throbber
FOR PUBLICATION
`
`UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`
`
`FEDERAL TRADE COMMISSION,
`Plaintiff-Appellee,
`
`
`
` No. 19-16122
`
`D.C. No.
`5:17-cv-00220-
`LHK
`
`
`OPINION
`
`v.
`
`
`QUALCOMM INCORPORATED, A
`Delaware corporation,
`Defendant-Appellant,
`
`
`SAMSUNG ELECTRONICS COMPANY,
`LTD.; SAMSUNG SEMICONDUCTOR
`INC.; INTEL CORPORATION;
`ERICSSON, INC.; SAMSUNG
`ELECTRONICS AMERICA, INC.;
`MEDIATEK INC.; APPLE INC.,
`Intervenors,
`
`
`
`NOKIA TECHNOLOGIES OY;
`INTERDIGITAL, INC.; LENOVO
`(UNITED STATES), INC.; MOTOROLA
`MOBILITY LLC,
`
`Intervenors.
`
`Appeal from the United States District Court
`for the Northern District of California
`Lucy H. Koh, District Judge, Presiding
`
`
`

`

`FTC V. QUALCOMM
`
`Argued and Submitted February 13, 2020
`San Francisco, California
`
`Filed August 11, 2020
`
`Before: Johnnie B. Rawlinson and Consuelo M. Callahan,
`Circuit Judges, and Stephen J. Murphy, III,* District Judge.
`
`Opinion by Judge Callahan
`
`
`SUMMARY**
`
`2
`
`
`
`
`
`Antitrust
`
`The panel vacated the district court’s judgment, and
`reversed
`the district court’s permanent, worldwide
`injunction prohibiting several of Qualcomm Incorporated’s
`core business practices.
`
`The Federal Trade Commission (“FTC”) contended that
`Qualcomm violated the Sherman Act, 15 U.S.C. §§ 1, 2, by
`unreasonably
`restraining
`trade
`in, and unlawfully
`monopolizing, the code division multiple access (“CDMA”)
`and premium long-term evolution (“LTE”) cellular modern
`chip markets.
`
`
`* The Honorable Stephen J. Murphy, III, United States District
`Judge for the Eastern District of Michigan, sitting by designation.
`
`** This summary constitutes no part of the opinion of the court. It
`has been prepared by court staff for the convenience of the reader.
`
`

`

`
`
`
`FTC V. QUALCOMM
`
`3
`
`Qualcomm has made significant contributions to the
`technological
`innovations underlying modern cellular
`systems, including CDMA and LTE cellular standards.
`Qualcomm protects and profits from its innovations through
`patents, which
`it
`licenses
`to original equipment
`manufacturers (“OEM”). Qualcomm’s patents include
`cellular standard essential patents (“SEPs”), non-cellular
`SEPS, and non-SEPs. Because SEP holders could prevent
`industry participants from implementing a standard by
`selectively refusing to license, international standard-setting
`organizations require patent holders to commit to license
`their SEPs on fair, reasonable, and nondiscriminatory
`(“FRAND”) terms before their patents are incorporated into
`standards.
`
`The panel framed the issues to focus on the impact, if
`any, of Qualcomm’s practices in the area of effective
`competition: the markets for CDMA and premium LTE
`modern chips.
`
`The panel began by examining the district court’s
`conclusion that Qualcomm had an antitrust duty to license
`its SEPs to its direct competitors in the modern chip markets
`pursuant to the exception outlined in Aspen Skiing Co. v.
`Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). The
`panel held that none of the required elements for the Aspen
`Skiing exception were present, and the district court erred in
`holding that Qualcomm was under an antitrust duty to
`license rival chip manufacturers. The panel held that
`Qualcomm’s OEM-level licensing policy, however novel,
`was not an anticompetitive violation of the Sherman Act.
`
`The panel rejected the FTC’s contention that even
`though Qualcomm was not subject to an antitrust duty to deal
`under Aspen Skiing, Qualcomm nevertheless engaged in
`anticompetitive conduct in violation of § 2 of the Sherman
`
`

