Broadcom Corp. v. Qualcomm Inc.

Decision Date04 September 2007
Docket NumberNo. 06-4292.,06-4292.
Citation501 F.3d 297
CourtU.S. Court of Appeals — Third Circuit

Federick A. Nicoll, Esq., Dorsey & Whitney, Paramus, NJ, and Michael A. Lindsay, Esq., Dorsey & Whitney, Minneapolis, MN, and Robert A. Skitol, Esq., Drinker Biddle & Reath, Washington, DC, and Andrew Updegrove, Esq., Gesmer Updegrove, Boston, MA, for Amici Curiae The Institute of Electrical and Electronics Engineers, Inc., VITA, OASIS Open (Organization for the Advancement of Structured Information Standards), The Open Group, and PCI Industrial Computer Manufacturers Group on Behalf of Neither Party.

Before: BARRY, FUENTES, and GARTH, Circuit Judges.


BARRY, Circuit Judge.

This appeal presents important questions regarding whether a patent holder's deceptive conduct before a private standards-determining organization may be condemned under antitrust laws and, if so, what facts must be pled to survive a motion to dismiss. Broadcom Corporation ("Broadcom") alleged that Qualcomm Inc. ("Qualcomm"), by its intentional deception of private standards-determining organizations and its predatory acquisition of a potential rival, has monopolized certain markets for cellular telephone technology and components, primarily in violation of Sections 1 and 2 of the Sherman Act and Sections 3 and 7 of the Clayton Act. The District Court dismissed the Complaint, and Broadcom appeals. For the reasons that follow, we conclude that Broadcom has stated claims for monopolization and attempted monopolization under § 2 of the Sherman Act — Claims 1 and 2 of the Complaint. We also conclude, however, that Broadcom lacks standing to assert a claim for unlawful monopoly maintenance in a market in which it neither competes nor seeks to compete — Claim 7 — and that it has failed to allege an antitrust injury sufficient to state a claim under § 7 of the Clayton Act — Claim 8. We will, accordingly, affirm in part, reverse in part, and will order the reinstatement of Broadcom's state and common-law claims.

I. Background
A. Mobile Wireless Telephony and the UMTS Standard

Mobile wireless telephony is the general term for describing the technology and equipment used in the operation of cellular telephones. A cellular telephone contains one or more computer "chipsets" — the core electronics that allow it to transmit and receive information, either telephone calls or data, to and from the wireless network. Chipsets transmit information, via radio waves, to cellular base stations. Base stations, in turn, transmit information to and from telephone and computer networks. It is essential that all components involved in this transmission of information be able to communicate seamlessly with one another. Because multiple vendors manufacture these components, industry-wide standards are necessary to ensure their interoperability. In mobile wireless telephony, standards are determined privately by industry groups known as standards-determining organizations ("SDOs").

Two technology paths, or families of standards, are in widespread use today: "CDMA," which stands for "code division multiple access"; and "GSM," which stands for "global system for mobility." Cellular telephone service providers operate under one or the other path, with, for example, Verizon Wireless and Sprint Communications operating CDMA-path networks, and Cingular (now AT&T) and T-Mobile operating GSM-path networks. The CDMA and GSM technology paths are not interoperable; equipment and technologies used in one cannot be used in the other. For this reason, each technology path has its own standard or set of standards. The standard used in current generation GSM-path networks is the third generation ("3G") standard created for the GSM path, and is known as the Universal Mobile Telecommunications System ("UMTS") standard.1

The UMTS standard was created by the European Telecommunications Standards Institute ("ETSI") and its SDO counterparts in the United States and elsewhere after a lengthy evaluation of available alternative equipment and technologies. Qualcomm supplies some of the essential technology that the ETSI ultimately included in the UMTS standard, and holds intellectual property rights ("IPRs"), such as patents, in this technology. Given the potential for owners of IPRs, through the exercise of their rights, to exert undue control over the implementation of industry-wide standards, the ETSI requires a commitment from vendors whose technologies are included in standards to license their technologies on fair, reasonable, and non-discriminatory ("FRAND") terms. Neither the ETSI nor the other relevant SDOs further define FRAND.

