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Showing posts with label Chipset-Level Licensing. Show all posts
Showing posts with label Chipset-Level Licensing. Show all posts

Saturday, March 27, 2021

FTC apparently decided not to seek Supreme Court review of Ninth Circuit ruling in Qualcomm's favor

In October, the United States Court of Appeals for the Ninth Circuit denied a petition for rehearing en banc by the United States Federal Trade Commission in its Qualcomm case. The FTC could have filed a petition for writ of certiorari with the Supreme Court of the United States, but it was already reported a couple of weeks ago that this probably wouldn't happen. That's what the Wall Street Journal learned at the time.

Tech industry analyst Prakash Sangam, whom I saw at the FTC v. Qualcomm (San Jose, January 2019) and Apple v. Qualcomm (San Diego, April 2019) trials, kept an eye on developments and tweeted the following a few hours ago:

It's 9:01pm PT ..deadline for @FTC to file @USSupremeCourt appeal passed uneventfully. So, #antitrust case against @Qualcomm is officially over.

Want full history of #ftcqcom case? Read this serieshttps://t.co/yC778gXRU7 #FRAND #standards #licensing @3GPPLive @TantraAnalyst

— Prakash Sangam practicing #socialdistancing (@MyTechMusings) March 27, 2021

A different source had told me that the deadline would be March 27, i.e., Saturday, and I haven't been able to verify whether a cert petition deadline falling on a weekend would automatically be extended to Monday. I trust Mr. Sangam had checked on this before he tweeted.

Assuming that Qualcomm's acquittal is now definitive, just a few comments:

  1. With respect to component-level licensing of SEPs, Judge Lucy H. Koh's contract interpretation stands as persuasive authority if anyone else claims rights under Qualcomm's or other parties' FRAND pledges to ATIS and TIA.

  2. I'd have liked the case to establish an antitrust duty to deal to the effect of exhaustive component-ölevel SEP licenses, but the FTC's own theory on appeal was just about an alleged antitrust violation based on a breach of contract. Only a successful attempt to shoehorn this duty to deal into the Aspen Skiing doctrine would have helped. Judge Koh tried, and it was worth trying, but Qualcomm had very strong legal arguments on appeal, unlike the FTC and its amici.

  3. In an alternative universe where the appellate judges had listened to all the trial testimony, the outcome might have been different.

  4. For Apple and Intel's antitrust complaint against NPE conglomerate Fortress Investment, the primary challenge is going to be to distinguish that case from Qualcomm, which is controlling law in the Ninth Circuit at this stage.

  5. There will also be other patent-related antitrust matters with respect to which it will be key to mitigate the damage former U.S. Antitrust Assistant Attorney General Makan Delrahim dealt to those complaining about anticompetitive patent-related business models.

  6. The UK class action lawsuit against Qualcomm over the same business model can't really be distinguished, so the argument there will focus on a different jurisdiction with different statutes (UK antitrust law is still essentially EU antitrust law, though it will diverge with time) and different case law.

  7. Apple itself will try to get as much mileage out of this outcome in its defense against Epic Games' and some class action plaintiffs' U.S. antitrust lawsuits over the App Store. But only because the App Store, like everything in tech, has some connection with IP doesn't mean it's beyond reach for antitrust law. I actually think Epic's lawyers, some of whom represented Qualcomm by the way, are in a perfect position to distinguish the cases, and the differences are really structural.

  8. Epic can actually take courage in the fact that those Cravath lawyers have previously proven, in such a high-profile antitrust case, that they know how to play and win the long game. In one or more of my comments on the January 2019 FTC v. Qualcomm I already noted that Qualcomm's lawyers had at some point appeared to look past the trial, which they probably knew they were going to lose, and on to the appeals court, where they teamed up with another firm and rocked the boat. Judge Yvonne Gonzalez Rogers, who is presiding over the Epic case, stressed in the summer that the case could go either way, and while she has more of a track record of letting Apple off the hook (Pepper, and now probably also Pistacchio), I don't think Epic will have to go into that trial based on the assumption that it's all merely about preserving arguments for an appeal. But what I'm absolutely sure of is that Epic will proceed very foresightfully. Unless lawmakers open the App Store, it will ultimately be up to the Supreme Court--and in that case the deadline for a cert petition, whoever has to bring it (Epic or Apple), won't just pass without a filing.

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Monday, July 13, 2020

BREAKING: Sharp grants automotive component-level SEP license to Huawei, partially withdraws patent infringement suits against Daimler

[BREAKING NEWS]

With multiple simultaneous filings dated July 6, 2020, Sharp partially withdrew its German standard-essential patent (SEP) infringement actions against Daimler as the Foxconn-owned Japanese electronics maker has concluded an automotive component-level license agreements with Huawei. The infringement actions are continuing with respect to Daimler cars that do not come with a Huawei baseband chipset, telematics module, or telematics control unit (TCU).

In terms of the economic significance of the remaining claims, it's a safe assumption that well over half of the dispute between Sharp and Daimler has been amicably resolved by virtue of patent exhaustion. But this breakthrough agreement far transcends that particular set of cases. It divides the Avanci gang led by patent abusers and formed for the purpose of dissuading blue-chip SEP holders such as Sharp from granting component-level licenses, while exposing Nokia's dogged denial of the feasibility and fairness of component-level SEP licenses as purely pretextual. Sharp's partial withdrawals conclusively prove that it is possible to differentiate at the end-product level based on upstream suppliers.

I applaud Sharp--which owns a large SEP portfolio and has proven its will to enforce its rights in court--for showing the way forward for licensing cellular SEPs to the automotive industry, which has traditionally required its suppliers to secure the prerequisite patent licenses; I congratulate Huawei on having convinced Sharp of the benefits of such an agreement at the negotiating table; and I'm happy to see Daimler--as a beneficiary of its indirect customer relationship with Huawei, which is known to provide connectivity modules to Daimler's tier 1 suppliers such as Continental and Harman--being relieved from a significant part of the litigation pressures it has been facing for a while. In practical terms, the Sharp-Daimler cases are now merely about past damages with respect to cars that came without Huawei components. Injunctive relief is a practical non-issue as Daimler could presumably equip 100% of its products with components supplied by Huawei or coming with Huawei chips and modules.

It bears recalling that Huawei is suing Nokia in Dusseldorf for an exhaustive component-level SEP license on FRAND terms. That antitrust trial will go forward in early September. Meanwhile, Nokia's infringement claims against Daimler are falling apart.

The Sharp-Huawei license deal further validates the positions taken by the Bundeskartellamt (Federal Cartel Office of Germany) in its interventions in multiple German Nokia v. Daimler cases, advocating the referral of a set of component-level licensing questions to the Court of Justice of the EU (CJEU).

The groundbreaking agreement won't go unnoticed in Brussels, where the European Commission is dealing with SEP licensing issues at the policy as well as competition enforcement levels.

The fact that Sharp agreed to license not only tier 2 (connectivity modules) and tier 1 (TCUs) products, but also baseband chipsets (tier 3 from a car maker's perspective), means that this license agreement is bound to be referenced by smartphone makers in some of their disputes. Apple, in particular, has been advocating chipset-level SEP licensing for a long time. Sharp's parent company, Foxconn, is the largest one of Apple's contract manufacturers.

There can't be the slightest doubt that we'll see more and more agreements of this nature and stature now. Some of them will come into being on a consensual basis, such as the one I learned about today, while others will simply result from regulatory action and judicial decisions. One way or the other, the likes of Nokia, Ericsson, and Qualcomm won't be able to deny component-level licenses for too much longer.