`

`FTC V. QUALCOMM
`
`4
`
`Act. The panel held that the FTC did not satisfactorily
`explain how Qualcomm’s alleged breach of its contractual
`commitment itself impaired the opportunities of rivals.
`Because the FTC did not meet its initial burden under the
`rule of reason framework, the panel was less critical of
`Qualcomm’s procompetitive justifications for its OEM-level
`licensing policy—which, in any case, appeared to be
`reasonable and consistent with current industry practice.
`The panel concluded that to the extent Qualcomm breached
`any of its FRAND commitments, the remedy for such a
`breach was in contract or tort law.
`
`The panel next addressed the district court’s primary
`theory of anticompetitive harm: Qualcomm’s imposition of
`an “anticompetitive surcharge” on rival chip suppliers via its
`licensing royalty rates. 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. 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.
`
`
`
`
`
`

`

`
`
`
`FTC V. QUALCOMM
`
`5
`
`COUNSEL
`
`
`Thomas C. Goldstein (argued), Kevin K. Russell, and Eric
`F. Citron, Goldstein & Russell P.C., Bethesda, Maryland;
`Gary A. Bornstein, Antony L. Ryan, Yonatan Even, and M.
`Brent Byars, Cravath Swaine & Moore LLP, New York,
`New York; Robert A. Van Nest, Eugene M. Paige, Cody S.
`Harris, and Justina Sessions, Keker Van Nest & Peters LLP,
`San Francisco, California; Willard K. Tom, Morgan Lewis
`& Bockius LLP, Washington, D.C.; Geoffrey T. Holtz,
`Morgan Lewis & Bockius LLP, San Francisco, California;
`Richard S. Taffet, Morgan Lewis & Bockius LLP, New
`York, New York; Michael W. McConnell, Wilson Sonsini
`Goodrich & Rosati, Palo Alto, California; for Defendant-
`Appellant.
`
`Brian H. Fletcher (argued), Special Counsel; Michele
`Arington, Assistant General Counsel; Heather Hippsley,
`Deputy General Counsel; Ian R. Conner, Deputy Director;
`Daniel Francis, Associate Director; Jennifer Milici, Chief
`Trial Counsel; Alexander Ansaldo, Joseph Baker, Wesley
`Carson, Geoffrey Green, Rajesh James, Kenneth Merber,
`and Mark Woodward, Attorneys, Bureau of Competition;
`Federal Trade Commission, Washington, D.C.; for Plaintiff-
`Appellee.
`
`Michael F. Murray (argued), Deputy Assistant Attorney
`General; William J. Rinner, Chief of Staff and Senior
`Counsel; Daniel E. Haar, Acting Chief, Competition Policy
`and Advocacy Section; Jennifer Dixton, Patrick M.
`Kuhlmann, and Jeffrey D. Negrette, Attorneys; Antitrust
`Division, United States Department of Justice, Washington,
`D.C.; for Amicus Curiae United States.
`
`
`

`

`FTC V. QUALCOMM
`
`6
`
`Jonathan S. Massey, Matthew M. Collette, and Kathryn
`Robinette, Massey & Gail LLP, Washington, D.C., for
`Amicus Curiae Ericsson, Inc.
`
`Amanda Tessar, Perkins Coie LLP, Denver, Colorado; Sarah
`E. Fowler, Perkins Coie LLP, Palo Alto, California; for
`Amicus Curiae Act | The App Association.
`
`Henry C. Su, Ankur Kapoor and David Golden, Constantine
`Cannon LLP, Washington, D.C., for Amicus Curiae High
`Tech Inventors Alliance.
`
`Steven C. Holtzman and Gabriel R. Schlabach, Boies
`Schiller Flexner LLP, San Francisco, California, for Amicus
`Curiae MediaTek Inc.
`
`John J. Vecchione, Michael Pepson, and Jessica Thompson,
`Cause of Action Institute, Washington, D.C., for Amicus
`Curiae Cause of Action Institute.
`
`Garrard R. Beeney and Akash M. Toprani, Sullivan &
`Cromwell LLP, New York, New York, for Amicus Curiae
`Dolby Laboratories, Inc.
`
`Erik S. Jaffe, Schaerr Jaffe LLP, Washington, D.C., for
`Amici Curiae Antitrust and Patent Law Professors,
`Economists, and Scholars.
`
`Matthew J. Dowd, Dowd Scheffel PLLC, Washington, D.C.,
`for Amicus Curiae The Honorable Paul R. Michel (Ret.).
`
`Inc., Wilmington,
`InterDigital
`Isztwan,
`Andrew G.
`Delaware, for Amicus Curiae InterDigital Inc.
`
`
`

