawei and (Pan)Optis might not ultimately agree on a global license. While it's always possible that parties reach a settlement in one jurisdiction (or set of jurisdictions), such as when InterDigital settled some European cases but litigation kept going in the United States or when Samsung and Apple withdrew all ex-U.S. lawsuits (but not the ones pending before Judge Koh), most negotiations will result in a global license for convenience. But it should be the result of free choice, not of undue leverage (such as from injunctive relief) or forum-shopping.

I found a couple of gems in the footnotes:

• "Qualcomm has claimed that modem-chip-level licensing is efficient--at least when the licensee is Qualcomm itself. [...] If Qualcomm’s efficiency claims are valid, similar efficiencies may arise from other modem-chip suppliers licensing Qualcomm's cellular SEPs on FRAND terms."

• "The FTC does not concede that construing the ATIS and TIA policies according to their plain language would create any inconsistency among relevant IPR policies."

  As I explained in my commentary on the FTC's motion, it's just that the FTC would like to streamline and simplify the Northern California case by obviating the need for an interpretation of the ETSI FRAND declaration since it's governed by French law. To me it's always been clear that the FTC's position is that Qualcomm has to extend licenses to rival chipset makers even just under ETSI's rules, but when you're litigating an issue in the United States and have two FRAND declaration texts under U.S. law (ATIS and TIA) based on which you can prevail, why make an intercontinental detour that just wastes court, federal government and private party resources?

Finally, here's the FTC's brief:

18-10-11 FTC Reply to Nokia Amicus Brief in Qualcomm Case by Florian Mueller on Scribd

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20-year-old court filing comes back to haunt Qualcomm in antitrust dispute with Federal Trade Commission

Before I'll share the latest documents and observations relating to the FTC's motion for partial summary judgment on Qualcomm's obligation to grant standard-essential patent (SEP) licenses to rival chipset makers, an update on Qualcomm's attempts to gain leverage over Apple (and, by extension, Intel) through injunctive relief in Germany:

• In Wednesday's "Mannheim Steamroller" post, I've meanwhile corrected a typo: I obviously meant to say that the Mannheim Regional Court doesn't take stays of patent infringement cases lightly (not "likely").

• Another Qualcomm v. Apple trial was held in Munich yesterday. I missed it because I assumed the wrong starting time--my bad. But I'll be sure to attend next Thursday's announcement of a decision (unusually soon!) and report on it.

20 years back from tomorrow, Qualcomm itself brought a motion for partial summary judgment in a SEP dispute with Ericsson in the Eastern District of Texas. The objective: obtain a SEP license from Ericsson on fair, reasonable and non-discriminatory (FRAND) terms for Qualcomm's baseband chipsets. The legal basis: a promise Ericsson had made to the Telecommunications Industry Association (TIA), a U.S. standard-setting body. In other words, Qualcomm was doing essentially the same thing (same objective, same contractual basis, same stage of proceeding) as the Federal Trade Commission (FTC) in its late-August motion in the Northern District of California that Qualcomm is fighting tooth and nail because it would rather have a monopoly now.

From the perspective of those of us who'd like to see the FTC open up the wireless chipset market even ahead of the January 2019 trial, this may seem too good to be true, but here's the FTC's reply brief in support of its motion, including all public exhibits (Exhibit 14, starting on PDF page 87, is Qualcomm's October 1998 filing; this post continues below the document):

18-10-04 FTC Reply Iso Moti... by on Scribd

What the FTC filed yesterday evening is a very strong reply to Qualcomm's attempt to extricate from its commitments to TIA and ATIS. Basically, Qualcomm argued

• that the relevant FRAND declarations could be interpreted differently (by conveniently omitting at least one key passage according to which licenses also apply to "portions" of a standard),

• that their meaning had to be reconciled with the ETSI FRAND promise (which in turn has to be interpreted under French law),

• that baseband chipsets, unlike complete devices, wouldn't be able to implement cellular telecommunications standards, and

• that so-called parol evidence--the industry at large allegedly not extending SEP licenses to chipset makers--supported Qualcomm's position.

