Federal Trade Commission v. Qualcomm Inc., 081120 FED9, 19-16122

Docket Nº:19-16122
Opinion Judge:CALLAHAN, CIRCUIT JUDGE
Party Name:Federal Trade Commission, Plaintiff-Appellee, v. Qualcomm Incorporated, A Delaware corporation, Defendant-Appellant, Samsung Electronics Company, Ltd.; Samsung Semiconductor Inc.; Intel Corporation; Ericsson, Inc.; Samsung Electronics America, Inc.; MediaTek Inc.; Apple Inc., Intervenors, Nokia Technologies Oy; Interdigital, Inc.; Lenovo (...
Attorney:Thomas C. Goldstein (argued), Kevin K. Russell, and Eric F. Citron, Goldstein & Russell P.C., Bethesda, Maryland; Gary A. Bornstein, Antony L. Ryan, Yonatan Even, and M. Brent Byars, Cravath Swaine & Moore LLP, New York, New York; Robert A. Van Nest, Eugene M. Paige, Cody S. Harris, and Justina S...
Judge Panel:Before: Johnnie B. Rawlinson and Consuelo M. Callahan, Circuit Judges, and Stephen J. Murphy, III, District Judge.
Case Date:August 11, 2020
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Federal Trade Commission, Plaintiff-Appellee,

v.

Qualcomm Incorporated, A Delaware corporation, Defendant-Appellant,

Samsung Electronics Company, Ltd.; Samsung Semiconductor Inc.; Intel Corporation; Ericsson, Inc.; Samsung Electronics America, Inc.; MediaTek Inc.; Apple Inc., Intervenors,

Nokia Technologies Oy; Interdigital, Inc.; Lenovo (United States), Inc.; Motorola Mobility LLC, Intervenors.

No. 19-16122

United States Court of Appeals, Ninth Circuit

August 11, 2020

Argued and Submitted February 13, 2020 San Francisco, California

Appeal from the United States District Court for the Northern District of California Lucy H. Koh, District Judge, Presiding D.C. No. 5:17-cv-00220-LHK

Thomas C. Goldstein (argued), Kevin K. Russell, and Eric F. Citron, Goldstein & Russell P.C., Bethesda, Maryland; Gary A. Bornstein, Antony L. Ryan, Yonatan Even, and M. Brent Byars, Cravath Swaine & Moore LLP, New York, New York; Robert A. Van Nest, Eugene M. Paige, Cody S. Harris, and Justina Sessions, Keker Van Nest & Peters LLP, San Francisco, California; Willard K. Tom, Morgan Lewis & Bockius LLP, Washington, D.C.; Geoffrey T. Holtz, Morgan Lewis & Bockius LLP, San Francisco, California; Richard S. Taffet, Morgan Lewis & Bockius LLP, New York, New York; Michael W. McConnell, Wilson Sonsini Goodrich & Rosati, Palo Alto, California; for Defendant-Appellant.

Brian H. Fletcher (argued), Special Counsel; Michele Arington, Assistant General Counsel; Heather Hippsley, Deputy General Counsel; Ian R. Conner, Deputy Director; Daniel Francis, Associate Director; Jennifer Milici, Chief Trial Counsel; Alexander Ansaldo, Joseph Baker, Wesley Carson, Geoffrey Green, Rajesh James, Kenneth Merber, and Mark Woodward, Attorneys, Bureau of Competition; Federal Trade Commission, Washington, D.C.; for Plaintiff-Appellee.

Michael F. Murray (argued), Deputy Assistant Attorney General; William J. Rinner, Chief of Staff and Senior Counsel; Daniel E. Haar, Acting Chief, Competition Policy and Advocacy Section; Jennifer Dixton, Patrick M. Kuhlmann, and Jeffrey D. Negrette, Attorneys; Antitrust Division, United States Department of Justice, Washington, D.C.; for Amicus Curiae United States.

