Qualcomm Appeal of Monopoly Decision to Feature Dueling Federal Agencies
13 Febbraio 2020 - 06:28PM
Dow Jones News
By Brent Kendall and Asa Fitch
SAN FRANCISCO -- A federal appeals court on Thursday is poised
to consider Qualcomm Inc.'s appeal of a ruling that found it was
illegally maintaining a monopoly in cellphone chips and extracting
unreasonably high royalty rates for patents essential to the
industry.
The case cuts to the heart of Qualcomm's business model and
promises broad stakes for two areas of the law that are often in
tension: antitrust, which is designed to promote competition, and
patent law, which gives intellectual-property owners the right to
exclude competitors from using their inventions.
The litigation also comes with a highly unusual twist: Two
different government agencies that enforce the antitrust laws
disagree on whether Qualcomm's conduct is unlawful and will argue
against one another at the Ninth U.S. Circuit Court of Appeals.
San Diego-based Qualcomm designs and markets chips that
facilitate cellphones' communications with cell towers. It owned
about 43% of the global market for such chips, according to a
Strategy Analytics report from last year's second quarter.
The company also has a licensing arm that collects royalties
when others use a portfolio of more than 140,000 patents
world-wide, many of which cover key telecommunications
technologies. Licensing revenues are only a fraction of chip sales,
but the division is a driver of Qualcomm's overall profits because
its margins are much better.
The Federal Trade Commission sued Qualcomm in January 2017,
while the agency was in the final days of Democratic control under
the Obama administration. It focused on a central Qualcomm business
policy that FTC lawyers described as "no license, no chips."
The FTC said Qualcomm enjoyed monopolies in two types of modem
chips and wouldn't sell those chips to device makers unless they
also paid to license a broader portfolio of Qualcomm's patents.
That structure made it difficult for phone makers to challenge
Qualcomm's royalty rates, and the arrangement also meant they were
paying Qualcomm royalties even if they used a competitor's chips in
their phones, the commission alleged.
Qualcomm's policy put competing chipmakers at a disadvantage
because it was "economically and practically equivalent to a naked
tax on rivals' sales," the FTC said in a court brief.
Apple Inc. sued on similar grounds, but the iPhone maker and
Qualcomm settled their differences in April last year, dropping all
litigation and reaching a new chip-supply agreement.
U.S. District Judge Lucy Koh in San Jose, Calif., ruled against
Qualcomm last May. She agreed the chip designer improperly
leveraged its market dominance and ordered Qualcomm to change the
way it does business. If her ruling holds, Qualcomm would be forced
to renegotiate existing patent licenses without taking into account
chip-supply deals, which could dramatically lower licensing
revenues.
But a few months after Judge Koh's decision, the Ninth Circuit
stayed the effect of that ruling for now, allowing Qualcomm to
continue business as usual while the appeals court gives full
consideration to the case. The stay signaled that at least some of
the chip makers' legal arguments could be successful on appeal.
Judge Koh may have been on tenuous ground when she found that
Qualcomm had obligations to license certain industry-essential
patents to rivals, the stay order suggested.
Qualcomm says it acquired its market position through ingenuity
and business acumen, and argues that its licensing practices make
sense, because every cellphone invariably uses its patented
technologies. Through the royalties it collects from phone
manufacturers, Qualcomm "simply obtains the reward for the $60
billion it has invested over time in technology that nay-sayers
said would never take hold," the company said in a court brief.
Qualcomm also noted that rival chip makers don't pay royalties
on its patented technologies, and it argued those rivals aren't
impaired by its practices.
The company has gained a powerful ally in the past year: the
Department of Justice.
The department, with Trump administration antitrust enforcers at
the helm, filed a brief saying Judge Koh made fundamental errors
and imposed harsh penalties that could hurt innovation and national
security. The Justice Department said Qualcomm's licensing
practices weren't uncommon, and that charging high royalties wasn't
necessarily harmful to competition.
Qualcomm is a leading U.S. purveyor of superfast
fifth-generation cellular technology, and the U.S. sees the
company's health as crucial to maintaining a 5G advantage over
China, which is rapidly deploying the networks.
The Justice Department will argue alongside Qualcomm at
Thursday's hearing.
The case, meanwhile, has continued at the FTC, the result of an
unlikely split that has made the litigation difficult to
settle.
The FTC has an entirely new cast of commissioners -- and a
Republican majority -- since the suit initially was filed. But FTC
Chairman Joseph Simons is recused, leaving a 2-2 split between the
remaining Republican and Democratic commissioners that would
require Democratic support for any negotiated resolution of the
case.
(END) Dow Jones Newswires
February 13, 2020 12:13 ET (17:13 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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