As I already wrote in my post on Qualcomm's opposition, Qualcomm itself has actually positioned itself as a SEP clearinghouse. The FTC explains that, under California law, parol evidence only matters if a given practice is "certain and uniform," and then points to how Qualcomm's own agreements with SEP holders prove the opposite:

"Over 100 companies, including major SEP holders, have licensed Qualcomm itself to make and sell modem chips. Given Qualcomm's market position, this means that major SEP holders have licensed a substantial portion of relevant modem chips sold."

The FTC goes on to point to Qualcomm's 1998 motion and the fact that Qualcomm actually ended up obtaining the desired license through a settlement.

Just like I did in my commentary, the FTC completely disagrees with Qualcomm's theory that modem chips would not implement cellular standards. I drew an analogy to the "mastermind" component in a divided-infringement case, and the FTC accurately notes that "[m]odem chips serve no purpose at all if they fail to implement cellular standards." Various exhibits show how Qualcomm itself--on its website, in SEC filings, and in other documents--portrays baseband chipsets as "the heart of a cellphone" or as being "[a]t the heart of mobility." Regardless of the role that other components (CPU, antenna, memory etc.) may play in a mobile device, "modem chips are 'based on' cellular standards and 'designed' to achieve standard-compliant cellular communications."

In the context of the 1998 Qualcomm-Ericsson dispute, the FTC's lawyers have recently deposed Qualcomm founder Dr. Irwin Jacobs, and his testimony also buttresses the FTC's position.

Two companies that are now supporting Qualcomm through testimony and, in Nokia's case, an amicus brief (uploaded to Scribd), actually sought in 2006 to require Qualcomm to continue extending a SEP license to Texas Instruments. By the way, Nokia's amicus brief was filed on the eve of the FTC's reply deadline, so the FTC reserves the right to seek permission to respond, but I doubt there's even a need for that. The FTC has the support of two industry bodies, and Nokia's amicus brief doesn't appear to present facts or theories that are likely to persuade Judge Lucy H. Koh to side with Qualcomm.

The FTC's exhibits are very good, but the competition enforcement agency could additionally have leveraged a presentation by an Ericsson executive that I blogged about in 2014 and also mentioned in connection with the summary judment process in the Northern District of California. That Ericsson presentation makes it clear that there are only tactical--not technical or legal--reasons for which such companies as Ericsson, Nokia and Qualcomm now refuse to extend SEP licenses to chipset makers. One of the tactical reasons Ericsson cited is that chipset makers would be more likely to own patents with which they could retaliate against them than device makers, which also contradicts Qualcomm's idea that the implementation of cellular standards is not a responsibility of modem chips.

A motion hearing is currently scheduled for October 18.

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Qualcomm says FTC motion aims to "radically reshape [standard-essential patent] licensing in the cellular industry"

The two most important motions for summary judgment that Qualcomm is facing at present (and one might even say has ever faced in its history) are the Federal Trade Commission's motion to hold that Qualcomm itself committed to extending standard-essential patent licenses to rival chipset makers such as Intel (a motion that has drawn broadbased support from industry) and a motion by Apple and four contract manufacturers to end Qualcomm's double-dipping practice (selling chipsets and additionally collecting patent license fees). This post is about Qualcomm's opposition in the Northern District of California to the former, but I'd also like to mention that Qualcomm is trying to duck the latter by means of a motion to dismiss all declaratory judgment claims relating to Qualcomm patents from the Apple (and contract manufacturers) v. Qualcomm case in the Southern District of California. When it turned out that its adversaries were going to insist on an adjudication of their patent exhaustion defense, Qualcomm requested expedited briefing, which Judge Gonzalo Curiel denied. The opposition brief to Qualcomm's attempt to chicken out is due by the end of next week.

