On Wednesday, the Ninth Circuit filed an order whereby Circuit Judge Johnnie B. Rawlinson and Circuit Judge Consuelo M. Callahan vote to deny the Federal Trade Commission’s (FTC) petition for a rehearing en banc in its suit against cellular chip manufacturer and telecommunications giant Qualcomm and District Judge Stephen Joseph Murphy, III of the Eastern District of Michigan, sitting by designation, so recommends. Cellular and mobile technologies are complex, and each generation grows more complex. I have written a lot about the case since its inception and thought it was time to write about a few interesting aspects of the case. Qualcomm should not have to directly license its modem competitors like Huawei, Samsung, Intel (at the time), Unisoc (Spreadtrum), or MediaTek. The regulator asked the U.S. Wait, I thought there was no competition (sarcasm added. Before Patrick started the firm, he spent over 20 years as a high-tech strategy, product, and marketing executive who has addressed the personal computer, mobile, graphics, and server ecosystems. This resulted in the FTC charging Qualcomm for anticompetitive practices, and Apple suing Qualcomm and withholding payments for Qualcomm intellectual property that same week. The FTC could argue the same if it had to appeal, but whether the FTC, given its internal stalemate, … I am not a lawyer, but I have been involved over the past 30 years in some of the largest antitrust cases in technology, given my tenure at some of the top tech companies. Hypercompetitive behavior is not. iPhone XS, Pixel 3, OnePlus 6T and 20 other phones without headphone jacks See all photos Companies like Qualcomm spend a much higher percentage on “R” than, let’s say, Broadcom who trumpets “R&D.”. In September, the FTC filed a petition for a rehearing en banc. Qualcomm builds prototypes, tests them, conducts simulations to prove the technology before the standards process finalizes designs. Apple then settled with Qualcomm which included paying Qualcomm for the years it had withheld payment. As a result, the FTC sought a rehearing en banc. The FTC averred that Qualcomm unreasonably restrained trade and illegally monopolized the code division multiple access (CDMA) and premium long-term evolution (LTE) cellular chip markets. v. Qualcomm, 411 F.Supp.3d 658, (N.D. Cal. By Mike Freeman Sep. 25, 2020 The Ninth Circuit vacated the Northern District of California’s decision and reversed the permanent injunction on a few of Qualcomm’s business practices. I was always of the opinion that the FTC never showed any evidence that any of these three conditions met the bar for Qualcomm. The Ninth Circuit has thrown out an antitrust ruling against Qualcomm, allowing it to continue bundling chips and patents in a way that phone makers and the FTC … Three weeks ago, Qualcomm won its battle with the FTC in the Ninth Circuit Court of Appeals. As a result, Qualcomm collected large royalties and allegedly violated patent FRAND terms. I chalk it up as innovation and investment. Qualcomm is also very pleased that the full Ninth Circuit Court of Appeals has denied the FTC’s petition for rehearing. The U.S. Court of Appeals for the Ninth Circuit (San Francisco) today overturned a lower court’s injunction prohibiting certain business practices of chip manufacturer Qualcomm, Inc., arguing, among other things, that the district court inappropriately considered effects in the broader cellular services market. Qualcomm’s licensing model has been at the center of the mobility industry, with over 140,000 patents and patent applications worldwide. Qualcomm has exercised market dominance in the 3G and 4G cellular modem chip markets for many years, and its business practices have played a powerful and disruptive role in those markets, as well as in the broader cellular services and technology markets. Patrick founded Moor. 2017).”, “Our job is not to condone or punish Qualcomm for its success, but rather to assess whether the FTC has met its burden under the rule of reason to show that Qualcomm’s practices have crossed the line to “conduct which unfairly tends to destroy competition itself.” Spectrum Sports, 506 U.S. at 458. (CN) – After a long, intense and spirited hearing in the Ninth Circuit on Thursday, a three-judge panel will decide whether the world’s leading chip manufacturer is illegally distorting the market or simply outfoxing the competition. So now that the courts found Qualcomm not guilty of anticompetitive behavior, how did Qualcomm get so dominant? Notably, the problem is that Qualcomm’s “royalties” conceal a chip-driven surcharge that is the economic equivalent of