`

`7
`
`FTC V. QUALCOMM
`
`
`
`Robert P. Taylor, RPT Legal Strategies PC, San Francisco,
`California, for Amicus Curiae Alliance of U.S. Startups &
`Inventors for Jobs (USIJ).
`
`Jarod M. Bona, Aaron R. Gott, Luis Blanquez, and Luke
`Hasskamp, Bona Law PC, La Jolla, California; Alexander
`Shear, Bona Law PC, New York, New York; for Amici
`Curiae International Center for Law & Economics and
`Scholars of Law and Economics.
`
`Ryan W. Koppelman, Alston & Bird LLP, Palo Alto,
`California, for Amicus Curiae Nokia Technologies Oy.
`
`David W. Kesselman, Amy T. Brantly, and Monica M.
`Castillo Van Panhuys, Kesselman Brantly Stockinger,
`Manhattan Beach, California, for Amicus Curiae Professor
`Jorge L. Contreras.
`
`Sandeep Vaheesan, Open Markets Institute, Washington,
`D.C., for Amicus Curiae Open Markets Institute.
`
`Thomas G. Hungar and Nick Harper, Gibson Dunn &
`Crutcher LLP, Washington, D.C.; Joshua Landau, Computer
`& Communications Industry Association, Washington,
`D.C.; for Amicus Curiae Computer and Communications
`Industry Association.
`
`Michael D. Hausfeld and Scott Martin, Hausfeld LLP, New
`York, New York; Ian Simmons, Benjamin J. Henricks, Brian
`P. Quinn, and Scott Schaeffer, O’Melveny & Myers LLP,
`Washington, D.C.; for Amici Curiae Law and Economics
`Scholars.
`
`Charles Duan, R Street Institute, Washington, D.C., for
`Amicus Curiae R Street Institute.
`
`

`

`FTC V. QUALCOMM
`
`8
`
`
`Gregory P. Stone, Benjamin J. Horwich, Justin P. Raphael,
`and Stephanie G. Herrera, Munger Tolles & Olson LLP, San
`Francisco, California; Donald B. Verrilli Jr., Munger Tolles
`& Olson LLP, Washington, D.C.; for Amicus Curiae Intel
`Corporation.
`
`Andrew J. Pincus, Mayer Brown LLP, Washington, D.C.,
`for Amici Curiae Association of Global Automakers and
`Alliance of Automobile Manufacturers.
`
`John (“Jay”) Jurata Jr., Randall C. Smith, Thomas King-Sun
`Fu, and Emily Luken, Orrick Herrington & Sutcliffe LLP,
`Washington, D.C.,
`for Amici Curiae Continental
`Automotive Systems Inc., and Denso Corporation.
`
`Jean-Claude André and David R. Carpenter, Sidley Austin
`LLP, Los Angeles, California; Raymond A. Atkins and
`Joseph V. Coniglio, Sidley Austin LLP, Washington, D.C.;
`for Amicus Curiae Timothy J. Muris.
`
`Randy M. Stutz, American Antitrust Institute, Washington,
`D.C., for Amici Curiae American Antitrust Institute and
`Public Knowledge.
`
`David H. Herrington, and Alexandra K. Theobald, Cleary
`Gottlieb Steen & Hamilton LLP, New York, New York;
`Daniel P. Culley and Jessica A. Hollis, Cleary Gottlieb Steen
`& Hamilton LLP, Washington, D.C.; for Amicus Curiae Fair
`Standards Alliance.
`
`
`
`
`

`

`
`
`
`FTC V. QUALCOMM
`
`9
`
`OPINION
`
`CALLAHAN, Circuit Judge:
`
`line between
`the
`to draw
`This case asks us
`anticompetitive behavior, which is illegal under federal
`antitrust law, and hypercompetitive behavior, which is not.
`The Federal Trade Commission (“FTC”) contends that
`Qualcomm
`Incorporated
`(“Qualcomm”) violated
`the
`Sherman Act, 15 U.S.C. §§ 1, 2, by unreasonably restraining
`trade in, and unlawfully monopolizing, the code division
`multiple access (“CDMA”) and premium
`long-term
`evolution (“LTE”) cellular modem chip markets. After a
`ten-day bench trial, the district court agreed and ordered a
`permanent, worldwide injunction prohibiting several of
`Qualcomm’s core business practices.
` We granted
`Qualcomm’s request for a stay of the district court’s
`injunction pending appeal. FTC v. Qualcomm Inc., 935 F.3d
`752 (9th Cir. 2019). At that time, we characterized the
`district court’s order and injunction as either “a trailblazing
`application of the antitrust laws” or “an improper excursion
`beyond the outer limits of the Sherman Act.” Id. at 757. We
`now hold that the district court went beyond the scope of the
`Sherman Act, and we reverse.
`
`I
`
`A
`
`Founded in 1985, Qualcomm dubs itself “the world’s
`leading cellular technology company.” Over the past several
`decades, the company has made significant contributions to
`the technological innovations underlying modern cellular
`systems, including third-generation (“3G”) CDMA and
`fourth-generation (“4G”) LTE cellular standards—the
`standards practiced
`in most modern cellphones and
`
`