IoT startups stand to benefit from this trend. They are far too small to be in a strong position vis-à-vis certain abusive and anti-innovative SEP holders (and the trolls they feed with patents). IoT innovators depend on their suppliers being licensed. The European Commission has failed the IoT industry so far, siding with yesterday's losers rather than tomorrow's winners, but as a result of negotiations (such as Sharp-Huawei), private lawsuits (such as Huawei v. Nokia), and regulatory interventions (such as the Federal Cartel Office's submissions in Nokia v. Daimler), change is coming.

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Sunday, March 8, 2020

The FTC's most (and potentially only) important achievement in its Qualcomm litigation may be a contract interpretation, not an antitrust ruling

This is the first of three posts today on FTC v. Qualcomm, which the United States Court of Appeals for the Ninth Circuit heard last month. The second post will discuss the "No License-No Chips" part of the case, and the third one will have a proedural and political focus.

Since it was founded almost 106 years ago, the Federal Trade Commission's task has been a mix of antitrust enforcement and consumer protection. It would be an oddity--but not an improbable outcome as things stand now--if FTC v. Qualcomm ended up making an impact only by means of providing clarification of a matter of contract law.

I'd actually have liked a compulsory-licensing type of ruling to come out of this case. I do see the point in enforcing FRAND licensing commitments under contract law, but an additional avenue would have been desirable--and in cases where a patent is standard-essential but no FRAND plecge was made, there must be a way to compell a patentee to grant licenses on FRAND terms. It turned out, however, that I'd have to keep waiting for some other case to have that effect:

  • Judge Lucy H. Koh of the United States District Court for the Northern District of California held Qualcomm in violation of antitrust law for refusing to license rival chipset makers, but did so under Aspen Skiing, which requires a party, among other things, to abandon a prior profitable course of dealing in hopes of making more money further down the road after having eliminated or fundamentally weakened a rival. That's a very fact-specific, historic, behavioral inquiry and could never be the U.S. equivalent of the Court of Justice of the EU's Huawei v. ZTE ruling, which clarified that SEP holders, under EU competition law, must grant licenses on FRAND terms to all comers.

  • The Federal Trade Commission didn't even want to make an attempt to defend Judge Koh's Aspen-based holding. Instead, the FTC presented to the Ninth Circuit an alternative theory with an allegedly lower standard to meet: by not honoring contractual commitments to grant licenses, Qualcomm allegedly committed an antitrust violation (in addition to a breach of contract). While antitrust liability could serve as an additional deterrent against a refusal to grant licenses, this theory--even if it succeeded--wouldn't entitle anyone to a license who isn't already entitled under contract law anyway.

At last month's hearing, the Ninth Circuit didn't discuss the merits of the first question it has to decide in this context: whether or not to vacate the 2018 summary judgment according to which Qualcomm had an obligation under its FRAND licensing pledges to two U.S. standard development organizations (ATIS and TIA) to license rival chipset makers. The judges were merely interested in the procedural aspects, and didn't even spend much time on that one as they focused on "No License-No Chips" (the topic of my next post).

The court's procedural focus may--but need not--mean that the panel believes there were triable issues (especially the technical question of whether the cellular SEPs at issue are actually practiced by a baseband chip). If a trial is deemed necessary to discuss technical and potentially other facts (such as industry practice), that part of the case goes back to the district court. There was no summary judgment motion by Qualcomm asking the district court to hold that Qualcomm did not have such an obligation. So the appeals court couldn't resolve this question of contract law in Qualcomm's favor. It could resolve it in the FTC's favor by affirming the summary judgment, but the only alternative is a remand.

The FTC's right-for-the-wrong-reasons theory falls if a retrial--actually, the first trial on contract interpretation in this case--results in a finding (supposing it isn't overturned on appeal) that Qualcomm had no such obligation. Then Qualcomm's refusal to grant licenses wouldn't constitute an antitrust violation under the FTC's theory.

Assuming the Ninth Circuit decides to remand the contract interpretation question, it can just wait whether that part of the case ever comes back, and determine the derivative matter of an antitrust violation (based on a breach of contract) later. But the appeals court could also make it clear at the time of a remand that the contract interpretation question won't result in a holding of an antitrust violation in any event.

Given that this is a huge case, I guess the appeals court won't resolve more than is necessary at a particular stage of proceeding. That's just a guess, though.

If the appeals court sent the contract interpretation back to the district court but already made it clear that there won't be an antitrust violation in the chipset-licensing context no matter what, the FTC would have to spend tax dollars litigating a question that would be outside the scope of its mission. However, the FTC could theoretically appeal such a Ninth Circuit ruling to the Supreme Court, and on that basis could justify the further pursuit of this contract law issue.

For Qualcomm it's extremely important to get that summary judgment overturned. While it's a contract-specific holding, it would sooner or later result in some other chipset maker suing Qualcomm in California for a license (just like automotive supplier Continental is suing Nokia and other Avanci patent pool members--initially they brought the complaint in California, but it got transferred to Texas--on that basis).

This part of the case can't be settled in a way that solves the problem for Qualcomm. Even if the FTC dropped its case, other parties would still point to that summary judgment. Qualcomm could argue that it never took effect as a result of a settlement, but that would be a formalistic perspective. So Qualcomm needs to get--and to win--a trial on this issue.

In 2018, the FTC and Qualcomm asked Judge Koh to stay the case with respect to the then-pending summary judgment motion. Judge Koh declined what I called "litigation à la carte." At the time, the parties knew that if summary judgment would (as it then did) be entered, it would complicate any settlement efforts because Qualcomm would have no choice but to fight that particular decision.

As Qualcomm once told the IRS, it's "humongously more lucrative" to license only end-product makers, not chipset suppliers. At a minimum, Qualcomm would want to reach the point at which any chipset maker contemplating a contract lawsuit to get a license would face the uncertainty of a trial. If the Ninth Circuit vacated that summary judgment, Qualcomm might already be interested in settling this part of the case as well.

A trial always comes with considerable uncertainty, but Qualcomm would face major hurdles. Its own practice of obtaining exhaustive chipset-level licenses ("more equal than others") is at least a psychological problem. On the technical side, Qualcomm would have to present some cellular SEPs that are not implemented by a baseband chip but require additional hardware. The cellular SEPs-in-suit I've seen so far, including Nokia's ten patents-in-suit against Daimler, are baseband chip patents, as Qualcomm's German counsel--in that case, representing Daimler--noted last year.

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Wednesday, February 26, 2020

Nokia's choice of software patents asserted against Daimler exposes pretext for refusing to license automotive suppliers

PaRR's EU antitrust reporter Khushita Vasant received information from two sources according to which a third round of mediation talks--after the first two, held in January and February, failed--might take place between Nokia and Daimler as well as many (though not all) of its suppliers of telematics control units (TCUs). Knowing how these things work, I guess the situation is now simply one in which the European Commission remains hesitant, for purely political reasons, to take action, and is playing for time, as is Nokia, whose patent portfolio is going down the tubes with every month that passes.

Commissioner Margrethe Vestager is even way tougher than her famous predecessor in office "Steelie Neelie" was when it comes to enforcement against U.S. companies, but (so far, so bad) soft as a jellyfish on Nokia. She and Nokia might just hope that the patent infringement ruling scheduled by the Munich I Regional Court for April 9, 2020 would scare Daimler into a settlement. It's hardly a coincidence that the rumored new round of mediation talks has the same target date...