the fees in United Shoe and Caldera…Just like those fees, the surcharge is extracted through monopoly power and penalizes purchases of competing products,” which the FTC argued is anticompetitive. Thus, the appellate panel held that Qualcomm’s patent royalty is shielded from antitrust scrutiny, this facially neutral fee cannot harm competition, and the Ninth Circuit dismissed the district court’s findings about harm to Qualcomm’s customers. The News: Qualcomm has been exonerated by the U.S. 9th Circuit Court of Appeals, with the Court yesterday declining the Federal Trade Commission’s petition to “rehear” arguments against Qualcomm. Three weeks ago, Qualcomm won its battle with the FTC in the Ninth Circuit Court of Appeals. Opinions expressed by Forbes Contributors are their own. All Rights Reserved, This is a BETA experience. The appellate order stated that “[t]he full court has been advised of the petition for rehearing en banc and no judge has requested a vote on whether to rehear the matter en banc.” As a result, the request is denied. Qualcomm’s overall goal is to drive the technology out into the world and build optimized mobile devices and optimized networks that deliver the performance that everybody expects. I believe one of the most notable things that came out of the case was the distinction between anticompetitive and hypercompetitive behavior. And finally, the Ninth Circuit -- or the FTC had alleged that exclusive dealings between Qualcomm and Apple -- exclusive arrangements -- was anticompetitive. © 2021 Forbes Media LLC. This effectively puts an end to the FTC’s dubious antitrust case against the San Diego tech giant. ), Petition of the FTC for Rehearing En Banc, 19-16122 (532.63 KB) November 22, 2019 Answering Brief of the Federal Trade Commission in the United States Court of Appeals for the Ninth Circuit (789.64 KB) The Ninth Circuit’s recent decision in FTC v.Qualcomm (9th Cir., Aug. 11, 2020) is generally viewed as a resounding victory for Qualcomm. I’ll admit, while I was surprised Qualcomm was even charged by the FTC (see my analysis here), I was even more surprised with the guilty verdict by Judge Koh. This was a highly anticipated outcome in the multi-year saga, which saw fortunes go back and forth between the parties. The court said if the customers do not like the price of the IP, they should bring it up in contract court to show how it is not fair, reasonable, and non-discriminatory (FRAND). ). Additionally, the FTC proffered that the Ninth Circuit mischaracterized the surcharge as “chip neutral” and that “‘by definition’ a facially ‘neutral’ charge cannot distort competition.” However, the FTC claimed that this is based “on an erroneous premise… that an OEM pays the same surcharge ‘whether an OEM buys Qualcomm’s chips or a rival’s chips,’” which, according to the FTC, is not true. 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. You may opt-out by. Qualcomm also serves as an “orchestrator” across the industry, a role that mostly goes unnoticed. In a strongly worded opinion, the Ninth Circuit reversed the entirety of the district court’s holding, which found that Qualcomm violated Sections 1 and 2 of the Sherman Act. Moorhead also has significant board experience. Qualcomm’s “no license, no chips” policy is OK, as well, as it does not impact rival modem maker’s opportunities. SAN DIEGO, Aug. 23, 2019 /PRNewswire/ -- Qualcomm Incorporated (NASDAQ: QCOM) today announced that the United States Court of Appeals for the Ninth Circuit granted in its entirety Qualcomm's request for a partial stay, pending appeal, of an injunction from the U.S. District Court for … He has nearly 30 years of experience including 15 years as an executive at high tech companies leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments. 2019).. On September 25, the Federal Trade Commission (FTC) requested a rehearing en banc from the Ninth Circuit Court of Appeals in an antitrust case against Qualcomm. I think it is critical for the sake of this conversation to split “R” and “D.” “R” as in “research” is highly risky and can start a decade in advance of any tangible product coming out of it. The court went so far as to say that Qualcomm’s business model is “chip-supplier neutral.”, Qualcomm’s special deal with Apple had no impact on hurting competition, and the court noted that Apple terminated the contracts. Only a handful of companies in the world do the in-depth and years-ahead R&D required for these technologies. The panel concluded that to the extent Qualcomm breached I write about disruptive companies, technologies and usage models. I wrote a bit on the