FTC v. Qualcomm Inc. - 969 F.3d 974 (9th Cir. 2020)

Rule:

To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful under § 2 of the Sherman Act, 15 U.S.C.S. § 2, unless it is accompanied by an element of anticompetitive conduct. Accordingly, plaintiffs are required to prove anticompetitive abuse or leverage of monopoly power, or a predatory or exclusionary means of attempting to monopolize the relevant market. Courts distinguish willful acquisition of monopoly power from development as a consequence of a superior product, business acumen, or historic accident. To be condemned as exclusionary, a monopolist's act must have an anticompetitive effect—that is, it must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice. Antitrust laws are directed not against conduct which is competitive, even severely so, but only against conduct which unfairly tends to destroy competition itself.

Facts:

Qualcomm Incorporated has made significant contributions to the technological innovations underlying modern cellular systems, including third-generation (“3G”) CDMA and fourth-generation (“4G”) LTE cellular standards.  It has protected and profited from its technological innovations through its patents, which it was licensing to original equipment manufacturers (“OEMs”) whose products practiced one or more of Qualcomm’s patented technologies. Some of Qualcomm’s standard essential patents (“SEPs”) related to CDMA and premium LTE technologies. Aside from the patent licensing business, Qualcomm was also manufacturing and selling cellular modem chips, the hardware that would enable cellular devices to practice CDMA and premium LTE technologies and thereby communicate with each other across cellular networks. Qualcomm refused to license rival chipmakers and has a “no license, no chips” policy. 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. Qualcomm’s competitors 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. In 2014, Apple decided to terminate the agreements. In 2017,  the Federal Trade Commission (“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. The district court ruled that Qualcomm’s licensing practices were an unreasonable restraint of trade under § 1 of the Sherman Act and exclusionary conduct under § 2 of the Sherman Act. The district court ordered a permanent, worldwide injunction prohibiting Qualcomm’s core business practices.

Issue:

Did Qualcomm violate the Sherman Act by unreasonably restraining trade in, and unlawfully monopolizing, the code division multiple access ("CDMA") and premium long-term evolution ("LTE") cellular modern chip markets?

Answer:

No.

Conclusion:

The Court held that the FTC failed to meet its burden under the rule of reason to show that Qualcomm maker engaged in anticompetitive practices in violation of §§ 1 and 2 of the Sherman Act by licensing its standard essential patents exclusively at the original equipment manufacturer level because it was under no antitrust duty to license rival chip suppliers. Moreover, Qualcomm’s patent-licensing royalties and "no license, no chips" policy did not impose an anticompetitive surcharge on rivals' modem chip sales because its business model was "chip-supplier neutral" and did not undermine competition in the relevant antitrust markets. The Court also noted that Qualcomm’s agreements with Apple did not have effect of substantially foreclosing competition in the modem chip market, and because the agreements were terminated years ago, there was nothing to be enjoined. Accordingly, the Court reversed the decision of the lower court.