Back to San Jose. Qualcomm's opposition to the FTC motion is underwhelming. It's unlikely that Judge Lucy Koh will agree with Qualcomm's positions on the core issues; at the most--and even that part is doubtful--the judge might find that some evidence needs to be discussed at trial.

Here's the opposition brief, and below the document I'll explain why I still believe the FTC motion is perfectly meritorious:

18-09-24 Qualcomm Oppositio... by on Scribd

In the first paragraph, Qualcomm acknowledges the importance of the issue the FTC motion is about:

"Under the guise of seeking merely to 'streamline the trial' [...], the FTC's Motion for Partial Summary Judgment requests a ruling that would radically reshape licensing in the cellular industry, not just for Qualcomm but for all cellular SEP holders that made FRAND commitments to ATIS or TIA. The FTC contends that those SEP holders have a clear and unambiguous contractual obligation to grant licenses to manufacture and sell modem chips."

Still on the first page, Qualcomm's brief accused the FTC of attempting "a complete reimagining of the industry."

Qualcomm points to the field-of-use limitation found in standard-essential patent (SEP) licensing commitments. The idea is that you can request a FRAND license only for the purpose of implementing the relevant standard. The reason is simply that one could otherwise request a license in order to use patents in a competing standard, or for non-compliant products. But Qualcomm claims that only "complete devices" can implement cellular standards. Qualcomm more or less concedes (or at least does not deny with specificity) that some SEP claims may be practiced by baseband chips. However, it argues that other components of a mobile device are also required. Examples that Qualcomm mentions in its discussion of standard-setting documents include "antennae" and "power-control chips."

There's no question that you need an antenna and electricity for mobile telephony. But that doesn't mean the mobile baseband chip--or "modem chip" in accordance with Qualcomm's brief--doesn't implement the standard simply because it's the central and decisive component. It's the mastermind (a term that is key to the analysis of an alleged "divided infringement" of a method claim and fits here, too). Once the importance of the mastermind component is downplayed, the ultimate consequence may be that not even a device infringes since electricity must be provided by a utility, which in turn needs some energy source somewhere.

In a 2014 case, GPNE Corp. v. Apple, Judge Koh herself held "as a matter of law that in [that] case, the baseband processor [was] the proper smallest salable patent-practicing unit." And in Judge Koh's court, a 2012 jury sided with Apple against Samsung on patent exhaustion, based on Samsung's license to Qualcomm and Apple's use of Qualcomm chips in certain products at issue back then. The same happened to Samsung in the Netherlands and France (where I attended a preliminary injunction hearing in 2011).

It's actually a cornerstone of Qualcomm's business model to position itself as a SEP clearinghouse. That's why Qualcomm's brief now seeks to resolve the inconsistency between what courts have found as a result of Qualcomm's licensing practices and what Qualcomm is claiming--and must claim--at this stage in its opposition to the FTC motion:

"Although Qualcomm has obtained inbound cross-licenses to the cellular SEPs of its licensees, those were to ensure that its licensees cannot sign a license for rights under Qualcomm's patents and then opportunistically assert their own patents against Qualcomm."

If Qualcomm's chips didn't implement those stnadards, how could other SEP holders "assert their own patents against Qualcomm" by suing device makers? Qualcomm then points to its practice of neither licensing nor suing rival chipset makers, but that doesn't mean anything. Just like Ericsson--the first company Qualcomm is pointing to in its opposition brief--Qualcomm simply does this for leverage. Almost five years ago I wrote about Ericsson's fairly honest concession of the whole rationale behind going after device makers, not chipset makers.

With regard to the ATIS and TIA FRAND promises at issue, Qualcomm claims that their non-discrimination requirements merely "prohibit an SEP holder from charging one licensee a 1% royalty while (all other terms being equal) charging a similarly situated licensee a 5% royalty." However, not extending a license at all--no matter the royalty rate--is the most extreme form of discrimination.