company’s orchestrator role here and here. Specifically, the FTC asserted that Qualcomm used its dominant market position to set forth policies that hindered competition and further solidified its purported monopoly position. It started as a research and tech transfer company 35 years ago and was licensing CDMA wireless tech before it was selling chips. He runs MI&S but is a broad-based analyst covering a wide variety of topics including the software-defined datacenter and the Internet of Things (IoT), and Patrick is a deep expert in client computing and semiconductors. (CN) — A Ninth Circuit panel ruled Tuesday that chipmaker Qualcomm did not engage in antitrust behavior, handing the technology company a major win by reversing a lower court decision with potentially devastating consequences to its business. Guest post by University of Utah College of Law Professor Jorge L. Contreras.. Reverses FTC Win On Qualcomm Licensing The Ninth Circuit on Tuesday reversed the Federal Trade Commission's win in its case accusing Qualcomm of … On Aug. 11, a three-judge panel of the 9th Circuit said the FTC failed to establish that Qualcomm’s practices had an anticompetitive effect on the cellular chip market. I had never seen anything like it in first-world courtrooms, maybe except for maybe Korea. Patrick was ranked the #1 analyst out of 8,000 in the ARInsights Power 100 rankings and the #1 most cited analyst as ranked by Apollo Research. “D” as in “development” are the expenditures that productize IP for sale in the form of a chip. The FTC argued that the panel “disregarded precedent” by “elevating patent-law labels over economic substance,” “holding that facially ‘neutral’ fees cannot violate the antitrust laws,” and “holding that harms to Qualcomm’s customers are ‘beyond the scope of antitrust law’ and demanding a showing of ‘direct’ harm to competitors.” Specifically, the FTC claimed that the Supreme Court “repeatedly instructed that the Sherman Act ‘is aimed at substance rather than form’…and that court must look beyond labels to ‘the economic reality of the relevant transactions.’” As a result, the FTC asserted that the appellate court should have determined that the so-called patent royalties were not royalties, but rather to secure its chip monopoly, as Judge Lucy Koh in the Northern District of California found. It has also “acted with sharp elbows—as businesses often do.” Tension Envelope Corp. v. JBM Envelope Co., 876 F.3d 1112, 1122 (8th Cir. Without any evidence of harm to competition, increased prices to consumers, or a decrease in innovation, Judge Koh still ruled Qualcomm guilty. Qualcomm, FTC Spar at 9th Circuit Over What Makes a Monopoly. Patrick founded Moor Insights & Strategy based on in his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Qualcomm, on the other hand, showed that: Qualcomm showed real data, not imaginary or theoretical data. Qualcomm’s stock plummeted to $53 (today $121), which led to a hostile takeover attempt by Broadcom. Lastly, the FTC alleged that the appellate panel “seriously erred” when it dismissed the district court’s “findings about the harm to OEMs – including higher prices that are passed on to retail consumers – because OEMs ‘are Qualcomm’s customers, not its competitors.’” The FTC argued that the Ninth Circuit erroneously believed “that such harm is not cognizable because it ‘falls outside the relevant antitrust markets.’” However, the FTC claimed that this is a misstatement of the law. The Ninth Circuit characterized Qualcomm's "no license, no chips" policy as a policy of "no license, no problem" as far as rival chipmakers were concerned. F.T.C. Qualcomm then sued Apple and its ODMs for non-payment. Tom Goldstein, representing Qualcomm, delivers remarks to the three judges overseeing the appeal. 9th Circ. He served as an executive board member of the Consumer Electronics Association (CEA), the American Electronics Association (AEA) and chaired the board of the St. David’s Medical Center for five years, designated by Thomson Reuters as one of the 100 Top Hospitals in America. At the Ninth Circuit Court of Appeals, the three-judge panel unanimously overruled every one of Judge Koh’s rulings, citing the vast difference between being anticompetitive and hypercompetitive. That is not a crime; it is the American way. FTC Files Unlikely Petition to 9th Circuit to Revisit Favorable Qualcomm Ruling. In August, the Ninth Circuit ruled against the FTC in its decision regarding whether Qualcomm violated the Sherman Act. Should the Ninth Circuit decide along similar lines as the Third Circuit, Qualcomm will point to other circuits (such as