Qualcomm has a clear appeal avenue over FTC antitrust ruling

Qualcomm stands a chance of reversing an antitrust ruling handed against the chip producer earlier in May, legal experts suggest, after the publication of an opinion piece by an FTC Commissioner offered arguments for why the decision was wrongly made.

On May 21, Judge Lucy Koh found in favor of the U.S. Federal Trade Commission in its antitrust litigation case against Qualcomm, which alleged the company unlawfully suppressed competition by abusing its dominance in the cellular modem industry. As part of her decision, Koh ruled Qualcomm had to negotiate or renegotiate license terms with its customers without any potential threats, such as a lack of access to modem chips, as well as to license modems "on fair, reasonable, and non-discriminatory terms."

The following week, Qualcomm motioned to stay Koh's ruling, arguing the decision raises "serious legal questions," such as the omission of key evidence that would have helped its case. Qualcomm has so far yet to file an appeal on the ruling, but it is suggested it has a good chance of reversing the decision.

An opinion piece from FTC Commissioner Christine Wilson on May 28 claims the ruling "radically expanded a company's legal obligation to help its competitors," and was based on a questionable interpretation of a 1985 U.S. Supreme Court decision, reports Reuters. The article is rare, as it is not usual practice for an FTC commissioner to pass comment in such a way on legal matters.

Koh's decision was based in part by the "Aspen Skiing" case, which determined that leaving a business arrangement that was time-tested and profitable could be a violation of competition law. As Qualcomm once licensed its patents for industry-standard technology to rivals in the industry, the company changed its practice at the start of the century to star only licensing the same patents to companies who produce consumer devices that use the chips.

It was reasoned Qualcomm's change in stance was "motivated by anticompetitive compliance," said Koh. This is apparently similar to the Aspen Skiing case where one operator cut short a long-standing agreement with a rival resort operator to sell a combination lift ticket package, sacrificing profits in favor of trying to kill off the rival company.

Qualcomm insisted it never granted such "exhaustive" full licenses to other chip suppliers, and doing so now would force it into new business arrangements instead of returning to a previous deal.

Wilson suggests that, using Koh's logic of the Aspen case, it "now means that if a company ever sells any product to any competitor, it then could have a perpetual antitrust obligation to sell every product to every competitor."

University of Southern California law professor Jonathan Barnett agrees with Wilson's view that the decision could be overturned during an appeal. Barnett proposed the Aspen Skiing ruling was supposed to be "very narrow," and was deemed to be "at or near the outer boundary" of antitrust liability when referred to in a 2004 Verizon lawsuit at the high court.

Geoffrey Manne, International Center for Law and Economics director, agreed in that there was an issue in comparing the Qualcomm situation with Aspen Skiing. The change to device-level licensing "hardly originated with Qualcomm," suggests Manne, but it made sense due to being potentially more lucrative.

While the arguments based on Aspen Skiing's interpretation may have some value, other legal experts believe Koh's factual findings won't be ignored by appeals courts unless there is a very "clear error" on her part. Specifically, contradictions in testimony by some Qualcomm executives via their own notes and communications, one Qualcomm lawyer "pretended not to recall" details of a 2012 meeting until FTC lawyers played a recording, and polished "fast and practiced narratives" in questioning of Qualcomm executives by the company's own lawyers.

Professor of Antitrust Law at Cleveland State University Christopher Sagers advised "It was embarrassing and probably really damaging on appeal that Koh carefully documented the Qualcomm executives pretty clear lies in testimony."

Qualcomm believes "a thorough examination of the evidence and the proper interpretation of the law will result in a reversal by the 9th Circuit Court of Appeals," the company advised in a statement.

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4 Comments

carnegie

said about 4 years ago

That was pretty shady move by Commissioner Wilson writing that oped for the Wall Street Journal. Even if she - in good faith - disagreed with her agency's decision to pursue the case against Qualcomm, she probably shouldn't have written that oped.

That said, Judge Koh's decision was right on the law. An appeals court can always change how a given law is applied, and I wouldn't rule out the possibility that that will happen in relation to this case. But as it stands now - as Section 2 of the Sherman Act has been interpreted - this was an open and shut case. There's a reason that Qualcomm's witnesses - as Judge Koh effectively demonstrated - essentially lied so much in their testimony. The law wasn't on Qualcomm's side, its only hope - given that this wasn't a jury trial - was to try to muddy the facts enough to slide by that law.

The elements of a Section 2 violation were all there, and frankly I don't know how any of them could reasonably be argued against:

Relevant markets (e.g., at a minimum, a properly identified CDMA modem market): Check
Monopoly power: Check
Willful acquisition or maintenance of monopoly power - anticompetitive behavior lacking legitimate procompetitive justifications: Check, in spades.

We might argue (and I probably would) that U.S. antitrust law shouldn't work the way that it does. But given the way it does work, in my view this decision was a no-brainer.

gatorguy

said about 4 years ago

carnegie said:

That was pretty shady move by Commissioner Wilson writing that oped for the Wall Street Journal. Even if she - in good faith - disagreed with her agency's decision to pursue the case against Qualcomm, she probably shouldn't have written that oped.