Qualcomm argues the ATIS and TIA FRAND declarations don't say what they say because those American standard-setting bodies must have patent licensing policies consistent with those of ANSI. The reason why this doesn't convince me at all is simple: Qualcomm signed those declarations and is bound to them regardless of whatever principles and obligations may govern the inter-association relationship between ATIS and TIA on one side and ANSI on the other side. If Qualcomm feels ATIS and/or TIA are out of compliance with ANSI's rules, it can ask ANSI to investigate and take whatever action as a result, but it doesn't alter the language of Qualcomm's declarations. Also, if the horse is out of the barn, that's it: even if ANSI didn't and doesn't require ATIS and TIA to ensure that all comers, including rival chipset makers, receive a FRAND license to certain SEPs, it doesn't mean ATIS and TIA couldn't do so, and all that the likes of Intel need is one valid and enforceable contractual basis. ANSI's policies don't say that it's against its policies to license chipset makers.

Qualcomm furthermore argues that the FTC's concession that the ETSI FRAND declaration can't be interpreted without considering evidence suggests the same applies to the ATIS and TIA declarations. But what makes the key difference here is that the ETSI declaration is under foreign (here, French) law. A Qualcomm expert report on ETSI is attach to the opposition brief as Exhibit 35. The PDF shown further above contains all public exhibits, such as this one.

Getting back to the question of whether baseband chips implemenet cellular standards: they do because they control the transport-layer communication between mobile devices and base stations. Qualcomm has its reasons (as do Ericsson and others) why it prefers not to license or sue chipset makers, but if it wanted to sue them, it could do so, and I believe it wouldn't even need to resort to indirect-infringement theories.

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Federal Trade Commission may open up the wireless chipset market even prior to Qualcomm trial: motion for partial summary judgment

Four months prior to the FTC v. Qualcomm antitrust bench trial in the Northern District of California, the U.S. Federal Trade Commission has brought a motion for partial summary judgment that has the potential to make a far greater contribution to fair competition in the wireless baseband chipset market than the procedural context (a pretrial motion) suggests. The FTC is asking Judge Lucy Koh to hold that, under certain (F)RAND licensing obligations it entered into when it participated in wireless standard-setting, Qualcomm must license its CDMA, UMTS and 4G/LTE standard-essential patents (SEPs) to rival chipset makers (such as Intel).

This is an unusual situation in which a summary judgment motion is legally extremely simple, yet has the potential for truly transformative impact on the marketplace. In most situations where a party is seeking a game changer, reasonably tricky question of law and/or fact are involved. Here, the FTC is just seeking clarification that Qualcomm's FRAND licensing commitments say what they say. But if Judge Koh agreed with the FTC and reminded Qualcomm of its obligations,

• Intel (and likely others, such as MediaTek and Samsung's Exynos division) would immediately ask for a license to Qualcomm's wireless standard-essential patents on FRAND terms,

• Qualcomm would have to content itself with royalties representing a FRAND percentage of baseband chipset prices (as opposed to a percentage of the price of an entire mobile device),

• Qualcomm's leverage would be reduced because (as the FTC notes) Qualcomm couldn't threaten with a chipset supply disruption while negotiating with competitors,

• due to patent exhaustion, Qualcomm wouldn't be able to "double-dip" by collecting license fees from its licensees' customers (the device makers), and

• those who would still buy Qualcomm's baseband processors could decline to pay royalties in excess of what baseband chipset makers are required to pay (anything else would be discriminatory).

A number of problems would be solved, and prices would come down. Consumers would benefit. Competitors would benefit. Device makers (especially in the premium segment) would benefit. But Qualcomm would have to get used to doing business on FRAND terms, at long last. It could still make a ton of money, but obviously less than before.

Hypothetically speaking, if the FTC achieved the above with its motion for partial summary judgment (which I believe it will), but subsequently failed to make further headway at the January 2019 bench trial (which is not a prediction), it would have accomplished a great deal. In that hypothetical scenario, it would actually have achieved far more than with the average consent decree. The trial might not even take place: after such a strategic breakthrough for the FTC, Qualcomm would be under significant pressure to settle.