Regardless of that latest disgraceful development, I was taking a closer look at Nokia's ten patents-in-suit against Daimler from the perspective of whether there is a scintilla of doubt about Nokia acting abusively by refusing to license Daimler's TCU suppliers. There is not.

As Daimler's lead counsel in the German infringement cases accurately noted last fall, cellular standard-essential patents (SEPs) cover techniques that are essentially embodied in the baseband chip. From a car maker's vantage point at the bottom of the supply chain, that's a tier 3 product, which gets incorporated into a (tier 2) network access device (NAD; one might also call this a connectivity module, which in turn resides in a TCU (tier 1). In other words, TCUs already contain a whole lot more hardware than is actually needed to exhaust the patentee's rights by licensing the upstream.

The European Commission employs an elite of public servants. There's no way the Commission's experts wouldn't have figured out during all of that time since Daimler's 2018 (!) complaint that Nokia's allegation of a TCU not actually practicing the standard is, euphemistically so as to avoid an analogy to bovine excrements, a pretext.

The Golden Rule of patent law: the name of the game is the claim. "Claim" in the sense of a patent claim, not a claim in terms of a (mis)representation.

The patent claims determine the scope of protection a patent enjoys. When looking at the claims of Nokia's patents-in-suit, and even when looking at the specifications (whose sole purpose in litigation is to help interpret the claims), it becomes clear that Nokia's patents don't cover end products such as a car (quite often, the Nokia-Daimler dispute is misleadingly referred to as a "connected vehicle" dispute, though none of Nokia's wireless SEPs have anything to do with what sets cars apart from phones).

In fact, seven (70%) out of Nokia's ten patents-in-suit against Daimler are even officially declared to be software patents (which the remaining three are as well, as I'll explain in a moment). That is so because they come with computer program claims--patent claims covering software without any hardware being required to infringe. As a former anti-software-patent campaigner, I'm particularly sensitive to this, and I believe the European Patent Office granted those claims in violation of the European Patent Convention, but they do come in handy now as they belie Nokia's anti-antitrust-enforcement narrative. You can find the claims toward the end of each patent specification, and I'll give an example of one program (in terms of software) claim per patent:

  • claim 5 of EP2797239 on "a method and a telecommunication device for selecting a number of code channels and an associated spreading factor for a CDMA transmission"

  • claim 15 of EP2087626 on "additional modulation information signaling for high speed downlink packet access"

  • claim 15 of EP2981103 on an "allocation of preamble sequences"

  • claim 7 of EP2286629 on a "method and apparatus to link modulating and coding scheme to amount of resources"

  • claim 8 ("computer-readable storage medium comprising software instructions" is a computer program by any other name) of EP2145404 on a "method and apparatus for providing control chanels for broadcast and paging services"

  • claim 31 of EP1929826 on an "apparatus, method and computer program product to request data rate increase based on ability to transmit at least one more selected data unit"

  • claim 22 of EP2087629 on "a method of transmitting data within a telecommunications system"

The software that controls data transfers over a cellular model resides in a baseband chip. That's the mastermind of the whole operation. It determines what is sent out via the antenna, and it interprets what is received.

All ten of Nokia's patents-in-suit against Daimler could also be called "protocol patents": they describe how two ends of a wireless connection communicate--what A has to tell B to cause B to do something, or vice versa. It's like I say "hello, how are you?" and you respond "fine, how are you?"

That kind of communication is, of course, implemented in software (it already has been for a very long time).

There's nothing in those Nokia's patents that has to do with superior hardware. I ran full-text searches over the patent specifications, and looked closely at the device (or "apparatus") claims to identify any references to the types of hardware components that Nokia claims aren't part of TCUs:

  • Eight (80%) out of the ten patents-in-suit contain not a single occurrence of at least one the following words: antenna, microphone, loudspeaker, power.

  • EP'626 refers to "antenna weights" and mentions the presence of an electrical power source (without claiming to invent anything new relating to electrical power supply). The patent covers bits (zeroes or ones) that are sent and received, and the apparatus claims don't require any specific hardware but merely refer to "means for interpreting ... bit[s]" and "means for coding." That, too, is a typical software patent.

  • DE'446 (the German equivalent of EP'234) only mentions "power" in the sense of "power control" as a numerical parameter. Here, again, it's instructive to look at the apparatus claims, which as opposed to claiming specific hardware relate to a "medium access control layer configured to encapsulate packets."

  • The means-plus-function structure found in EP'626 and EP'234/DE'446 is also found in the other patents. Nokia's patent attorneys obviously optimized those claims for scope, and that's why they don't claim specific hardware elements such as an antenna, but instead focus on functionality. However, as long as there isn't a need for some very specific (and inventive!) hardware, but it merely suffices that something be around to do a certain job, the baseband chip as the controller of the data transfer operation is where the claimed inventive steps are implemented.

Those ten patents are the ones Nokia's litigators--among the very, very best in the industry--selected from the company's huge portfolio because they thought they'd be their strongest weapons. We could look at dozens or even at hundreds of additional cellular SEPs owned by Nokia or other companies, and the findings would be materially consistent with this sample of ten Nokia "star" patents.

It's time to get real. There's no justification for not licensing automotive suppliers, especially not under the CJEU's Huawei v. ZTE case law.

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Monday, January 20, 2020

One year after trial loss against FTC, Qualcomm approaching Ninth Circuit hearing on far stronger basis: scope of reversal hard to predict

On February 13, the United States Court of Appeals for the Ninth Circuit will hold the appellate hearing in FTC v. Qualcomm. Apart from a misleading citation that I criticized, and a few other weak spots, Qualcomm's reply brief, which I have read more than once, was very powerful. All in all, Qualcomm's lawyers have done far better work than the FTC's appellate team--and than most of the FTC's amici, though some amicus briefs (especially the ones submitted by Intel and MediaTek) were very persuasive.

Qualcomm has made so much headway on appeal that I'm sure at least parts of the district court's ruling will be reversed, if not by the Ninth Circuit, then by the Supreme Court.

In the meantime, the Ninth Circuit has heard Qualcomm's appeal of Judge Lucy H. Koh's certification of a consumer class. The most likely outcome, based on what the circuit judges said, is that the class action will go forward, but limited to customers based in California and, possibly, other states with similar antitrust laws governing indirect-purchaser claims. However, the consumer case is based on the FTC's claims against Qualcomm, so if Qualcomm defeated the FTC's case on the merits, the consumers wouldn't be entitled to anything regardless of class certification.

With respect to Qualcomm's appeal of the FTC ruling, the Ninth Circuit granted, as expected, an unopposed motion by the United States Department of Justice last week, allowing the DOJ to deliver, on behalf of the United States of America, five minutes of oral argument in support of Qualcomm.

Even before the hearing starts, Judge Koh's reasoning for an antitrust duty to extend exhaustive licenses to rival chipset makers is already dead in the water: the FTC distanced itself from that rationale, betting on a right-for-the-wrong-reasons approach instead. Even prior to the FTC formally giving up on that part, I had acknowledged that Qualcomm had credibly claimed never to have intended to grant exhaustive chipset-level licenses.

This is an important landmark case, so I will spend some time in the weeks ahead re-reading the key documents and researching some of the theories in order to develop an opinion ahead of the hearing on what the outcome will be. Wholesale affirmance is very hard to imagine; the question is the scope of a reversal and/or vacatur.