`

`FTC V. QUALCOMM
`
`10
`
`“smartphones.” Qualcomm protects and profits from its
`technological innovations through its patents, which it
`licenses to original equipment manufacturers (“OEMs”)
`whose products (usually cellphones, but also smart cars and
`other products with cellular applications) practice one or
`more of Qualcomm’s patented technologies.
`
`Qualcomm’s patents include cellular standard essential
`patents (“SEPs”), non-cellular SEPs, and non-SEPs.
`Cellular SEPs are patents on technologies that international
`standard-setting organizations (“SSOs”) choose to include in
`technical standards practiced by each new generation of
`cellular technology. SSOs—also referred to as standards
`development
`organizations
`(“SDOs”)—are
`global
`collaborations of
`industry participants
`that “establish
`technical specifications to ensure that products from
`different manufacturers are compatible with each other.”
`Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 875 (9th
`Cir. 2012) (“Microsoft II”) (citing Mark A. Lemley,
`Intellectual Property Rights
`and
`Standard-Setting
`Organizations, 90 Calif. L. Rev. 1889 (2002)). Cellular
`SEPs are necessary to practice a particular cellular standard.
`Because SEP holders could prevent industry participants
`from implementing a standard by selectively refusing to
`license, SSOs require patent holders to commit to license
`their SEPs on fair, reasonable, and nondiscriminatory
`(“FRAND”) terms before their patents are incorporated into
`standards.1
`
`
`1 See generally Joshua D. Wright, SSOs, FRAND, and Antitrust:
`Lessons from the Economics of Incomplete Contracts, 21 GEO. MASON
`L. REV. 791 (2014) (discussing the role of SSOs in the selection and
`enforcement of standards and whether antitrust law has, or should have,
`a role in regulating the SSO contracting processes).
`
`

`

`
`
`
`FTC V. QUALCOMM
`
`11
`
`Some of Qualcomm’s SEPs and other patents relate to
`CDMA and premium LTE technologies—that is, the way
`cellular devices communicate with the 3G and 4G cellular
`networks—while others relate to other cellular and non-
`cellular applications and technologies, such as multimedia,
`cameras, location detecting, user interfaces, and more.
`Rather than license its patents individually, Qualcomm
`generally offers its customers various “patent portfolio”
`options, whereby the customer/licensee pays for and
`receives the right to practice all three types of Qualcomm
`patents (SEPs, non-cellular SEPs, and non-SEPs).
`
`Qualcomm’s patent licensing business is very profitable,
`representing around two-thirds of the company’s value. But
`Qualcomm is no one-trick pony. The company also
`manufactures and sells cellular modem chips, the hardware
`that enables cellular devices to practice CDMA and premium
`LTE technologies and thereby communicate with each other
`across cellular networks.2 This makes Qualcomm somewhat
`unique in the broader cellular services industry. Companies
`such as Nokia, Ericsson, and Interdigital have comparable
`SEP portfolios but do not compete with Qualcomm in the
`modem chip markets. On the other hand, Qualcomm’s main
`competitors in the modem chip markets—companies such as
`MediaTek, HiSilicon, Samsung LSI, ST-Ericsson, and VIA
`
`
`2 Qualcomm’s licensing and modem chip businesses are run out of
`two different divisions: (1) Qualcomm Technology Licensing, which is
`responsible for granting licenses to Qualcomm’s patent portfolios and
`determining what royalty rates to charge for those licenses; and
`(2) Qualcomm CDMA Technologies, which
`is responsible for
`manufacturing, pricing, and selling Qualcomm’s CDMA and premium
`LTE modem chips. Id. at 669–75.
`
`

