Fed. Trade Comm'n v. Qualcomm Inc.
| Decision Date | 06 November 2018 |
| Docket Number | Case No. 17-CV-00220-LHK |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff, v. QUALCOMM INCORPORATED, Defendant. |
| Court | U.S. District Court — Northern District of California |
Plaintiff Federal Trade Commission ("FTC") sues Defendant Qualcomm, Incorporated ("Qualcomm") for violation of § 5 of the Federal Trade Commission Act ("FTCA"), 15 U.S.C. § 45. Before the Court is the FTC's motion for partial summary judgment on the issue of whether two industry agreements obligate Qualcomm to license its essential patents to competing modem chip suppliers. Having considered the submissions of the parties, the relevant law, and the record in this case, the Court GRANTS the FTC's motion for partial summary judgment.
This case presents the complicated interaction between cellular communications standards, standard essential patents ("SEPs"), and the market for baseband processors, or "modem chips." In the Complaint, the FTC alleges that Qualcomm is a "dominant supplier" of modem chips and the holder of SEPs essential to "widely adopted cellular standards." ECF No. 1 ("Compl.") ¶ 2. The FTC alleges that Qualcomm has harmed competition and violated § 5 of the FTCA via several interrelated policies and practices. First, Qualcomm does not sell its modem chips unless a customer accepts a license to Qualcomm's SEPs, which the FTC alleges Qualcomm offers for "elevated royalties." Id. ¶ 3a. Second, Qualcomm refuses to license its SEPs to competitors in the modem chip supplier market, in violation of industry agreements. Id. ¶ 3c. Third, the FTC alleges that Qualcomm has entered "exclusive dealing arrangements" with Apple, an important cell phone manufacturer. Id. ¶ 3d.
The parties refer interchangeably to the companies that manufacture and sell modem chips as "modem chip suppliers," "modem chip manufacturers," and "modem chip sellers." For simplicity and consistency, the Court uses the term "modem chip suppliers" in this Order.
The FTC alleges that because of those practices, customers for Qualcomm's modem chips must pay elevated royalties while Qualcomm's refusal to license its SEPs to competing modem chip suppliers ensures that Qualcomm's customers must depend on Qualcomm for their modem chip supply. Id. ¶¶ 4, 6. The FTC further alleges that Qualcomm's exclusive arrangements with Apple preclude other modem chip suppliers from working with "a particularly important cell phone manufacturer," which harms competition. Id. ¶ 8.1
Here, the FTC's motion for partial summary judgment concerns a discrete legal question: whether two industry agreements require Qualcomm to license its SEPs to other modem chip suppliers. Below, the Court first discusses cellular communications standards and SEPs. Then, the Court turns to the two specific industry agreements that the FTC contends require Qualcomm to license its SEPs to modem chip suppliers, including suppliers competing with Qualcomm.
Cellular communications depend on widely distributed networks that implement cellular communications standards. ECF No. 870-22 ¶ 10. These standards promote "availability and interoperability of standardized products regardless of geographic boundary." Id. Cellular standards have evolved over generations, beginning with the "first generation" standards developed in the 1980s. See In re Qualcomm Antitrust Litig., 292 F. Supp. 3d 948, 955 (N.D. Cal. 2017). Second and third generation standards followed. ECF No. 870-22 ¶¶ 8-9.
Industry groups called standard-setting organizations ("SSOs")2 have emerged to develop and manage the relevant cellular standards. Id. ¶ 11. For example, the Telecommunications Industry Association ("TIA"), a SSO in the United States, "establishes engineering and technical requirements for processes, procedures, practices and methods that have been adopted by consensus." ECF No. 792-2, Ex. 1 ("TIA IPR") at 8. As work began on third generation—or "3G"—cellular communication standards, collaborations of SSOs formed to ensure global standardization. ECF No. 870-22 ¶ 9; see also ECF No. 792-2, Ex. 5 at 7 (). One such collaboration is the Third Generation Partnership Project ("3GPP"). Id. As 4G technology emerged, 3GPP developed the 4G LTE family of standards. ECF No. 870-22 ¶ 9. Another collaboration, the Third Generation Partnership Project 2 ("3GPP2"), focused its 3G standardization efforts on the CDMA2000 standard. Id.