A year ago at this time, the bench trial was in full swing, and I saw Qualcomm on the losing track from the start. That prediction turned out right (as did my later prediction that a Ninth Circuit motions panel with a conservative majority would grant a stay of the injunction). But trials and appellate proceedings are different types of ball games. Google won two district court decisions against Oracle in different years, but they were reversed by the Federal Circuit, and now the two key issues are before the Supreme Court. Google's winning trial team was led by Robert van Nest of Keker, van Nest & Peters--Qualcomm's lead trial counsel a year ago. It would be an irony of fate if it worked out just the opposite way this time, with him having lost the trial and his client now, possibly, prevailing on appeal.

To be clear, it's not that I've given up on the FTC's case as a whole. What I do have to say in all fairness is that in January 2020, Qualcomm is in way better shape than it was in January 2019. They will most likely prevail on appeal at least in part. There are various legal questions involved, and it remains to be seen how much it will hurt the FTC that it practically lost its economic expert. But to what extent Qualcomm will likely succeed is a question I'm going to research and think about more thoroughly in the weeks ahead. At least I want to be in a position to deduce from the circuit judges' questions and comments where the case is headed.

Some Qualcomm fans and/or employees trolled me on Twitter during the trial. They misunderstood me. I'm not against Qualcomm, and even if I would like some of its business practices to change, it would be intellectually dishonest not to make a distinction between one's policy goals and the applicable law. The United States is called the Land of the Free, which is why the antitrust laws are applied cautiously. The Supreme Court has historically drawn the line where judicial overreach would result in overregulation. But before we get to the Supreme Court, the Ninth Circuit will speak. San Francisco, February 13, 2020.

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Sunday, December 22, 2019

Qualcomm's reply brief in appeal of FTC antitrust win makes misleading citation in attempt to discredit customer testimony

Due to a lot of activity related to German patent reform I have a backlog containing a number of recent U.S. patent and antitrust developments to comment on. And that's what I plan to focus on over the next week or two, which will fortunately be slow on the European front.

On Monday, December 16, Qualcomm filed its reply brief in the FTC case with the Ninth Circuit (this post continues below the document):

19-12-16 Qualcomm Reply Brief by Florian Mueller on Scribd

[フレーム]

The United States Court of Appeal for the Ninth Circuit recently scheduled oral argument in this appeal for February 13, 2020. In the post I just linked to, you can find links to numerous amicus curiae briefs supporting the FTC, and subsequently I commented on a couple of submissions from the automotive industry.

The FTC clearly got more (in qualitative and quantitative terms) support from amici than Qualcomm did. And a Korean court affirmed an antitrust ruling by the Korea Fair Trade Commission (KFTC). Qualcomm tries to focus on what has recently gone well for the chipmaker: the FTC didn't even make an attempt to defend Judge Lucy H. Koh's reasoning on chipset licensing, presenting a right-for-the-wrong-reasons theory instead.

Qualcomm seeks to leverage that fact to discredit Judge Koh's ruling as a whole, and in this context reminds the appeals court of FTC commissioner Wilson's dissent, and support for Qualcomm from the DOJ Antitrust Division (which is run by a lawyer who previously represented Qualcomm). However, all of that is meta-level: it's not about law, facts, or policy in the slightest, just about raising doubts.

Intel's Frankenstein analogy (the dissected monster is innocuous)--a funny way of encouraging the appeals court to see the forest among the trees--applies not only to Qualcomm's opening brief but also to the reply brief. The outcome of the appeal will hinge on whether the appeals court looks at the aggregate effect of a web of interrelated and mutually-reinforcing practices--or gets bogged down somewhere along the way.

This won't be my last post on this case before the appellate hearing. For now I'd just like to highlight two parts of Qualcomm's reply brief--one that I found ridiculous, and one that is misleading:

  • First, the most preposterous sentence in the reply brief (page 47 based on the numbering of the document, or page 58 based on the numbering of the PDF):

    "Having the contractual protection of a license in place before selling chips legitimately protects Qualcomm from claims that the chip sale 'exhausted' Qualcomm's patents and relieved OEMs of the need to pay for those rights."

    The answer is simply that those selling products must keep exhaustion in mind and set their prices accordingly. They can't justify "No License-No Chips" this way, as it's all too obvious they could sell their chips at a price that compensates for both the circuitry and the patent license.

  • With customer testimony having been a disaster for Qualcomm in the January trial, it's understandable that Qualcomm argues the appeals court shouldn't give it infinite weight. But the particular way in which Qualcomm's reply brief makes that point is misleading:

    "See United States v. AT&T Inc., 310 F. Supp. 3d 161, 211 (D.D.C. 2018) (in weighing evidence of competitive harm, 'competition authorities and courts . . . refus[e] to take the views expressed by customers at face value and insist[] that customer testimony be combined with economic evidence providing objective support for those views'), aff’d, 916 F.3d 1029 (D.C. Cir. 2019)."

    No one can blame Qualcomm for failing to state that those "customers" aren't merely customers, but most of them hold very significant cellular standard-essential patent portfolios of their own. What I do find objectionable, however, is that Qualcomm suggests the passage from "competition authorities" to "support for those views" was written by a court. In reality, the D.C. District Court merely wrote in the AT&T decision that "[c]aution is [...] necessary in evaluating the probative value of the proffered third-party competitor testimony," and then cited to a treatise (Ken Heyer, Predicting the Competitive Effects of Mergers by Listening to Customers). The relevant passage is from the treatise, not from any court's opinion. And the D.C. Circuit, when affirming the decision, didn't even talk about the probative value of customer testimony at such a general level.

    The difference between what the D.C. District Court actually wrote itself and what it merely quoted is key, as Judge Koh arguably exercised caution, while the quote from Mr. Heyer's treatise sounds like customer testimony should be afforded no weight in its own right.

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Saturday, December 7, 2019

Korea Fair Trade Commission defeats Qualcomm's antitrust appeal in court, but Qualcomm will appeal--and violate--further

As Reuters and other media outlets reported, the Seoul High Court upheld the record 873ドル million fine the Korea Fair Trade Commission (KFTC) had imposed on Qualcomm. The issues in the South Korean antitrust case are very similar to the ones in the U.S. FTC v. Qualcomm case, and the most important overlap concerns the obligation to extend exhaustive SEP licenses, on FRAND terms, to rival chipset makers.

For the South Korean competition authority, this is a major legal victory. Qualcomm has announced its intent to appeal this matter further to the Supreme Court of South Korea. But that appeal will take roughly half a decade to be resolved.

Qualcomm's problem is not to cough up the (almost) billion-dollar fine. Korea--with Samsung and LG being based there--is a strategically important market. What hurts Qualcomm much more in the short term is that this Korean decision may also serve to demonstrate to the Ninth Circuit that the U.S. FTC and Judge Lucy H. Koh reached decisions that are simply in the global antitrust mainstream. I guess the U.S. FTC will file a request for judicial notice soon--and, by the way, I believe the companies who lodged EU antitrust complaints against Nokia (Daimler, Continental, Valeo, Gemalto, BURY Technologies) should also try to leverage the Korean decision in Brussels.

The United States Court of Appeals for the Ninth Circuit will hear FTC v. Qualcomm on February 13, 2020. In the post I just linked to, I listed my posts on most of the amicus curiae briefs filed in support of the FTC, and subsequently I also blogged about an automotive-industry brief.

