The FTC’s Victory in the Qualcomm Case Highlights the Big Competition-Policy Issue at the Center of the DOJ’s and FTC’s Tiny Spat

A San Francisco federal court ruled yesterday that Qualcomm’s decades-long “no license, no chips” business practices violated federal antitrust law. The case promises to be a watershed moment for what it means for tech companies to license standard-essential patents on a fair, reasonable, and non-discriminatory (“FRAND”) basis.

Judge Lucy Koh’s decision is also likely to be a watershed moment for what authority the FTC has to bring enforcement actions under Section 5 of the FTC Act, which broadly and somewhat vaguely prohibits “unfair” methods of competition even if they don’t satisfy the classic elements of an antitrust violation. So the case will also have implications for FTC enforcement actions, against tech companies in particular, beyond the issue of standard-essential patents.

It shouldn’t be surprising that the FTC’s sister antitrust agency, the U.S. Department of Justice Antitrust Division, has taken an interest in the case. Most antitrust lawyers have. What is a little surprising is that the Antitrust Division recently submitted a “statement of interest” in the FTC’s case—without the court’s or the FTC’s invitation to do so—about how the case had the potential to undermine innovation in 5G network technology. While that certainly is within the Antitrust Division’s statutory rights, the FTC lawyers handling the litigation didn’t take kindly to it and responded tersely: “we disagree with a number of contentions in the [DOJ’s] Statement. Among other things, the submission . . . misconstrues applicable law and the record.”

Is this just sibling-agency rivalry, or does it indicate a deeper conflict over antitrust policy? The two agencies’ history of getting along very well in public suggests the latter. And the nature of the FTC’s action against Qualcomm and other recent enforcement actions, as well as comments by Assistant Attorney General Makan Delrahim, head of the Antitrust Division, suggest what that policy conflict is: the FTC’s and the Supreme Court’s weakening of patent rights over the last two decades.

In the first three terms of the Roberts Court, from 2005 to 2008, the Supreme Court decided five patent cases and, “[i]n each case . . . either narrowed the scope of patent rights or made it easier to challenge those rights.” J. Clayton Everett, Jr., and Nathan W. McCutcheon, “Patents and the Roberts Court: An Antitrust Lawyer’s Guide to Recent Supreme Court Patent Decisions,” Antitrust, Fall 2008 at 80. One of those five cases, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), held that patent owners are not presumptively entitled to injunctions excluding competitors from using the patented technology. That was the Court’s first major cutback of historically strong patent rights—the right to exclude has often been characterized as “the heart of the patent grant.” E.g., ActiveVideo Networks, Inc. v. Verizon Commcn’s, Inc., 694 F.3d 1312, 1341 (Fed. Cir. 2012). And the FTC and DOJ have themselves called the right to exclude “a core part of the patent.” U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION, at 6 (2007).

The second major weakening of patent rights came in the FTC’s antitrust case against Actavis, for so-called “reverse payments” in which a pharmaceutical-patent holder pays an allegedly infringing generic-drug manufacturer in settlement of patent-infringement litigation, with the generic acknowledging the validity and infringement of the patent(s) and agreeing not to market its competing, generic product. The Supreme Court held that such reverse payments could be unlawful under the antitrust laws—and that “large and unjustified” payments likely were unlawful. FTC v. Actavis, Inc., 570 U.S. 136, 156-58 (2013). In the antitrust context, the Court disregarded the presumption of validity that patent law affords to a patent—which puts the burden of proof on the entity challenging the patent to show that it should not exclude competition. In Actavis, the Court reasoned: “it is normally not necessary to litigate patent validity to answer the antitrust question . . . An unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival.” Id. at 157.

In FTC v. Qualcomm, Assistant Attorney General Makan Delrahim sees a case that will erode patent rights still further—and to the detriment of the innovation that drives the American economy. He has publicly stated multiple times that antitrust law should not be used to police patent-licensing rates, i.e., whether they are FRAND. E.g., L. Nylen, “DOJ’s Delrahim criticizes ‘theory’ underlying FTC’s Qualcomm case,” MLex, Jan. 25, 2019. Less than two months after he was confirmed as the head of the Antitrust Division, Delrahim described how his priority as Assistant Attorney General would be “foster[ing] debate toward a more symmetric balance . . . between intellectual property and antitrust law.” He said it was unfortunate that, “in recent years, competition policy has focused too heavily on the so-called unilateral hold-up problem” where a standard-essential-patent holder refused to license its technology to those who implemented the technology. Instead, Delrahim sees the problem as one of “hold-out” by implementers who would simply rather pay less in licensing fees. According to Delrahim, “New inventions do not appear out of the ether, and excessive use of the antitrust laws . . . can pose a serious threat to the innovative process.”

These are indeed serious policy issues that deserve debate—and not just debate over theory, but in the gritty, rubber-meeting-the-road, real world of a trial. The FTC is right to bring cases, like that against Qualcomm, which test the wisdom of competition policy against real-world evidence and competitive effects. And the DOJ is right to foster debate over that policy, as Delrahim said he would do. Even if the DOJ’s statement of interest may have been a bit of a procedural faux pas, this is a discussion worth having. It’s also worth having the input of all the best competition lawyers and economists—even if we don’t always agree.

Edited by Gary J. Malone

Tagged in: Antitrust Enforcement, Antitrust Litigation,