Broadcom alleged that Qualcomm was a member of the ETSI, among other SDOs, and committed to abide by its IPR policy. Specifically, Broadcom alleged, the ETSI included Qualcomm's proprietary technology in the UMTS standard only after, and in reliance on, Qualcomm's commitment to license that technology on FRAND terms. The technology in question is called Wideband CDMA ("WCDMA"), not to be confused with the CDMA technology path. Although it represents only a small component of the technologies that collectively comprise the UMTS standard, WCDMA technology is said to be essential to the practice of the standard.

B. Broadcom's Complaint

Broadcom filed this action in the U.S. District Court for the District of New Jersey on July 1, 2005, and filed its First Amended Complaint (the "Complaint") shortly thereafter. The Complaint alleged that Qualcomm induced the ETSI and other SDOs to include its proprietary technology in the UMTS standard by falsely agreeing to abide by the SDOs' policies on IPRs, but then breached those agreements by licensing its technology on non-FRAND terms. The intentional acquisition of monopoly power through deception of an SDO, Broadcom posits, violates antitrust law.

The Complaint also alleged that Qualcomm ignored its FRAND commitment to the ETSI and other SDOs by demanding discriminatorily higher (i.e., non-FRAND) royalties from competitors and customers using chipsets not manufactured by Qualcomm. Qualcomm, the Complaint continued, has a 90% share in the market for CDMA-path chipsets, and by withholding favorable pricing in that market, coerced cellular telephone manufacturers to purchase only Qualcomm-manufactured UMTS-path chipsets. These actions are alleged to be part of Qualcomm's effort to obtain a monopoly in the UMTS chipset market because it views competition in that market as a long-term threat to its existing monopolies in CDMA technology.

Broadcom claims to have been preparing to enter the UMTS chipset market for several years prior to its filing of the Complaint. After Broadcom purchased Zyray Wireless, Inc., a developer of UMTS chipsets, Qualcomm allegedly demanded that Broadcom license Qualcomm's UMTS technology on non-FRAND terms. Broadcom refused, and commenced this action. Qualcomm also allegedly acquired Flarion Technologies, a competitor in the development of technologies for inclusion in the forthcoming B3G and 4G standards, in an effort to extend Qualcomm's monopolies into future generations of standards.

Based on the above factual allegations, the Complaint asserted claims under Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2; Sections 3 and 7 of the Clayton Act, 15 U.S.C. §§ 14, 18; and various state and common-law claims.

C. The District Court's Opinion

Qualcomm moved to dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. On August 30, 2006, 2006 WL 2528545, little more than a year after the filing of the Complaint and while discovery was ongoing, the District Court granted the motion. In dismissing Broadcom's claim of monopolization in the WCDMA technology markets, the Court reasoned that Qualcomm enjoyed a legally-sanctioned monopoly in its patented technology, and that this monopoly conferred the right to exclude competition and set the terms by which that technology was distributed. Acknowledging that industry-wide standards merit "additional antitrust scrutiny" (App. at A18), the Court nevertheless quickly concluded that the inclusion of Qualcomm's WCDMA technology in the UMTS standard did not harm competition because an absence of competition was the inevitable result of any standard-setting process. That inclusion of Qualcomm's technology may have been the product of deception was of no moment under antitrust law, the Court continued, because no matter which company's patented technology ultimately was chosen, the adoption of a standard would have eliminated competition. (Id. at A21 ("[I]t is the SDO's decision to set a standard for WCDMA technology, not Qualcomm's `inducement,' that results in the absence of competing WCDMA technologies.").) The Court did not discuss the possibility that the FRAND commitments that SDOs required of vendors were intended as a bulwark against unlawful monopoly, nor did it consider the possibility that the SDOs might have chosen nonproprietary technologies for inclusion in the standard.

As to the claim that Qualcomm was attempting...

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