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Appeals Court Reverses Qualcomm Smackdown

In a big victory for the smart device essential patents holder, a three-judge panel of the Ninth Circuit Court of Appeals has reversed a district court decision and lifted a permanent, worldwide, injunction against Qualcomm. 

Computer companies will appeal that decision to the full circuit.

The Federal Trade Commission had contended that Qualcomm had unlawfully monopolized the "code division multiple access ('CDMA') and premium long-term evolution ('LTE')" cellular modern chip markets, and the district court agreed.  

 Related: DOJ Issues New Advice on Standard Essential Patents 

But a three-judge panel of the Ninth Circuit was unpersuaded. Writing for the majority, Judge Consuelo M. Callahan said that the district court "erred in holding that Qualcomm was under an antitrust duty to license rival chip manufacturers." 

In May 2019, a California district court ruled that the way Qualcomm licensed its modem chips for handsets was anticompetitive--siding with the Federal Trade Commission, which had sued the company for having "harmed competition in two markets for baseband processors [modem chips]."   

But saying that Qualcomm has demonstrated "serious questions" about that district court's decision, the U.S. Court of Appeals for the Ninth Circuit subsequently stayed that decision, the latest twist in a year's-long legal battle. 

Qualcomm had refused to license standard essential patents for smart phone technology in promises it made to standards-setting bodies and charged excessive royalty rates, the district court concluded, agreeing with the FTC that Qualcomm was preserving its monopoly of the LTE chip market, effectively levying a surcharge on competitor's chips.  

Not so fast said the Ninth Circuit panel. Callahan said that panel concluded that Qualcomm's policy for licensing its standard essential patents, "however novel," did not violate the Sherman Act prohibition on anticompetitive conduct.  

The FTC had argued that even if Qualcomm was not under an antitrust duty to license its patents to original equipment manufacturers (OEMs) it was engaged in anticompetitive conduct, but the court said it had not sufficiently explained how Qualcomm's alleged breach of a contractural commitment by itself impaired its rivals.  

She said given that the FTC failed on that count, it looked less critically at Qualcomm's pro-competitive arguments for its OEM-level licensing policy, which the judge said, in any case, "appeared to be reasonable and consistent with current industry practice." 

The district court held that Qualcomm's licensing royalty rates equated to an anticompetitive surcharge. Wrong, said Callahan. "The panel held that Qualcomm’s patent-licensing royalties and 'no license, no chips' policy did not impose an anticompetitive surcharge on rivals’ modem chip sales. Instead, these aspects of Qualcomm’s business model were 'chip-supplier neutral' and did not undermine competition in the relevant markers," she wrote.

As to the two agreements with Apple (2011 and 2013) that were the subject of the FTC complaint and court decision, Callahan wrote: "The panel held further that Qualcomm’s 2011 and 2013 agreements with Apple have not had the actual or practical effect of substantially foreclosing competition in the CDMA modem chip market. Also, because these agreements were terminated years ago by Apple itself, there was nothing to be enjoined." 

“Judge Koh's [district court] opinion detailed how Qualcomm’s anticompetitive business practices have driven its competitors out of the modem business and raised prices in the cellular industry," said Joshua Landau, patent counsel for the Computer & Communications Industry Association (CCIA). "The 9th Circuit ignored those factual findings and greenlit Qualcomm's anticompetitive business practices.

"CCIA is disappointed in the 9th Circuit's deeply flawed decision and hopes that the Federal Trade Commission will ask for review en banc to correct the numerous errors in the panel opinion."