the Fifth Circuit) to argue there's a circuit split. It then optimizes the technology when it makes its way out into the market to ensure peak performance with real carriers on real networks and devices. After that, Apple went to Intel. He is grounded in reality as he has led the planning and execution and had to live with the outcomes. Qualcomm in October asked the 9th US Circuit Court of Appeals to allow it to appeal Koh's decision. The Ninth Circuit found that “Qualcomm has shown, at minimum, the presence of serious questions on the merits of the district court’s determination that Qualcomm has an antitrust duty to license its SEPs to rival chip suppliers.” The Ninth Circuit considered the duty to deal Aspen Skiingcase on which the district court based its decision to be “at or near the outer boundary of [Sherman Act] liability.” Further, the competition brawl between the two U.S. competition agencies — Federal Trade Commission (FTC) and … The News: The U.S. Federal Trade Commission on Friday filed a motion to rehear an antitrust lawsuit it lost on appeal against Qualcomm Inc. This requires implementation innovation  and engineering/tech support to many members of the ecosystem/value chain to ensure that the end-to-end system is optimized to provide power efficiency, performance, and Quality of Service. According to investigative reports, in 2014, “Apple allegedly 'plotted' to hurt Qualcomm years before it sued the company.” We also know that Apple and Samsung had a “common interest” agreement to work closely with FTC. On August 11, 2020, a Ninth Circuit panel reversed the District Court for the Northern District of California ’s judgment in FTC v. Qualcomm, Inc. Moorhead is also a contributor for both Forbes, CIO, and the Next Platform. 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The company has asserted its economic muscle “with vigor, imagination, devotion, and ingenuity.” Topco Assocs., 405 U.S. at 610. The district court held that Qualcomm had an antitrust duty to license its patents to direct competitors, however the appellate panel disagreed finding the argument that the purported anticompetitive surcharge as royalty rates did not constitute antitrust violations and that the lower court did not establish “a cogent theory of anticompetitive harm.” The Ninth Circuit also found that the FTC’s argument that Qualcomm violated FRAND terms failed because the FTC did not show harm. Qualcomm in 2011 and 2013 had signed agreements with Apple where Qualcomm offered a lot of money, billions of dollars in incentive payments, which were dependent on Apple sourcing its iPhone chips exclusively from Qualcomm. In general, the FTC or the DOJ must prove that the latter actually happened to get an guilty verdict. Federal Trade Commission v. Qualcomm Incorporated (9th Cir. 9th Circuit Qualcomm Opinion: ... to make out the FTC’s claim, Qualcomm’s licensing tactics would have had to harm competition in the licensing market or … The quality of those wireless patents is high, as I researched here. On August 11, 2020, the US Court of Appeals for the Ninth Circuit reversed the Federal Trade Commission's district court victory in its suit challenging Qualcomm's licensing practices for its... | … To keep investors at bay, Qualcomm commit to $1B in cost reductions and had to lay off thousands of  employees, disrupting family’s lives. The Ninth Circuit held that the FTC failed to establish a Sherman Act violation arising from Qualcomm’s breach of its contractual SSO obligations absent evidence that the breach impaired the opportunities of its rivals in the CDMA and LTE chip markets. Qualcomm has won a major victory against the Federal Trade Commission (FTC) in an antitrust and anti-competitive lawsuit.The Ninth Circuit Court of … The only thing the FTC ever showed was that there was a theoretical possibility that it could happen in the future. The panel held that Qualcomm’s conduct—(a) refusing to … Yesterday, the 9th Circuit Court of Appeals denied the FTC’s request to rehear its case against Qualcomm which leaves intact the Appeals Court ruling that found Qualcomm not guilty on all counts of anti-competitive behavior. A 9th Circuit Court of Appeals panel found Qualcomm’s business practices are legal under anti-monopoly laws; The FTC is seeking reconsideration by the full court. In August, the Ninth Circuit ruled against the FTC in its decision regarding whether Qualcomm violated the Sherman Act. The Ninth Circuit Court of Appeals was crystal clear on its ruling: Given the court went out of its way to talk about the differences between anticompetitive and hypercompetitive