`

`FTC V. QUALCOMM
`
`12
`
`Telecom (purchased by Intel in 2015)—do not hold or have
`not held comparable SEP portfolios.3
`
`Like its licensing business, Qualcomm’s modem chip
`business has been very successful. From 2006 to 2016,
`Qualcomm possessed monopoly power in the CDMA
`modem chip market, including over 90% of market share.
`From 2011 to 2016, Qualcomm possessed monopoly power
`in the premium LTE modem chip market, including at least
`70% of market share. During these timeframes, Qualcomm
`leveraged its monopoly power to “charge monopoly prices
`on [its] modem chips.” Qualcomm, 411 F. Supp. 3d at 800.
`Around 2015, however, Qualcomm’s dominant position in
`the modem chip markets began to recede, as competitors like
`Intel and MediaTek found ways to successfully compete.
`Based on projections from 2017 to 2018, Qualcomm
`maintains approximately a 79% share of the CDMA modem
`chip market and a 64% share of the premium LTE modem
`chip market.4
`
`B
`
`Qualcomm licenses its patent portfolios exclusively at
`the OEM level, setting the royalty rates on its CDMA and
`LTE patent portfolios as a percentage of the end-product
`
`
`3 The now-defunct modem chip supplier ST-Ericsson presents the
`only partial exception to this general pattern. ST-Ericsson was a joint
`venture between Ericsson, which does have a large SEP portfolio, and
`STMicroelectronics. The company was dissolved in 2013. See TCL
`Commc’n Tech. Holdings, Ltd. v. Telefonaktiebolaget LM Ericsson, No.
`CV 15-2370 JVS(DFMx), 2018 WL 4488286, at *44 (C.D. Cal. Sept.
`14, 2018), rev’d in part, vacated in part, 943 F.3d 1360 (Fed. Cir. 2019).
`
`4 According to Qualcomm, its market share in premium LTE modem
`chips dropped below 50% in 2017. Appellant’s Opening Br. at 118.
`
`

`

`13
`
`FTC V. QUALCOMM
`
`
`
`sales price. This practice is not unique to Qualcomm. As
`the district court found, “[f]ollowing Qualcomm’s lead,
`other SEP licensors like Nokia and Ericsson have concluded
`that licensing only OEMs is more lucrative, and structured
`their practices accordingly.”5 Id. at 754–55. OEM-level
`licensing allows these companies to obtain the maximum
`value for their patented technologies while avoiding the
`problem of patent exhaustion, whereby “the
`initial
`authorized [or licensed] sale of a patented item terminates all
`patent rights to that item.” Quanta Comput., Inc. v. LG
`Elecs., Inc., 553 U.S. 617, 625 (2008); see also Adams v.
`Burke, 84 U.S. 453, 457 (1873) (when a patented item is
`“once lawfully made and sold, there is no restriction on [its]
`use to be implied for the benefit of the patentee or his
`assignees or licensees”). Due to patent exhaustion, if
`Qualcomm licensed its SEPs further “upstream” in the
`manufacturing process to competing chip suppliers, then its
`patent rights would be exhausted when these rivals sold their
`products to OEMs. OEMs would then have little incentive
`to pay Qualcomm for patent licenses, as they could instead
`
`
`5 According to Nokia and other companies, OEM-level licensing is
`now the industry norm. See Br. of Amicus Curiae Nokia Technologies
`Oy at 4 (“Requiring component-level licensing contravenes industry
`norms, leads to the ATIS and TIA IPR Policies being inconsistent with
`[other SSO policies], and could have unintended consequences for other
`SEP holders and the industry at large.”); Br. of Amicus Curiae Dolby
`Laboratories, Inc. at 16 (“The consistent experience of Dolby, a licensor
`to thousands of licenses under SEPs, is that FRAND licensing of SEPs
`takes place at the end-product level.”); see also Br. of Amici Curiae
`Continental Automotive Systems, Inc. and Denso Corporation at 1–2
`(“[J]ust as in the smartphone industry, many cellular SEP-holders restrict
`their licensing in the automotive industry solely to the manufacturers of
`consumer goods (here, the Big Three and other automakers), meaning
`that upstream manufacturers like amici are left out in the cold.”).
`
`

