It is more than three years ago that the FTC of the United States accused Qualcomm of anti-trust violations over patents and cellular modem and business practices. That suit finally received a ruling against Qualcomm in May 2019, which resulted in an order for Qualcomm to renegotiate its licensing agreements with its customers. Qualcomm had later appealed the verdict, put the order on hold, and today, a little over a year later, the Ninth Circuit Court of Appeals has finally issued an opinion, reversing and abandoning the shortening, which resulted in a win for Qualcomm at this point in time.
The higher court’s opinion focuses on the FTC’s use of anti-trust law to hold Qualcomm accountable for some of its controversial business practices in how it treats licensing of its patent portfolio and its “no license, no license” chip “. The opinion adds the original judgment, because the arguments presented do not fall under the umbrella of violations of anti-trust laws, and instead it is a matter of contract and patent law.
The original charge revolved around Qualcomm’s alleged refusal to grant cellular patents to competitors of chip sellers, with the company against this accusation that its patents apply only to OEM products, and not the chips of components themselves:
“Qualcomm states that it has no anti-trust obligation to treat its rivals, and in any case licensing on OEM is in accordance with Qualcomm’s SSO obligations, because only OEM products (that is, mobile phones, tablets, etc. .) “Practice” or “implement” the standards set forth in Qualcomm’s SEPs. Furthermore, Qualcomm claims that it substantially meets the TIA and ATIS requirements by not taking out its patents against competing chipmakers. “
The appeals panel reaffirmed Qualcomm’s idea and view of the practice, stating that there is no anti-trust law prohibiting the company from applying licensing regulations in this way.
More specifically, the issue of Qualcomm collecting royalties from OEMs is due to a change in patent law, which forced the company to give up non-exhaustive licenses to other chip manufacturers:
Qualcomm claims that it has never issued exhaustive licenses to competing chip providers. Instead, as the 1999 email indicates, it went into non-exhaustive, royalty agreements with chipmakers that explicitly did not grant any rights to the chipmaker’s customers. “Appellant’s Opening Br. At 45. According to Qualcomm, this practice has been discontinued in response to developments in the patent doctrine of exhaustion, see, for example, Quanta Comput., 553 U.S. at 625 (note that” the initial authorized sale of a patented article all patent rights terminating that item “), which made it more difficult for Qualcomm to argue that it could provide” non-exhaustive “licenses in the form of royalty agreements.”
Because Qualcomm applies this practice equally among all OEMs, and there is no history of the company ever issuing exhausting licenses to a chip vendor, the appeals panel also failed to determine any anti-competitive conduct on the part of the company, and calls Qualcomm’s business model “Chipper-Supplier neutral”, and does not undermine competition in the anti-trust market.
“… Qualcomm’s practice of licensing its SEPs exclusively at the OEM level does not apply to competitive business conduct in violation of § 2, as Qualcomm is under no anti-trust obligation to license rival chip suppliers.”
If Qualcomm is seen as having not engaged in any anti-competitive conduct in terms of its willingness to license patents to OEMs, and the fact that it grants a “CDMA ASIC” license to chip manufacturers free of charge to pre-empt the technology they sell it to them customers, their refusal to grant chip manufacturers non-exhaustive licenses is not seen as a matter of anti-trust law, and the original ruling is valid in this regard.
The appeal’s advice also addresses the third case of the alleged exclusivity action that Qualcomm had entered into with Apple in 2011 and 2013, which given that the effect of these deals had not distorted competition (and argued with the fact that Intel subsequently sued Apple contracts had won in subsequent years), that it also did not go against anti-trust law.
Overall, the opinion of the Appeals Panel today represents a major blow to the FTC and its original legal tactics and use of anti-trust law. While this is a major gain for the company, it is not entirely out of the question, as the company’s practices may still be in breach of contract and patent law:
“To the extent that Qualcomm has violated any of its FRAND obligations, a conclusion we do not have to reach and fail to reach, the remedy for such a breach lies in contract and patent law.”
Although Qualcomm may currently continue its licensing model for business practices, it will likely continue to receive future checks regarding the amount of fees it costs.
