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Federal Court Agrees with FTC in Ruling Qualcomm Must License Standard-Essential Patents to Competitors

Posted  November 9, 2018
By David Golden

The Federal Trade Commission won a key ruling against Qualcomm in federal court on Tuesday that could herald greater limits on tech companies’ ability to unilaterally dictate how they license their standard-essential patents.

Judge Lucy Koh of the U.S. District Court for the Northern District of California ruled that Qualcomm must license its standard-essential patents (“SEPs”) for 4G/LTE baseband chips to other competing baseband chip manufacturers.  Part of a larger antitrust lawsuit brought by the FTC, the ruling—a victory for the FTC—endorses the binding effects of standard-setting organization Intellectual Property Rights (“IPR”) policies on patent owners to license their SEPs to competitors on fair, reasonable, and non-discriminatory (“FRAND”) terms.

The FTC filed a complaint in federal district court in January 2017 charging Qualcomm Inc. with using anticompetitive tactics to maintain its monopoly in the supply of a key semiconductor device used in cell phones and other consumer products.  The FTC claims that Qualcomm uses monopolization and anticompetitive licensing practices related to Qualcomm patents that are “essential” to cellular network standards that mobile devices (like iPhones and Android devices) use to connect to 4G/LTE networks.

On August 30, 2018, the FTC filed a motion for partial summary judgment that Qualcomm’s refusal to license its SEPs to competing chip manufacturers violated its FRAND commitments under the IPR policies of two U.S. standard-setting organizations, the Alliance for Telecommunications Industry Solutions (“ATIS”) and the Telecommunications Industry Association (“TIA”).  The FTC alleged that as a result of that practice, Qualcomm’s baseband chip customers can only purchase baseband chips from Qualcomm, at elevated prices.  Qualcomm contended that the ATIS and TIA IPR policies only required SEP licensing to manufacturers of “complete” devices like mobile devices, not manufacturers of components like modem chips.

Judge Koh rejected Qualcomm’s arguments.  Both ATIS and TIA require SEP holders who participate in their standards development activities to license those SEPs under fair and reasonable terms to any “applicant.”  Therefore, under Ninth Circuit precedent and contract law, the Court held that “Qualcomm’s FRAND commitments include an obligation to license all comers, including competing modem chip suppliers.” “Those binding precedents are clear:  a SEP holder that commits to license its SEPs on FRAND terms must license those SEPs to all applicants.”  The court also observed that, if Qualcomm were allowed to discriminate among applicants, “[s]uch discrimination would enable the SEP holder to achieve a monopoly in the modem chip market and limit competing implementations of those components,” which would violate the goal of the SSO IPR policies.

Judge Koh’s grant of partial summary judgment did not reach the question of whether Qualcomm’s conduct constituted an unfair method of competition that violated Section 5 of the FTC Act.  Nevertheless, her decision noted that Section 5, while not unbounded, can also reach anticompetitive conduct that does not violate federal antitrust laws.

The decision, if upheld on appeal, could have far-reaching implications for semiconductor chip manufacturers and other technology companies that hold and license SEPs.  Companies that participate in standards development in SSOs with IPR policies similar to those of ATIS or TIA may not be able to unilaterally decide to whom and under what terms those patents can be licensed.  The ruling could also lead to lower component prices for SEP licensees, who now may have more leverage to negotiate with SEP owners, which could result in lower prices for consumers.

Edited by Gary J. Malone

Tagged in: Antitrust Litigation,