`

`FTC V. QUALCOMM
`
`14
`
`become “downstream” recipients of the already exhausted
`patents embodied in these rivals’ products.6
`
`Because rival chip manufacturers practice many of
`Qualcomm’s SEPs by necessity, Qualcomm offers these
`companies what it terms “CDMA ASIC Agreements,”
`wherein Qualcomm promises not to assert its patents in
`exchange for the company promising not to sell its chips to
`unlicensed OEMs.7 These agreements, which essentially
`function as patent-infringement indemnifications, include
`reporting requirements that allow Qualcomm to know the
`details of its rivals’ chip supply agreements with various
`OEMs. But they also allow Qualcomm’s competitors to
`practice Qualcomm’s SEPs royalty-free.
`
`Qualcomm reinforces these practices with its so-called
`“no license, no chips” policy, under which Qualcomm
`
`the
`to
`terms “upstream” and “downstream” refer
`6 The
`manufacturing chain for consumer products such as cellphones that
`contain component parts produced by different companies that are
`sequentially installed until the end-product takes shape, at which point it
`is sold by an OEM (the most “downstream” manufacturer in the chain)
`directly to consumers. See MEMC Elec. Materials, Inc. v. Mitsubishi
`Materials Silicon Corp., 420 F.3d 1369, 1372, 1374 (Fed. Cir. 2005)
`(describing the upstream and downstream manufacturing process in the
`context of silicon wafers used in semiconductors).
`
`7 See Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1209 (Fed.
`Cir. 2014) (“Because the standard requires that devices utilize specific
`technology, compliant devices necessarily infringe certain claims in
`patents that cover technology incorporated into the standard.”).
`Previously, in the 1990s, Qualcomm provided “non-exhaustive licenses”
`to rival chip suppliers, charging a royalty rate on their chipset sales.
`Qualcomm, 411 F. Supp. 3d at 673, 754. According to Qualcomm, these
`were actually “non-exhaustive, royalty-bearing agreements with
`chipmakers that explicitly did not grant rights to the chipmaker’s [OEM]
`customers.” Appellant’s Opening Br. at 45.
`
`

`

`15
`
`FTC V. QUALCOMM
`
`
`
`refuses to sell modem chips to OEMs that do not take
`licenses to practice Qualcomm’s SEPs. Otherwise, because
`of patent exhaustion, OEMs could decline to take licenses,
`arguing instead that their purchase of chips from Qualcomm
`extinguished Qualcomm’s patent rights with respect to any
`CDMA or premium LTE technologies embodied in the
`chips. This would not only prevent Qualcomm from
`obtaining the maximum value for its patents, it would result
`in OEMs having to pay more money (in licensing royalties)
`to purchase and use a competitor’s chips, which are
`unlicensed. Instead, Qualcomm’s practices, taken together,
`are “chip supplier neutral”—that is, OEMs are required to
`pay a per-unit licensing royalty to Qualcomm for its patent
`portfolios regardless of which company they choose to
`source their chips from.
`
`Although Qualcomm’s licensing and modem chip
`businesses have made it a major player in the broader
`cellular technology market, the company is not an OEM.
`That is, Qualcomm does not manufacture and sell cellphones
`and other end-use products (like smart cars) that consumers
`purchase and use. Thus, it does not “compete”—in the
`antitrust sense—against OEMs like Apple and Samsung in
`these product markets.
`
`Instead,
`these OEMs are
`Qualcomm’s customers.8
`
`
`8 Samsung presents the one exception to this rule, as it is both one
`of Qualcomm’s OEM customers and one of its competitors in the modem
`chip markets (Samsung LSI is Samsung’s modem chip division). 411 F.
`Supp. 3d at 746, 750. However, as Samsung LSI does not sell chips
`externally, “Samsung is not a competitor [of Qualcomm] to sell modem
`chips to external OEMs.” Id. at 750.
`
`

