FTC v. Qualcomm Inc.
969 F.3d 974
9th Cir.2020Background
- FTC sued Qualcomm under the Sherman Act alleging unlawful monopolization and unreasonable restraints of trade in the CDMA and premium LTE modem-chip markets; district court after a bench trial entered a permanent, worldwide injunction against core Qualcomm practices.
- Qualcomm both licenses cellular SEPs (standard-essential patents) and sells modem chips; it licenses SEPs at the OEM/end-product level and sets royalties as a percentage of handset price.
- Qualcomm historically held dominant shares (over 90% CDMA; ~70% premium LTE in peak years) and enforced a “no license, no chips” policy requiring OEMs to take SEP licenses to buy Qualcomm chips.
- Qualcomm offers rival chipmakers indemnities (CDMA ASIC Agreements) allowing rivals to practice some SEPs royalty-free; Qualcomm does not license rival chipmakers exhaustively at the chip level.
- District court found (inter alia) an antitrust duty to deal (Aspen Skiing theory / SSO commitments), that Qualcomm’s royalties imposed an anticompetitive surcharge, that “no license, no chips” harmed competition, and that Apple agreements were de facto exclusive dealing; Ninth Circuit reversed and vacated the injunction.
- Ninth Circuit framed the relevant product markets as CDMA and premium LTE modem chips and held the FTC failed to prove anticompetitive effects within those markets; contractual FRAND remedies belong to contract/patent law absent anticompetitive conduct.
Issues
| Issue | Plaintiff's Argument (FTC) | Defendant's Argument (Qualcomm) | Held |
|---|---|---|---|
| Antitrust duty to deal / SSO FRAND commitments | Qualcomm’s SSO commitments required licensing to all comers including rival chipmakers; refusing to license violated §2. | No antitrust duty to deal; OEM-level licensing is consistent with SSO practice and patent-exhaustion law; breach is a contract/patent dispute. | Reversed: no Aspen Skiing duty to deal; FRAND breaches do not automatically create §2 liability — remedies are contract/patent law absent proven anticompetitive effect. |
| Aspen Skiing exception (duty from prior course of dealing) | Qualcomm terminated chip-level licensing and sacrificed short-term profits to exclude rivals. | Qualcomm never provided exhaustive chip-level licenses; shift to OEM licensing responded to exhaustion law and was profit-motivated. | Aspen Skiing elements not met: no prior profitable, exhaustive course of dealing, no sacrifice of short-term profits to exclude, and no targeted discrimination. |
| Royalty rates / "anticompetitive surcharge" | Qualcomm sets royalties on handset price that function as a surcharge on rivals’ chips, increasing rivals’ effective prices and foreclosing competition. | Royalties are chip-supplier neutral, reflect negotiated marketplace terms, and licensing valuation is a patent-law issue (reasonable royalty). | Rejected: surcharge theory fails—royalties are not a per-unit hidden tax on rivals in the relevant chip markets; patent valuation disputes are not per se antitrust harms. |
| "No license, no chips" policy | Policy coerces OEMs and raises rivals’ effective costs, harming competition. | Policy is chip-supplier neutral and preserves SEP value in light of exhaustion; Qualcomm may set terms for whom it sells chips to. | Rejected as antitrust violation: harms alleged are to OEM customers (outside relevant chip markets); policy is neutral across chip suppliers and lawful absent shown anticompetitive effect in chip markets. |
| Apple agreements / exclusive dealing and injunction | Qualcomm’s payments/incentives to Apple effectively foreclosed a substantial share of CDMA chip market and warrant injunctive relief. | Agreements were volume/discount arrangements; Apple terminated them and they caused limited, transient effect. | No injunction warranted: agreements did not substantially foreclose competition in the chip market and were terminated by Apple years before the FTC suit. |
Key Cases Cited
- Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (Sup. Ct.) (duty-to-deal exception where firm terminated profitable course of dealing to exclude rival)
- Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (Sup. Ct.) (limits on duty to deal; Aspen Skiing is narrow)
- Ohio v. American Express Co., 138 S. Ct. 2274 (Sup. Ct.) (rule-of-reason framework; must show anticompetitive effects in the relevant market)
- United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir.) (antitrust standard for exclusionary conduct and causation)
- Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir.) (SSO deception theory can support antitrust claim where intentional deception and discriminatory pricing shown)
- LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51 (Fed. Cir.) (discussion of smallest salable patent-practicing unit as an evidentiary apportionment tool)
- Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir.) (caution against treating SSO contract breaches as per se antitrust violations)
- Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (Sup. Ct.) (test for foreclosure in exclusive-dealing claims)