Individual member SSOs of 3GPP and 3GPP2 are known as Organizational Partners. ECF No. 792-2, Ex. 5, at 8. The Alliance for Telecommunications Industry Solutions ("ATIS"), a SSO in the United States, is an Organizational Partner of 3GPP. Id. at 7. As a 3GPP OrganizationalPartner, ATIS has "the capability and authority to define, publish and set standards within the 3GPP scope." Id. at 9. An Organizational Partner "approv[es] and main[tains] . . . the 3GPP scope" and "transpose[s]" 3GPP technical specifications into the Organizational Partner's own standards. Id. at 7, 10. TIA is an Organizational Partner of 3GPP2. ECF No. 870-22 ¶ 9.
The cellular communications standards that SSOs develop and adopt may incorporate patented technology. See ECF No. 792-2, Ex. 2 ("ATIS IPR"), at 9 (); TIA IPR at 8 (). In order to prevent the owner of a patent essential to complying with the standard—the "SEP holder"—from blocking implementation of a given standard, SSOs maintain intellectual property rights ("IPR") policies. ECF No. 792-2, Ex. 3 at 1. These IPR policies "requir[e] members who hold IP rights in [SEPs] to agree to license those patents to all comers on terms that are 'reasonable and nondiscriminatory,' or 'RAND.'" Microsoft II, 696 F.3d at 876. The FTC and Qualcomm use the term FRAND, which stands for "fair, reasonable, and nondiscriminatory," and is "legally equivalent" to RAND. Id. at 877 & n.2.
At issue in the FTC's partial summary judgment motion are Qualcomm's FRAND obligations under the IPR policies of two SSOs, TIA and ATIS. The TIA IPR policy is designed to "encourage[] holders of intellectual property to contribute their technology to TIA's standardization efforts and enable competing implementations that benefit manufacturers and ultimately consumers." TIA IPR at 6. Under the current TIA IPR policy, which has been in effect since 2005, TIA will approve a standard that requires the use of a SEP only if the SEP holder commits to TIA that:
A license under any Essential Patent(s), the license rights which are held by the undersigned Patent Holder, will be made available to all applicants under terms and conditions that are reasonable and non-discriminatory . . . and only to the extentnecessary for the practice of any or all of the Normative portions for the field of use of practice of the Standard."
Id. at 8-9. Even prior to 2005, the TIA IPR policy required SEP holders to license SEPs on "reasonable terms and conditions that are demonstrably free of unfair discrimination to applicants only and to the extent necessary for the practice of the TIA Publication." ECF No. 793-6, Ex. 39 (). The parties agree that on several occasions Qualcomm committed to TIA to license Qualcomm's SEPs pursuant to the current TIA IPR policy or to prior versions of the policy. Mot. at 11-14; Opp. at 5.
The ATIS IPR policy provides that if "use of [a] patented invention is required for purposes of adopting, complying with, or otherwise utilizing the standard," the ATIS patent policy applies. ATIS IPR at 9. ATIS has adopted the patent policy of the American National Standards Institute ("ANSI"). Id. Under that policy,3 ATIS will not approve an ATIS standard that requires use of a SEP until the SEP holder provides "assurance that a license to such essential patent claim(s) will be made available to applicants desiring to utilize the license for the purpose of implementing the standard . . . under reasonable terms and conditions that are demonstrably free of any unfair discrimination." Id. at 10. The parties agree that on several occasions Qualcomm sent ATIS letters of assurance that Qualcomm would license its SEPs pursuant to the ATIS IPR policy. Mot. at 8-10; Opp. at 4-5.
The FTC sued Qualcomm in this Court on January 17, 2017, and alleged that Qualcomm's course of conduct violated § 5 of the FTCA. Compl.
On April 3, 2017, Qualcomm moved to dismiss the Complaint. ECF No. 69. On May 12, 2017, the FTC opposed Qualcomm's motion. ECF No. 85. On May 12, 2017, ACT|The App Association ("ACT"), Samsung Electronics Co., Ltd., Intel Corporation, and the American Antitrust Institute each filed motions for leave to file amicus curiae briefs in support of the FTC'sopposition. See ECF Nos. 90-95. On May 15, 2017, the Court granted the motions for leave to file amicus curiae briefs. ECF No. 95. On June 2, 2017, Qualcomm filed its reply. ECF No. 120.
Then, on June 26, 2017, the Court denied Qualcomm's motion to dismiss the Complaint. ECF No. 133; see Fed. Trade Comm'n v. Qualcomm Inc., 2017 WL 2774406.
On August 30, 2018, the FTC filed motions to (1) exclude the expert testimony of Qualcomm expert Dr. Edward Snyder and accompanying exhibits; and (2) exclude the expert testimony of Qualcomm expert Professor Aviv Nevo. ECF Nos. 788 & 790. That same day, the FTC filed its motion for partial summary judgment. ECF No. 792 ("Mot.").
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