Jonathan S. Massey, Matthew M. Collette, and Kathryn Robinette, Massey & Gail LLP, Washington, D.C., for Amicus Curiae Ericsson, Inc.

Amanda Tessar, Perkins Coie LLP, Denver, Colorado; Sarah E. Fowler, Perkins Coie LLP, Palo Alto, California; for Amicus Curiae Act | The App Association.

Henry C. Su, Ankur Kapoor and David Golden, Constantine Cannon LLP, Washington, D.C., for Amicus Curiae High Tech Inventors Alliance.

Steven C. Holtzman and Gabriel R. Schlabach, Boies Schiller Flexner LLP, San Francisco, California, for Amicus Curiae MediaTek Inc.

John J. Vecchione, Michael Pepson, and Jessica Thompson, Cause of Action Institute, Washington, D.C., for Amicus Curiae Cause of Action Institute.

Garrard R. Beeney and Akash M. Toprani, Sullivan & Cromwell LLP, New York, New York, for Amicus Curiae Dolby Laboratories, Inc.

Erik S. Jaffe, Schaerr Jaffe LLP, Washington, D.C., for Amici Curiae Antitrust and Patent Law Professors, Economists, and Scholars.

Matthew J. Dowd, Dowd Scheffel PLLC, Washington, D.C., for Amicus Curiae The Honorable Paul R. Michel (Ret.).

Andrew G. Isztwan, InterDigital Inc., Wilmington, Delaware, for Amicus Curiae InterDigital Inc.

Robert P. Taylor, RPT Legal Strategies PC, San Francisco, California, for Amicus Curiae Alliance of U.S. Startups & Inventors for Jobs (USIJ).

Jarod M. Bona, Aaron R. Gott, Luis Blanquez, and Luke Hasskamp, Bona Law PC, La Jolla, California; Alexander Shear, Bona Law PC, New York, New York; for Amici Curiae International Center for Law & Economics and Scholars of Law and Economics.

Ryan W. Koppelman, Alston & Bird LLP, Palo Alto, California, for Amicus Curiae Nokia Technologies Oy.

David W. Kesselman, Amy T. Brantly, and Monica M. Castillo Van Panhuys, Kesselman Brantly Stockinger, Manhattan Beach, California, for Amicus Curiae Professor Jorge L. Contreras.

Sandeep Vaheesan, Open Markets Institute, Washington, D.C., for Amicus Curiae Open Markets Institute.

Thomas G. Hungar and Nick Harper, Gibson Dunn & Crutcher LLP, Washington, D.C.; Joshua Landau, Computer & Communications Industry Association, Washington, D.C.; for Amicus Curiae Computer and Communications Industry Association.

Ian Simmons, Benjamin J. Henricks, Brian P. Quinn, and Scott Schaeffer, O'Melveny & Myers LLP, Washington, D.C.; Michael D. Hausfeld and Scott Martin, Hausfeld LLP, New York, New York; for Amici Curiae Law and Economics Scholars.

Charles Duan, R Street Institute, Washington, D.C., for Amicus Curiae R Street Institute.

Gregory P. Stone, Benjamin J. Horwich, Justin P. Raphael, and Stephanie G. Herrera, Munger Tolles & Olson LLP, San Francisco, California; Donald B. Verrilli Jr., Munger Tolles & Olson LLP, Washington, D.C.; for Amicus Curiae Intel Corporation.

Andrew J. Pincus, Mayer Brown LLP, Washington, D.C., for Amici Curiae Association of Global Automakers and Alliance of Automobile Manufacturers.

John ("Jay") Jurata Jr., Randall C. Smith, Thomas King-Sun Fu, and Emily Luken, Orrick Herrington & Sutcliffe LLP, Washington, D.C., for Amici Curiae Continental Automotive Systems Inc., and Denso Corporation.

Jean-Claude André and David R. Carpenter, Sidley Austin LLP, Los Angeles, California; Raymond A. Atkins and Joseph V. Coniglio, Sidley Austin LLP, Washington, D.C.; for Amicus Curiae Timothy J. Muris.