Competition enforcement is not meant to serve a revenue-generation purpose. Fines are meant to deter anticompetitive behavior. So the real measure here is what the KFTC is going to do now. If they continue to refrain from actually enforcing the corrective order requiring Qualcomm to license rival chipset makers, with pressure from the U.S. government being considered the primary reason for this failure to enforce, then they're not going to restore fair competition. Qualcomm will then just continue to refuse to license its rivals, and nothing will change in the marketplace.

A Korean source tells me that the Korean public may be too focused on the fine as a major victory for the government while failing to see the importance of actually enforcing the corrective order. And the large companies who originally complained to the KFTC have settled with Qualcomm in the meantime (or, as in Intel's case, have exited the market). Huawei and MediaTek could have complained, but Korean observers believe they aren't interested in that particular jurisdiction to the extent they'd take action there. So, all in all, the KFTC may be reluctant to allocate the resources to an enforcement effort that would be required.

Realistically, I wouldn't expect a Korean enforcement action to begin in the months ahead. However, I'm a bit more optimistic that something might happen in case the Ninth Circuit affirms Judge Koh's decision on chipset-level licensing (even if on the right-for-the-wrong-reasons basis espoused by the FTC and various amici). In that case, the U.S. government would be in a fundamentally weaker position to tell Korea not to enforce a decision upheld not only by a Korean court but also ordered by one U.S. court and affirmed by one of the most important courts of appeal.

Theoretically, Korean antitrust enforcement should be independent--and effective. But in practical terms, it appears that U.S. influence over this is strong, unless some modem chip makers complain actively and vocally in Korea over Qualcomm's continued non-compliance with the KFTC's corrective order.

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Friday, November 29, 2019

40 law and economics professors supporting FTC against Qualcomm's appeal contradict themselves just two pages apart

Last week, the Federal Trade Commission (FTC) filed its answering brief (prior coverage and commentary: 1, 2, 3) to Qualcomm's Ninth Circuit appeal of the agency's antitrust victory in the Northern District of California. This week, amicus curiae briefs in support of the FTC are due, with industry sources expecting a dozen or more submissions, and Professor Jorge Contreras (University of Utah) was first to file (this post continues below the document):

19-11-26 Jorge Contreras Acb by Florian Mueller on Scribd

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Professor Contreras is not only a lawyer but also understands technology very well. He's cited all the time, including by some other amicus briefs that have meanwhile been filed in the same case. The first part of Professor Contreras's brief discusses what is also my #1 priority here: chipset-level licensing. After explaining the history of FRAND, which starts with competition law, and other legal aspects, Professor Contreras says that baseband chips are "highly complex" and "embody the principle technical features of the standard." That is, by the way, consistent with what Qualcomm's German outside counsel (then defending Daimler against Nokia) told the Munich I Regional Court last month. In the related footnote (#6), Professor Contreras notes:

"Moreover, it is not clear that a smartphone implements the entirety of the relevant standards either, as Qualcomm seems to argue, given that some functionality described in those standards is implemented in base stations and other central facilities."

At least one other amicus brief I've downloaded by now makes that point as well, and it's too important for a mere footnote. Those monetization-focused SEP holders who refuse to license component makers--Qualcomm, Nokia, Ericsson, and various trolls (though there's only a floating border between former handset makers and trolls)--come up with arbitrary and shifting-sand-style positions on what hardware components are needed in order to implement a standard. For an example, in its German infringement actions against Daimler, Nokia argues that only an end product--in that case, a car--implements a standard, but car makers purchase telematics control units (TCUs) that, in turn, come with connectivity modules (often called network access devices, or NADs), and the NADs actually are like a complete phone, just without a screen, and cars add absolutely nothing that is required to practice the standard.

Even if the debate is about chipsets used in smartphones (as in FTC v. Qualcomm), the phone is an arbitrary choice: as the footnote quoted above notes, only the combination of an entire network (with all its base stations) and the end-user devices would implement the standard if one followed Qualcomm's (or Nokia's or Ericsson's) logic. As a result, no company other than a Huawei or Samsung (which make base stations as well as end user devices) would be entitled to a cellular SEP license--or maybe telcos that operate networks and resell phones could obtain a license, too. Such a nonsensical result would be an invalid outcome that would make it impossible to give any remotely reasonable interpretation to FRAND licensing pledges.

The second part of Professor Contreras's amicus brief explains that Qualcomm's reference to its own past license agreements as a point of reference for determining reasonable (the "R" in "FRAND") royalties is "circular logic." Here, Professor Contreras cites to a publication by Professor Thomas Cotter (University of Minnesota and author of the highly recommended Comparative Patent Remedies blog): Reasonable Royalties, in Patent Remedies and Complex Products: Toward a Global Consensus.

In the third and final part, Professor Contreras takes aim at Qualcomm's "national security" argument. He provides examples of comparable companies that are doing well without Qualcomm-like misconduct:

"[B]ased on publicly-reported 2018 financial information, Intel achieved a profit margin of approximately 62% on net revenue of 70ドル.8 billion, and Broadcom achieved a profit margin of approximately 52% on net revenue of 20ドル.8 billion. [...] Qualcomm, by comparison, reported a profit margin of 55% on revenue of 22ドル.7 billion."

Related to this--and also very interesting--is the comparison of R&D investments:

"In 2018, Intel invested 13ドル.5 billion in R&D (19% of revenue) and Broadcom invested 3ドル.7 billion in R&D (18% of revenue). [...] Qualcomm, by comparison, invested 5ドル.6 billion in R&D (25% of revenue)."

The brief also shows that "Qualcomm is not the global leader in 5G standards or technology development, nor does the U.S. lead in this technology sector." Pointing to an IAM article by IPLytics founder Tim Pohlmann, a table is shown according to which Qualcomm is just #7 in the world in terms of 5G patent families held (with Intel, the only other U.S. company among the top 10, following closely, and those patents were acquired by Apple this summer).

Whatever the reason may be, Professor Contreras filed a separate brief from the one submitted by 40 (precisely twice as many as their colleagues who supported Qualcomm in August) law and economics professors (this post continues below the document):

19-11-27 Law & Econ Pro... by Florian Mueller on Scribd

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The passage of the "40 profs" brief I like best is the one that explains the economic dynamics resulting from Qualcomm charging a patent royalty separately from selling its chipsets and making it harder for others to compete with them in the chipset business.

In connection with Qualcomm's "No License-No Chips" policy, the 40 professors address the Supreme Court's linkLine decision which said that a margin squeeze is not enough to prove an antitrust violation: instead you either need to show a duty to deal at the wholesale level or exclusionary conduct (predatory pricing) at the retail level. The FTC's explanations as to why linkLine is inapposite here are very strong, though it obviously doesn't hurt if amici address the same (critical) question, too.

Unfortunately, the O'Melveny & Myers and Hausfeld lawyers who represent the 40 professors made a mistake that the signatories--many of whom I know (a few of them I've even met) and respect, but all of whom are presumably extremely busy--didn't notice...

The brief first argues (on page 14 based on the numbering at the bottom of each page; or page 20 of the PDF) that Qualcomm can't engage in a price squeeze affecting chipset manufacturers because it doesn't license or assert patents against them:

"As to form, the input here is the license to Qualcomm’s SEPs, and the non-integrated competitors are the rival chipset manufacturers. Because Qualcomm refuses to license chipset manufacturers, it is not squeezing them with a higher license fee."