`

`16
`
`
`FTC V. QUALCOMM
`
`C
`
`Over the past several decades, as Qualcomm’s licensing
`and modem chip businesses thrived and the company gained
`more and more market share, its OEM customers and rival
`chipmakers grew frustrated with the company’s business
`practices. The targets of these complaints included
`Qualcomm’s practice of licensing exclusively at the OEM
`level and refusing to license rival chipmakers, its licensing
`royalty rates, its “no license, no chips” policy, and
`Qualcomm’s sometimes aggressive defense of these policies
`and practices.
` Qualcomm’s customers occasionally
`attempted to “discipline” its pricing through arbitration
`claims, negotiations, threatening to change chip suppliers,
`and litigation. These maneuvers generally resulted in
`settlements and renegotiated licensing and chip-supply
`agreements with Qualcomm, even as OEMs continued to
`look elsewhere for less expensive modem chip options.
`
`Qualcomm’s competitors in the modem chip markets
`contend that Qualcomm’s business practices, in particular its
`refusal to license them, have hampered or slowed their
`ability to develop and retain OEM customer bases, limited
`their growth, delayed or prevented their entry into the
`market, and in some cases forced them out of the market
`entirely. These competitors contend that this result is not
`just anticompetitive, but a violation of Qualcomm’s
`contractual commitments
`to
`two cellular SSOs—the
`Telecommunications Industry Association (“TIA”) and
`Alliance
`for Telecommunications
`Industry Solutions
`(“ATIS”)—to license its SEPs “to all applicants” on FRAND
`terms.9 Qualcomm argues that it has no antitrust duty to deal
`
`9 Under the TIA contract, Qualcomm agreed to make its SEPs
`“available to all applicants under terms and conditions that are
`
`
`

`

`17
`
`FTC V. QUALCOMM
`
`
`
`with its rivals, and in any case OEM-level licensing is
`consistent with Qualcomm’s SSO commitments because
`only OEM products (i.e., cellphones, tablets, etc.) “practice”
`or “implement” the standards embodied in Qualcomm’s
`SEPs. Furthermore, Qualcomm argues that it substantially
`complies with the TIA and ATIS requirements by not
`asserting its patents against rival chipmakers.
`
`In 2011 and 2013, Qualcomm signed agreements with
`Apple under which Qualcomm offered Apple billions of
`dollars in incentive payments contingent on Apple sourcing
`its iPhone modem chips exclusively from Qualcomm and
`committing to purchase certain quantities of chips each year.
`Again, rivals such as Intel—as well as Apple itself, which
`was interested in using Intel as an alternative chip supplier—
`complained that Qualcomm was engaging in anticompetitive
`business practices designed to maintain its monopolies in the
`CDMA and premium LTE modem chip markets while
`making it impossible for rivals to compete.10 In 2014, Apple
`
`reasonable and non-discriminatory . . . and only to the extent necessary
`for the practice of any or all of the Normative portions for the field of
`use of practice of the Standard.” FTC v. Qualcomm Inc., No. 17-CV-
`00220-LHK, 2018 WL 5848999, at *3 (N.D. Cal. Nov. 6, 2018). Under
`the ATIS contract, Qualcomm committed to making its SEPs “available
`to applicants desiring to utilize the license for the purpose of
`implementing the standard . . . under reasonable terms and conditions
`that are demonstrably free of any unfair discrimination.” Id.
`
`10 Under the 2013 agreement, Qualcomm paid Apple a “marketing
`fund” (effectively a price rebate on chips) of $2.50 per iPhone sold with
`a Qualcomm chip and $1.50 per iPad sold with a Qualcomm chip, plus
`hundreds of millions of dollars in “incentive funds” contingent on Apple
`purchasing at least 100 million Qualcomm chips in 2015 and 2016.
`411 F. Supp. 3d at 732. The agreement contained a “clawback
`provision” providing that if Apple sold devices without Qualcomm
`chips, then it would have to reimburse Qualcomm all or a large
`
`
`

`

`FTC V. QUALCOMM
`
`18
`
`decided to terminate these agreements and source its modem
`chips from Intel for its 2016 model iPhone.
`
`D
`
`In January 2017, the FTC sued Qualcomm for equitable
`relief, alleging that Qualcomm’s interrelated policies and
`practices excluded competitors and harmed competition in
`the modem chip markets, in violation § 5(a) of the FTC Act,
`15 U.S.C. § 45(a), and §§ 1 and 2 of the Sherman Act,
`15 U.S.C. §§ 1, 2. After a ten-day bench trial, the district
`court concluded that “Qualcomm’s licensing practices are an
`unreasonable restraint of trade under § 1 of the Sherman Act
`and exclusionary conduct under § 2 of the Sherman Act.”11
`Qualcomm, 411 F. Supp. 3d at 812 (citing United States v.
`Microsoft Corp., 253 F.3d 34, 58–59 (D.C. Cir. 2001)). The
`district court ordered a permanent, worldwide injunction
`prohibiting Qualcomm’s core business practices. Id. at 820–
`24.
`
`The district court’s decision consists of essentially five
`mixed findings of fact and law: (1) Qualcomm’s “no license,
`no chips” policy amounts to “anticompetitive conduct
`against OEMs” and an “anticompetitive practice[] in patent
`license negotiations”; (2) Qualcomm’s refusal to license
`rival chipmakers violates both its FRAND commitments and
`
`
`percentage of the per-unit marketing funds, as well as the incentive
`funds. Id.
`
`11 Because the district court concluded that Qualcomm violated the
`Sherman Act and thereby violated the FTC Act—which prohibits
`“[u]nfair methods of competition,” including Sherman Act violations—
`it did not address whether Qualcomm’s conduct constituted a standalone
`violation of the FTC Act. Id. at 683.
`
`