After assessing the potential impact of this motion, let's take a look at the basis on which the FTC is trying to make such tremendous headway (this post continues below the document):

18-08-30 FTC Motion for Partial Summary Judgment Against Qualcomm by Florian Mueller on Scribd

In a legal sense, the motion is as narrowly tailored as it could be. The FTC's broader case against Qualcomm's policies, including the "no-license-no-chips" approach, targets a host of issues and their anticompetitive effects. The above motion for partial summary judgment, however, does not even raise a single antitrust issue in a strict sense: it's exclusive about Qualcomm's contractual obligations to license rival chipset makers. And it's not about the entirety of Qualcomm's contractual licensing commitments: it's just about Qualcomm's obligations and third-party beneficiaries' rights emanating from Qualcomm's FRAND licensing promises to two U.S. standard-setting organizations, the Telecommunications Industry Association (TIA) and the Alliance for Telecommunications Industry Solutions (ATIS).

In other wireless SEP cases, the commitments that patent holders made to the European Telecommunications Standards Institute (ETSI) are front and center. Here, the FTC is trying to eliminate the need to make a determination in San Jose under French law. Qualcomm presented expert reports according to which it allegedly, under French law, doesn't have to extend SEP licenses to other wireless chipset makers. The FTC completely disagrees, but if Qualcomm's commitments to U.S. standards bodies cover the standards at issue in the case (CDMA, UMTS, 4G/LTE), Judge Koh won't even have to dig into a foreign country's law under Rule 44.1.

A duty to deal, under antitrust law, would also require Qualcomm to extend SEP licenses to rival chipset makers. Here, too, the FTC believes it has a stronge case: but the motion for partial summary judgment does not involve an antitrust-based duty to deal; at this point, it's just about Qualcomm's existing contractual obligations. By contrast, it involves a lot more on a court's part to determine that a duty to deal exists on antitrust grounds.

Technically, if Qualcomm has an obligation on one legal basis (its commitments to TIA and ATIS), and if the court confirms that this is the case, that's all it takes for good things (more competition in the baseband chip set market) to happen. The FTC's motion has the potential to streamline and simplify a very critical part of the case. As the motion explains, Qualcomm's commitments to TIA and ATIS can be interpreted under California contract law (which is particularly clear here, given Qualcomm's legal domicile in San Diego). That's much easier for Judge Koh than to form an opinion based on expert reports on what a certain term may or may not mean in French in light of a wealth of contract law rulings made by courts in that country over the last decades. Why do so if there are U.S. standard-setting organizations that adopted the standards in questions (no matter how important ETSI was in the creation of certain standards)?

Qualcomm's commitment to both TIA and ATIS undoubtedly require it to license all comers. The official guidelines to TIA's IPR policy even explicitly state that "[a]n example of conduct that would constitute discrimination is a willingness to license all applicants except for competitors of the licensor" (which is obvious, but it helps that the obvious has been stated this unambiguously).

The name of the game is contract interpretation. The motion per se doesn't even require the court to find Qualcomm in breach of those commitments (which would involve factual questions relating to Qualcomm's interactions with the likes of Intel).

Long passages of the motion have been redacted out, which is why the context of the following isn't clear, but it's interesting nonetheless: in 2014, Judge Koh herself held in GPNE Corp. v. Apple "as a matter of law that in [that] case, the baseband processor [was] the proper smallest salable patent-practicing unit." It will be hard for Qualcomm to distinguish the FTC's case from that one should the royalty base have to be determined in the further proceedings (certainly not necessary for deciding this motion).

The FTC has made a smart tactical choice by requesting a ruling on this pivotal question. Things aren't looking good for Qualcomm anyway (also considering what Judge Koh stated in her dismissal without prejudice of a motion brought by consumers), but if the FTC prevails on this motion (which I believe it very probably will; at a mimimum, it would score this strategic victory at trial), Qualcomm will have to admit that the noose is tightening around the most problematic aspects of its business model.

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