But then, only two pages later, comes footnote #14, which flatly contradicts that formalistic approach:

"Qualcomm argues that the [No License-No Chips] policy is not anticompetitive because the cost is not levied directly on the competing chipset makers. [...] But as demonstrated by the Microsoft "per processor" royalty cases, there is no requirement that a monopolist impose costs directly on its competitor. [...] What is significant is that the monopolist imposes a charge on the transaction involving the competitor." (emphasis added)

One mistake doesn't devalue an entire (otherwise very strong) amicus brief. I agree with the 40 professors that the FTC's win should be affirmed; I largely agree with their reasoning. And again, the professors themselves presumably just lacked the time to identify the flaw highlighted above before they signed. It changes nothing about my respect for all of them. While I do want Qualcomm to be required to license rival chipset makers and to stop its "No License-No Chips" policy, there are cases where Qualcomm is right and/or Qualcomm's adversaries are wrong. I commented favorably on parts of Qualcomm's motion to dismiss (2007), I criticized the methodology used by one of the FTC's experts, and I pointed out months ago that it isn't easy to "shoehorn" Qualcomm's refusal to license rival chipset makers into the Aspen Skiing pattern. Now I believe the professors' footnote #14 is right (yes, the focus should be on the economic effect of a charge as opposed to just form), but then Qualcomm, too, is entitled to the benefit of that approach in the linkLine context.

No matter how hard I try to find an element that reasonably sets one context apart from the other (the wider context is actually the same: No License-No Chips), I can't find one. Either one wants to argue that indirectly-imposed costs count, or one doesn't.

Expect more posts on FTC v. Qualcomm amicus briefs in the days ahead.

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Wednesday, November 27, 2019

Law professor claims top priority for U.S. in trade negotiations with South Korea was Qualcomm antitrust case

A Korea-based source has just drawn my attention to an article (in Korean, but I received a translation) by Kyungsin Park, Professor of Law, Korea University Law School. Professor Park accuses the Korea Fair Trade Commission (KFTC) of a failure to act forcefully in "the legal case of the century," i.e., the Qualcomm case. As I reported in March, Qualcomm could face criminal charges in Korea over its refusal to license chipset makers, but so far--and more than eight months later, it's apparently still the situation--the KFTC hasn't referred this contempt matter to the Prosecutor General's office.

Meanwhile, Qualcomm is--according to the article--spending hundreds of millions of dollars on the appeal. What Professor Park explains based on publicly available data is that it's not primarily about the 900 million dollars of fines the KFTC imposed in its late-2016 decision. The professor says it's just about 1% of Qualcomm's Korean revenues over the last 25 years, or 2% of what "Qualcomm generated through its illegal activities in South Korea." Instead, he writes, it's about the KFTC's corrective orders, which are about Qualcomm's business model.

The article talks about how Samsung ceased to complain about Qualcomm's practices after its new (early 2018) deal. Well, during the course of those Qualcomm antitrust investigations in multiple jurisdictions, Samsung was far from the only company to sign a new chipset purchasing and patent licensing agreement. Apple settled during opening statements at the April 2019 trial in San Diego--as did Korea's LG Electronics a few months later. There's no basis for pointing fingers at those companies: they're in the smartphone business, not in the antitrust enforcement business. But I do agree with the professor that Korea's competition authority (and, needless to say, the courts) have a responsibility here. (As for the companies that settled their formal or informal disputes with Qualcomm, there's plenty of testimony from the time before those deals were struck, and that testimony is still useful, as it was in the U.S. FTC v. Qualcomm case--where Samsung also filed a great amicus curiae brief.)

Professor Park argues--in other words--that South Korea's economy simply can't afford Qualcomm's sky-high patent royalties: LG Electronics, he says, has been incurring losses for 20 fiscal quarters in a row, and some Korean phone makers like Sewon Telecom, Telson, VK, Pantech, Curitel, and SKY, are no longer in business. Most mobile phone makers in the world have single-digit profit margins except for Apple and Samsung (but even Samsung isn't comfortably in the double digits, he claims).

All of that is interesting, but one claim really surprised me:

"Qualcomm is eexrting political and diplomatic pressure to influence the outcome of the appeal currently pending in the Seoul High Court. The #1 subject of the bilateral negotiations of the U.S.-South Korea Free Trade Agreement that resumed in July 2019 after a seven-year hiatus was the KFTC's investigation of Qualcomm's practices. The U.S. delegation alleges that Qualcomm was denied due process though it is guaranteed under the US-Korea FTA."

I don't know what happened in that investigation, but just like Professor Park it also strikes me that the findings in Korea were simply consistent with what other jurisdictions--particularly Judge Lucy H. Koh of the United States District Court for the Northern District of California--also found.

But there's one thing I just don't understand: assuming that the claim of Qualcomm's antitrust woes being the #1 priority for the U.S. in trade talks with South Korea is true, how can Qualcomm possibly influence the U.S. Administration to such an unbelievable extent?

It obviously makes sense for any U.S. government, regardless of the party or people in power, to ensure that its companies are treated fairly abroad. There have been cases of hyperaggressive antitrust enforcement against some U.S. companies in different places at different times. But in this case, Apple and Intel--both larger than Qualcomm--were actually among the complainants, or at least respondents to questions from the KFTC whose answers played a key role in the decision against Qualcomm.

If the Seoul High Court upholds the most important one of the KFTC's decisions--that Qualcomm needs to extend exhaustive SEP licenses to rival chipset makers--, it will simply be in the mainstream of global antitrust law:

  • Judge Koh identified such an obligation first on the basis of contract law (Qualcomm's FRAND declarations), then on a duty-to-deal basis (the FTC is now pursuing an antitrust theory that relies on the contract-related finding as opposed to a contractless duty to deal).

  • Five automotive companies (Daimler, Continental, Valeo, Gemalto, and BURY Technologies) lodged antitrust complaints with the European Commission's Directorate-General for Competition (DG COMP) against Nokia, and they're all about component-level SEP licensing. Just today the new European Commission was confirmed by the European Parliament (with a two-thirds majority), so I guess we will very soon see a decision to investigate those complaints.

  • Huawei is suing Nokia in a German court (Dusseldorf Regional Court), on the basis of EU antitrust law, to secure component-level SEP licenses. It's almost a given that Huawei will prevail, given that Presiding Judge Dr. Thomas Kuehnen of the Dusseldorf appeals court outlined the related legal theory in an article. Also, the Court of Justice of the EU made it reasonably clear in its Huawei v. ZTE ruling that EU antitrust law gives every implementer of a standard the right to a FRAND license.

In light of the global trend toward enforceable component-level licensing obligations, I hope Korea's courts and the KFTC won't make decisions that would disadvantage their local smartphone makers and other electronics companies compared to those based in other jurisdictions.

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Saturday, November 23, 2019

FTC seeks to defend chip-level licensing part of Qualcomm antitrust ruling with right-for-the-wrong-reasons strategy

Late on Friday, the Federal Trade Commission (FTC) filed its answering brief to Qualcomm's appeal (this post continues below the document):

19-11-22 FTC Answering Brie... by Florian Mueller on Scribd

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The part I'm most interested in--as always in this context--is chipset-level licensing. When I commented on Qualcomm's opening brief in the summer, I agreed with them in part. The problem with the Aspen Skiing (more recently endorsed in Trinko) logic applied by Judge Lucy H. Koh of the United States District Court for the Northern District of California is that the abandonment of a prior profitable and voluntary conduct is key--and in Qualcomm's case the problem is that they didn't really want to grant exhaustive licenses to rival chipset makers and only did so because they relied on an exhaustion theory that the Supreme Court disagreed with in Quanta. So at a minimum they can argue that they did not do knowingly and willingly what they did until the Quanta decision came out and they changed their licensing strategy.