`

`19
`
`FTC V. QUALCOMM
`
`
`
`an antitrust duty to deal under § 2 of the Sherman Act;12
`(3) Qualcomm’s “exclusive deals” with Apple “foreclosed a
`‘substantial share’ of the modem chip market” in violation
`of both Sherman Act provisions; (4) Qualcomm’s royalty
`rates are “unreasonably high” because they are improperly
`based on its market share and handset price instead of the
`value of its patents; and (5) Qualcomm’s royalties, in
`conjunction with its “no license, no chips” policy, “impose
`an artificial and anticompetitive surcharge” on its rivals’
`sales, “increas[ing] the effective price of rivals’ modem
`chips” and
`resulting
`in anticompetitive exclusivity.
`Qualcomm, 411 F. Supp. 3d at 697–98, 751–62, 766, 771–
`92 (citations omitted). “Collectively,” the district court
`found, these policies and practices “create insurmountable
`and artificial barriers for Qualcomm’s rivals, and thus do not
`further competition on the merits.” Id. at 797.
`
`The district court concluded that “[b]y attacking all
`facets of rivals’ businesses and preventing competition on
`the merits, [Qualcomm’s] practices ‘harm the competitive
`process and thereby harm consumers.’” Id. (quoting
`
`12 The district court granted the FTC’s pretrial motion for partial
`summary judgment on the issue of whether Qualcomm’s SSO
`commitments contractually require it to license its SEPs on FRAND
`terms to competing modem chip suppliers. 2018 WL 5848999, at *1, 15.
`The district court concluded that “Ninth Circuit precedent establishes
`that Qualcomm’s FRAND commitments include an obligation to license
`to all comers, including competing modem chip suppliers.” Id. at *10
`(citing Microsoft II, 696 F.3d at 876 (noting that “[m]any SSOs try to
`mitigate the threat of patent holdup by requiring members who hold IP
`rights in standard-essential patents to agree to license those patents to all
`comers on terms that are ‘reasonable and nondiscriminatory,’ or
`‘RAND.’” (quoting Lemley, supra, at 1902, 1906)); Microsoft Corp. v.
`Motorola, Inc., 795 F.3d 1024, 1031 (9th Cir. 2015) (“Microsoft III”)
`(“[An] SEP holder cannot refuse a license to a manufacturer who
`commits to paying the RAND rate.”)).
`
`

`

`FTC V. QUALCOMM
`
`20
`
`Microsoft, 253 F.3d at 58). Accordingly, the district court
`held that the FTC met its burden under the Sherman Act of
`proving “market power plus some evidence that the
`challenged restraint harms competition.” Id. at 804 (quoting
`Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018)).
`Furthermore, the district court held that it could “infer” a
`causal connection between Qualcomm’s conduct and
`anticompetitive harm because that conduct “‘reasonably
`appear[s] capable of making a significant contribution to . . .
`maintaining monopoly power.’” Id. at 804–05 (alterations
`in original) (quoting Microsoft, 253 F.3d at 79).
`
`Qualcomm timely appealed. It asks us to reverse the
`district court’s Sherman Act ruling, vacate the district
`court’s injunction and summary judgment ruling on
`Qualcomm’s SSO commitments, and remand the latter for
`trial. For the reasons that follow, we reverse the district
`court’s Sherman Act ruling and its issuance of a worldwide
`injunction. Because our reversal does not depend on the
`district court’s grant of partial summary judgment with
`respect to Qualcomm’s contractual commitments to license
`its SEPs to rival chip suppliers, we vacate that order as moot
`without reaching its merits.13
`
`
`13 See supra note 12. Although the FTC discussed Qualcomm’s
`F

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