Randy M. Stutz, American Antitrust Institute, Washington, D.C., for Amici Curiae American Antitrust Institute and Public Knowledge.

David H. Herrington, and Alexandra K. Theobald, Cleary Gottlieb Steen & Hamilton LLP, New York, New York; Daniel P. Culley and Jessica A. Hollis, Cleary Gottlieb Steen & Hamilton LLP, Washington, D.C.; for Amicus Curiae Fair Standards Alliance.

Before: Johnnie B. Rawlinson and Consuelo M. Callahan, Circuit Judges, and Stephen J. Murphy, III, [*] District Judge.

SUMMARY[**]

Antitrust

The panel vacated the district court's judgment, and reversed the district court's permanent, worldwide injunction prohibiting several of Qualcomm Incorporated's core business practices.

The Federal Trade Commission ("FTC") contended that Qualcomm violated the Sherman Act, 15 U.S.C. §§ 1, 2, by unreasonably restraining trade in, and unlawfully monopolizing, the code division multiple access ("CDMA") and premium long-term evolution ("LTE") cellular modern chip markets.

Qualcomm has made significant contributions to the technological innovations underlying modern cellular systems, including CDMA and LTE cellular standards. Qualcomm protects and profits from its innovations through patents, which it licenses to original equipment manufacturers ("OEM"). Qualcomm's patents include cellular standard essential patents ("SEPs"), non-cellular SEPS, and non-SEPs. Because SEP holders could prevent industry participants from implementing a standard by selectively refusing to license, international standard-setting organizations require patent holders to commit to license their SEPs on fair, reasonable, and nondiscriminatory ("FRAND") terms before their patents are incorporated into standards.

The panel framed the issues to focus on the impact, if any, of Qualcomm's practices in the area of effective competition: the markets for CDMA and premium LTE modern chips.

The panel began by examining the district court's conclusion that Qualcomm had an antitrust duty to license its SEPs to its direct competitors in the modern chip markets pursuant to the exception outlined in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). The panel held that none of the required elements for the Aspen Skiing exception were present, and the district court erred in holding that Qualcomm was under an antitrust duty to license rival chip manufacturers. The panel held that Qualcomm's OEM-level licensing policy, however novel, was not an anticompetitive violation of the Sherman Act.

The panel rejected the FTC's contention that even though Qualcomm was not subject to an antitrust duty to deal under Aspen Skiing, Qualcomm nevertheless engaged in anticompetitive conduct in violation of § 2 of the Sherman Act. The panel held that the FTC did not satisfactorily explain how Qualcomm's alleged breach of its contractual commitment itself impaired the opportunities of rivals. Because the FTC did not meet its initial burden under the rule of reason framework, the panel was less critical of Qualcomm's procompetitive justifications for its OEM-level licensing policy-which, in any case, appeared to be reasonable and consistent with current industry practice. The panel concluded that to the extent Qualcomm breached any of its FRAND commitments, the remedy for such a breach was in contract or tort law.

The panel next addressed the district court's primary theory of anticompetitive harm: Qualcomm's imposition of an "anticompetitive surcharge" on rival chip suppliers via its licensing royalty rates. The panel held that Qualcomm's patent-licensing royalties and "no license, no chips" policy did not impose an anticompetitive surcharge on rivals' modem chip sales. Instead, these aspects of Qualcomm's business model were "chip-supplier neutral" and did not undermine competition in the relevant markers. The panel held further that Qualcomm's 2011 and 2013 agreements with Apple have not had the actual or practical effect of substantially foreclosing competition in the CDMA modem chip market. Also, because these agreements were terminated years ago by Apple itself, there was nothing to be enjoined.

OPINION

CALLAHAN, CIRCUIT JUDGE

This case asks us to draw the line between anticompetitive behavior, which is illegal...

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