Another--potential--problem with the Aspen Skiing logic is that the refusal to license rival chipset makers allows Qualcomm to collect more from end-product makers ("humongously more lucrative" as Qualcomm told the IRS), but there isn't a lot of time that passes between the two steps (refusal at chip level and collection at end-product level)--much less is it a strategy that works only by forcing someone else out of business in order to then turn a monopolist's profit (even with competitors around, it's more profitable).

In order to affirm the district court's ruling under the Aspen/Trinko standard, one would have to overcome some hurdles. The FTC apparently concludes it's smarter to lower the standard in order to prevail.

On pages 69 and 70, the FTC clearly spells it out. Just like at the stay stage, they're not going to try to defend Judge Koh's reasoning--but they do seek to defend the outcome:

"The FTC does not argue that Qualcomm had a duty to deal with its rivals under the Aspen/Trinko standard. But that heightened standard does not apply here, because—unlike the defendants in Aspen, Trinko, and the other duty-to-deal precedents on which it relies—Qualcomm entered into a voluntary contractual commitment to deal with its rivals as part of the SSO process, which is itself a derogation from normal market competition. And although the district court applied a different approach, this Court 'may affirm on any ground finding support in the record.' [...]"

So what does the FTC consider to be a better mouse trap?

They still appear to feel they're in a very strong position on contract law. Judge Koh's summary judgment that held Qualcomm to have a contractual obligation under its FRAND declarations to U.S. standard-setting organizations (ATIS and TIA) to license rival chipset makers is also under attack from Qualcomm (with a "more equal than others"-like argument), but it's going to be far harder for Qualcomm to get that one overturned. They couldn't even get it overturned directly--at most they could get a remand for the purpose of a trial where they could present extrinsic evidence, and even that is unlikely to happen because it's simply not necessary under California law when a contract is perfectly clear.

As for Qualcomm's "more equal than others" argument, the FTC's answering brief notes that "Qualcomm does not deny that it has received chip-level licenses from over 120 companies—including Ericsson," and recalls that Nokia, another amicus curiae supporting Qualcomm on this issue, once "argued to the European Commission 'that Qualcomm's termination of a modem chip license agreement' violated its 'duty to license on FRAND terms.'" (Ironically, Nokia itself is now the target of five automotive-industry complaints over a refusal to license component makers.)

The FTC is very likely to defend Judge Koh's sumamry judgment on contract interpretation. But that will not, in and of itself, result in an affirmance (for different reasons) of the finding that Qualcomm acted anticompetitively by refusing to license rival chipset makers. The FTC makes it clear that "[o]f course, a breach of contract, 'standing alone,' does not 'give rise to antitrust liability.'" But it can be a violation "when it satisfies traditional Section 2 standards--that is, only when it 'tends to impair the opportunities of rivals and either does not further competition on the merits or does so in an unnecessarily restrictive way.'" (citing to the Ninth Circuit's Cascade Health ruling, which does point to Aspen Skiing in that particular context, but without finding that the Aspen Skiing standard as a whole applied to Cascade Health)

Based on the record it's then not hard for the FTC to argue that the opportunities of Qualcomm's chipset rivals were impaired and that this behavior didn't advance competition on the merits. There's plenty of industry testimony to that effect.

In its efforts to avoid the Aspen/Trinko standard ("a generalized duty to deal with its rivals" as the FTC describes it), the FTC's brief distinguishes the cases because there was no equivalent of a voluntary FRAND licensing commitment in order to have one's inventions included in a standard in Aspen Skiing. The FTC argues that "the antitrust violation lies in the failure to act as agreed"--again, not just because a breach of contract would be an antitrust violation in all cases related to competition issues but because Qualcomm's FRAND commitments "are among the 'meaningful safeguards' that SSOs have adopted to mitigate this serious risk to competition":

"Courts have therefore recognized that conduct that breaches or otherwise 'side-steps' these safeguards is appropriately subject to conventional Sherman Act scrutiny, not the heightened Aspen/Trinko standard. Of particular relevance here, the Third Circuit held that a rival chipmaker had adequately alleged that Qualcomm itself violated Section 2 because it falsely promised an SSO that it would license its technology on FRAND terms, 'but then breached those agreements.' Broadcom [...]. The Third Circuit declined to apply the Aspen/Trinko test, emphasizing that the case 'd[id] not involve a refusal to deal.' [...] It would thus be inappropriate to apply the heightened Aspen/Trinko standard to a monopolist's exploitation of the SSO process to reinforce its anticompetitive conduct."

The FTC then points to a case in which the Ninth Circuit also "applied traditional antitrust standards to breaches of voluntary commitments made to mitigate antitrust concerns" (in that case, a merger remedy) and a similar approach in the District of New Jersey:

"In Mount Hood Stages, Inc. v. Greyhound Corp., [...] (9th Cir. 1977), this Court upheld a judgment holding that Greyhound violated Section 2 by refusing to interchange bus traffic with a competing bus line after voluntarily committing to do so in order to secure antitrust approval from the Interstate Commerce Commission for proposed acquisitions. [...[; see also, e.g., Biovail Corp. Int'l v. Hoechst Aktiengesellschaft, [...] (D.N.J. 1999) (breach of commitment to deal in violation of FTC merger consent decree exclusionary under Section 2).

What I like conceptually about the FTC's line of reasoning here is that FRAND commitments don't come out of nowhere: if the companies sitting at the standard-setting table didn't make those commitments, competition enforcers would have to take action against them at that stage, given that standard-setting is by definition exclusionary. The FRAND commitment is what enables the positive aspects of standardization, which no one would deny, to outweigh concerns over its potentially exclusionary effects--by making exclusion impossible (as long as each participant honors their FRAND pledge). Just like I called Greyhound's commitment in the Mount Hood Stages case a "merger remedy," the FRAND pledge a company makes to a standard-setting organization is a cartel remedy. Then, provided that non-compliance has anticompetitive effects, it constitutes an antitrust violation if the Ninth Circuit adopts the Third Circuit's application of the law.

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Wednesday, October 30, 2019

Qualcomm's German outside counsel: all mobile communications technology resides in baseband chipset

In the FTC v. Qualcomm antitrust litigation, particularly in its opposition to the FTC's motion for summary judgment on chipset-level licensing, Qualcomm disputed that cellular standards are implemented by baseband chips. Qualcomm claimed that only "complete devices" can implement cellular standards (which failed to persuade Judge Lucy H. Koh of the United States District Court for the Northern District of California).

That's why I just can't help but share a soundbite from today's Nokia v. Daimler patent infringement hearing in Munich. Today, Quinn Emanuel's Dr. Marcus Grosch represented Daimler against Nokia's standard-essential patent (SEP) assertions. But he also represented Qualcomm in its German patent infringement actions against Apple. Here's a fundamental truth he told the Munich court today:

"All that we're talking about with respect to mobile communications technologies is ultimately in the baseband chip."

That quote made my day--and justifies an unusually short blog post by my standards.

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Tuesday, October 1, 2019

Component-Level SEP Licensing Conference -- Brussels, 12 November 2019 -- Program & Registration

As promised, here's the detailed program for FOSS Patents' Chipset-Level SEP Licensing conference, which will be held at the Sofitel Le Louise hotel in Brussels on Tuesday, November 12, 2019. (There will soon be news regarding a similar event in Northern California in mid-January.)