behavior, I thought it best to let you read what the court said about this rather than paraphrase. Disclosure: Moor Insights & Strategy, like all research and analyst firms, provides or has provided paid research, analysis, advising, or consulting to many high-tech companies in the industry, including 8x8, Advanced Micro Devices, Amazon, Applied Micro, ARM, Aruba Networks, AT&T, AWS, A-10 Strategies, Bitfusion, Blaize, Calix, Cisco Systems, Clear Software, Cloudera, Clumio, Cognitive Systems, CompuCom, Dell, Dell EMC, Dell Technologies, Diablo Technologies, Digital Optics, Dreamchain, Echelon, Ericsson, Extreme Networks, Flex, Foxconn, Frame, Fujitsu, Gen Z Consortium, Glue Networks, GlobalFoundries, Google (Nest-Revolve), Google Cloud, HP Inc., Hewlett Packard Enterprise, Honeywell, Huawei Technologies, IBM, Ion VR, Inseego, Intel, Interdigital, Jabil Circuit, Konica Minolta, Lattice Semiconductor, Lenovo, Linux Foundation, MapBox, Mavenir, Marseille Inc, Mayfair Equity, Meraki (Cisco), Mesophere, Microsoft, Mojo Networks, National Instruments, NetApp, Nightwatch, NOKIA (Alcatel-Lucent), Nortek, Novumind, NVIDIA, ON Semiconductor, ONUG, OpenStack Foundation, Oracle, Poly, Panasas, Peraso, Pexip, Pixelworks, Plume Design, Portworx, Pure Storage, Qualcomm, Rackspace, Rambus, Rayvolt E-Bikes, Red Hat, Residio, Samsung Electronics, SAP, SAS, Scale Computing, Schneider Electric, Silver Peak, SONY, Springpath, Spirent, Splunk, Sprint, Stratus Technologies, Symantec, Synaptics, Syniverse, Synopsys, Tanium, TE Connectivity, TensTorrent, Tobii Technology, Twitter, Unity Technologies, UiPath, Verizon Communications, Vidyo, VMware, Wave Computing, Wellsmith, Xilinx, Zebra, Zededa, and Zoho which may be cited in this article, Patrick was ranked the #1 analyst out of 8,000 in the ARInsights Power 100 rankings and the #1 most cited analyst as ranked by Apollo Research. Qualcomm is represented by Cravath, Swaine & Moore; Goldstein & Russell; Keker Van Nest & Peters; Wilson Sonsini Goodrich & Rosati; and Morgan, Lewis & Bockius. What is clear to me is that having a monopoly, and using that monopolistic power to stifle innovation, increase costs, and harm competitors are two very different things. The recent Ninth Circuit panel decision reversing the district court’s judgment in FTC v. Qualcomm, Inc., has important implications for the role of antitrust in standard essential patent (SEP) licensing. This leaves intact the panel’s unanimous decision which reversed and vacated the district court ruling in its entirety. The United States Court of Appeals for the Ninth Circuit (Ninth Circuit) gave a landmark decision in favor of Qualcomm, on Aug 11 th 2020, in the long running antitrust case brought about by FTC. The court said: “Anticompetitive behavior is illegal under federal antitrust law. Our Analysis of the Ninth Circuit Panel Decision Reversing FTC v. Qualcomm August 27, 2020 . The court unanimously reversed the district court’s judgment (led by Judge Koh) and vacated its global injunction against the company’s business practices, which had forced it to license IP directly to its SOC and modem competitors. by Daniel Newman | September 25, 2020. We conclude that the FTC has not met its burden.”. On 5G, Qualcomm’s early foundational inventions drove the standards, with 5G R&D efforts starting more than ten years ago, and that adds up to Qualcomm having invested over $61 billion in R&D, 20+% of revenue every year. Yes, Qualcomm is very competitive and took enormous research risks and spent over $61B in R&D to get there. Qualcomm is fundamentally a technology R&D company. In particular, the FTC had an issue with Qualcomm’s “no license, no chips” policy, under which it did not sell chips to original equipment manufacturers (OEMs) unless they paid for a separate patent license, typically a standard essential patent. The FTC is represented by its own counsel. As you would expect, Qualcomm was elated. However, the FTC claimed that the Ninth Circuit the “panel declared that because Qualcomm has concealed its surcharge in a ‘patent royalty,’ the entire payment is subject to challenge only ‘in patent law, not antitrust law.’” Moreover, this contradicts the economic substance reasoning. Unlike other analyst firms, Moorhead held executive positions leading strategy, marketing, and product groups. Note: Moor Insights & Strategy writers and editors may have contributed to this article. Circuit Court of Appeals all Rights Reserved, this is a BETA experience R! Ftc has not met its burden. ” Court of Appeals to allow it to Koh! Law Professor Jorge L. 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