That said, Judge Koh's decision was right on the law. An appeals court can always change how a given law is applied, and I wouldn't rule out the possibility that that will happen in relation to this case. But as it stands now - as Section 2 of the Sherman Act has been interpreted - this was an open and shut case. There's a reason that Qualcomm's witnesses - as Judge Koh effectively demonstrated - essentially lied so much in their testimony. The law wasn't on Qualcomm's side, its only hope - given that this wasn't a jury trial - was to try to muddy the facts enough to slide by that law.

The elements of a Section 2 violation were all there, and frankly I don't know how any of them could reasonably be argued against:

Relevant markets (e.g., at a minimum, a properly identified CDMA modem market): Check
Monopoly power: Check
Willful acquisition or maintenance of monopoly power - anticompetitive behavior lacking legitimate procompetitive justifications: Check, in spades.

We might argue (and I probably would) that U.S. antitrust law shouldn't work the way that it does. But given the way it does work, in my view this decision was a no-brainer.

Carnegie, according to the article the ultimate decision was based on some relatively obscure precedent that some legal experts feel was a stretch rather than the Sherman Act in general.

Yes lots of evidence too that QC was a bit dishonest in testimony which won't help them. Still Judge Koh may well have inappropriately used "Aspen Skiing" as justification for her ruling. That's not yet clear and it may be a long time before it is.

carnegie

said about 4 years ago

gatorguy said:

carnegie said:

That was pretty shady move by Commissioner Wilson writing that oped for the Wall Street Journal. Even if she - in good faith - disagreed with her agency's decision to pursue the case against Qualcomm, she probably shouldn't have written that oped.

That said, Judge Koh's decision was right on the law. An appeals court can always change how a given law is applied, and I wouldn't rule out the possibility that that will happen in relation to this case. But as it stands now - as Section 2 of the Sherman Act has been interpreted - this was an open and shut case. There's a reason that Qualcomm's witnesses - as Judge Koh effectively demonstrated - essentially lied so much in their testimony. The law wasn't on Qualcomm's side, its only hope - given that this wasn't a jury trial - was to try to muddy the facts enough to slide by that law.

The elements of a Section 2 violation were all there, and frankly I don't know how any of them could reasonably be argued against:

Relevant markets (e.g., at a minimum, a properly identified CDMA modem market): Check
Monopoly power: Check
Willful acquisition or maintenance of monopoly power - anticompetitive behavior lacking legitimate procompetitive justifications: Check, in spades.

We might argue (and I probably would) that U.S. antitrust law shouldn't work the way that it does. But given the way it does work, in my view this decision was a no-brainer.

Carnegie, according to the article the ultimate decision was based on some relatively obscure precedent that some legal experts feel was a stretch rather than the Sherman Act in general.

Yes lots of evidence too that QC was a bit dishonest in testimony which won't help them. Still Judge Koh may well have inappropriately used "Aspen Skiing" as justification for her ruling. That's not yet clear and it may be a long time before it is.

The ultimate decision in this case wasn't really based on Aspen Skiing. (I wouldn't agree that Aspen Skiing is an obscure case or precedent, btw.) The Aspen Skiing > Verizon v Trinko > Metronet Services (CA9) line of cases only really matters with regard to one of the ways in which Qualcomm was found to have engaged in anticompetitive behavior. Those cases relate to Qualcomm's refusal to deal with modem chip competitors. Judge Koh described many other ways in which Qualcomm violated the Sherman Act. Even if we accept that Judge Koh improperly applied the exception (to the general lack of an antitrust obligation to deal with competitors) which the Supreme Court identified in Aspen Skiing, that shouldn't affect the general disposition of this case. By way of analogy, it would mean that Qualcomm wasn't guilty of robbing one of the banks it was found guilty of robbing. So then it would only have been found guilty of robbing 6 banks (or whatever the number would be).

That said, even with regard to the refusal to deal (with modem chip competitors) issue, it isn't really Judge Koh's interpretation of Aspen Skiing which is at issue. It's her interpretation of Metronet Services. In Verizon v Trinko the Supreme Court clarified (and arguably limited) the import of Aspen Skiing v Aspen Highlands Skiing. Then, in Metronet Services v Qwest, the Ninth Circuit interpreted Verizon v Trinko. So, since FTC v Qualcomm was heard in the Ninth Circuit, Judge Koh was bound by what Metronet Services says as well as by what Verizon v Trinko and Aspen Skiing say. In other words, she didn't really (and shouldn't have) interpret(ed) Aspen Skiing. Rather, she interpreted how the Ninth Circuit has interpreted Aspen Skiing. She applied what she considered to be the essential findings of Metronet Services as that case is precedential (with regard to a potential antitrust duty to deal) in the Ninth Circuit.

Perhaps the Ninth Circuit will decide that she applied Metronet Services wrongly, though I wouldn't bet that it will. It's also possible that the Supreme Court will decide, in effect, that the Ninth Circuit (in Metronet Services) has applied Verizon v Trinko and Aspen Skiing wrongly. Regardless, I don't think Judge Koh's application of Metronet Services' interpretation of Aspen Skiing is a major stretch. It might be arguable, but in my view it isn't clearly wrong.

Anyway, coming back around to the the important point, Aspen Skiing isn't all that important to the the general finding that Qualcomm violated the Sherman Act. Even if we excise the refusal to deal (with modem chip competitors) aspect of the decision, Judge Koh effectively lays out other antitrust violations. Her ultimate decision could easily have been reached - and justified - without her having ever referred to Aspen Skiing. She could be overruled with regard to the application of Aspen Skiing without her broader decision being jeopardized.