You can find the program as well as ticket registration forms on the EventBrite page for this conference. For your convenience, the conference program is included below. The names of the moderators and panelists will be announced soon.

08:30 AM Registration & Reception
09:00 AM Introductory Session
Patent exhaustion and attempted workarounds
Technical aspects of embodiment of patented invention by component
10:00 AM "All Comers" Or Not? Access to Licenses Under Contract Laws
The ETSI FRAND declarations and the licensability positions taken in litigation
Summary judgment in FTC v. Qualcomm based on ATIS and TIA FRAND pledges
10:30 AM Morning Coffee Break
11:00 AM Patent Licensing: Implications for Business
Seeking component-level licenses: experiences from the field
Patent royalties in the IoT industry: an economics perspective
12:30 PM Lunch
01:30 PM The 2019 FTC v. Qualcomm Ruling: Key Holdings, Next Steps, Global Impact
Judge Lucy H. Koh's findings of fact, conclusions of law, and remedial orders
Procedural road map
Consistent and conflicting earlier decisions by U.S. courts
Could Judge Koh's reasoning be adopted under Art. 102 TFEU?
03:00 PM Afternoon Coffee Break
03:30 PM Antitrust Complaints Over Component-Level Licensing
EU antitrust complaints over SEP licensing
Continental antitrust lawsuit against Avanci
04:00 PM Bonus Session: Access to Injunctive Relief
Evolution of national case law on SEP injunctions since Huawei v. ZTE
The proportionality requirement under the EU enforcement directive
State of play in the German patent reform debate
05:00 PM Reception

Again, the signup page is https://www.eventbrite.com/e/component-level-sep-licensing-tickets-74853834835.

In May I had already written about this idea. After further thought--and discussions that led, among other things, to the inclusion of the "bonus session" on injunctive relief--the conference program took its current shape. Brussels, the de facto capital of the EU, turned out to be the most logical location for the European edition of this conference.

Component-level licensing is presently the single hottest topic relating to standard-essential patents (SEPs). I stepped forward a few months ago because I thought the time was ripe for a conference that would focus on this aspect of SEP licensing. I look forward to welcoming many of you on November 12, and to interesting presentations and discussions!

For questions relating to the conference, please don't hesitate to contact me at fosspatents@gmail.com.

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Sunday, September 29, 2019

Qualcomm makes "more equal than others"-like argument in Ninth Circuit appeal of Judge Koh's summary judgment on chipset licensing of SEPs

Component-level (including, but not limited to, chipset-level) licensing of standard-essential patents (SEPs) is the hot topic for the technology industry, especially in the Internet of Things era, for its standard-setting organizations, for regulators, and--increasingly--for Article III courts in the U.S. and their counterparts in other jurisdictions.

Approximately four months ago, I announced my plans to organize conferences on this subject on both sides of the Atlantic. Here's an update on those plans before discussing the subject in connection with Qualcomm's Ninth Circuit appeal of the FTC's antitrust win in the Northern District of California:

  • In a couple of days, registration will begin for FOSS Patents' Brussels conference on November 12, 2019 at the Sofitel Le Louise. I will publish the detailed conference program--we'll cover the legal, regulatory, policy, economic, and technical aspects--and registration links in a very few days.

  • I had also said there would be such an event in the San Francisco Bay Area. I can't go into specifics regarding the latter. Suffice it to say that there will soon be a related announcement for mid-January, and you'll read about it on this blog, too.

Now, back to Qualcomm's antitrust appeal. On August 24, the San Diego-based chipmaker won a stay (for the duration of the appellate proceedings) of the injunction Judge Lucy H. Koh had issued. Later that day, Qualcomm filed its opening brief. A week later, the DOJ and various other Qualcomm allies filed their amicus curiae briefs.

Judge Koh had identified two different legal bases on which Qualcomm has an obligation to extend chipset-level SEP licenses on FRAND terms to its rivals:

Qualcomm's procedural objective is for the November 2018 summary judgment to be vacated. In that case, the district court would have to consider all sorts of evidence Qualcomm would like to present. I'm sure that in the hypothetical event of a remand for this purpose, Qualcomm would again appeal any finding in the FTC's favor, but for now, Qualcomm firstly wants a second bite at the apple--possibly also hoping to just settle the case with the FTC in that scenario.

I don't recall whether this was Qualcomm or one of its allies, but someone had even made a jurisdiction-related argument in recent months, according to which the FTC's summary judgment motion on a matter of contract interpretation was out of place in an antitrust case. Qualcomm's Ninth Circuit opening brief doesn't say that, however.

Qualcomm does not--as it could not--argue that the language of those ATIS and TIA FRAND declarations unambiguously rules out chipset-level licensing. Instead, the common denominator of Qualcomm's attack vectors against the summary judgment decision is that there was extrinsic evidence that the district court allegedly failed to consider. Such evidence would be partly technical (related to whether or not a baseband chip practices and implements a cellular standard), partly related to other SEP policies (ETSI--which would raise questions under French law--and ANSI) that Qualcomm says the ATIS and TIA FRAND declarations must be compatible with, and partly about industry practice and, closely related to that one, the industry's understanding of SEP licensing obligations.

Qualcomm engages in hair-splitting when it says, after conceding "that some modem chips infringe some Qualcomm SEPs," that "infringement of a patent does not determine what 'implements' or 'practices' an ATIS or TIA standard," which Qualcomm argues are two "legally and factually distinct" questions. However, the definition of a SEP is that it's inevitably infringed by implementing the relevant standard. Theoretically, one can also infringe a SEP without practicing or implementing any standard it's been declared essential to--but the reason those modem chips do infringe is because they do just that.

The argument that only complete devices can implement an entire standard ignores that the modem chip in a smartphone is simply the mastermind that controls all of the technical operations and functions that make the device as a whole standards-compliant.

Qualcomm's #1 vulnerability is that virtually the entire industry testified at trial that Qualcomm insists on license grant-backs that exhaustively licenses Qualcomm's baseband chips. Qualcomm tries to explain this dual standard away now by stressing that it "has received incoming cross-licenses pursuant to outgoing licenses it has granted to OEMs that manufacture complete cellular devices," and "patent holders will not grant outbound portfolio-wide licenses while leaving themselves exposed to opportunistic claims of infringement by their licensees."

What Qualcomm seeks to portray as a perfectly reasonable kind of symmetry is actually a massive asymmetry. The asymmetrical effect is that the customers of Qualcomm's baseband chips are covered (thanks to exhaustion) with respect to patents held by the likes of Samsung (which is also a chipmaker, not only a device maker) and Ericsson (which makes network infrastructure, not handsets at this stage), while no one can buy a chipset and be covered with respect to Qualcomm's patents. Even buying a Qualcomm chipset doesn't ensure this because Qualcomm (never mind that notion called patent exhaustion) will collect a patent royalty on top of the selling price of the chip.

What's good for the goose is good for the gander. If others are required to grant exhaustive chipset-level SEP licenses to Qualcomm, it can work the other way round as well. But Qualcomm's Orwellian logic is that all patent holders are equal, and one--Qualcomm--is more equal than all others.

If the Ninth Circuit figures this out, Qualcomm will have a huge credibility problem. That wouldn't be formally dispositive, of course, but it wouldn't help them.

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