In its answering brief to Qualcomm's Ninth Circuit antitrust appeal, the Federal Trade Commission (FTC) downplays the importance of Judge Lucy H. Koh's holding that Qualcomm has an antitrust duty to license rival chipset makers. The FTC describes that part as "secondary" in the greater scheme of things. But that's a gross understatement. The FTC may take a holistic perspective and/or may be more interested in Qualcomm's "No License-No Chips" policy, but a firm obligation to extend exhaustive licenses, on FRAND terms, to rival chipset makers has enormous problem-solving potential and definitely matters to the industry at large.
By electing to rely on a contract-antitrust combination (arguing that the violation of competition law lies in a breach of a contract that is, as I put it, a cartel remedy), the FTC actually makes the chipset licensing part even more applicable to automotive supplier Continental's antitrust lawsuit in the same district as Nokia, too, signed ATIS' and TIA's FRAND licensing pledges, and could be held in violation of antitrust law on the same grounds as Qualcomm. By contrast, even if an attempt to push the Aspen Skiing duty-to-deal envelope succeeded to the extent that Judge Koh's related decision could be upheld on the original grounds, one would still have to prove--in order to establish an antitrust violation--that a company like Nokia abandoned a prior voluntary and profitable course of dealing, which would be hard to do in most if not all cases.
Prioritization aside, it would do the FTC's brief injustice to comment exclusively on the component-level licensing part and the way the agency ridicules Qualcomm's "national security" fallacy. There's a lot more in that 131-page document. Let me share a few observations:
The answering brief is far more compelling than the FTC's opposition to Qualcomm's motion for a stay of two parts of the injunction was. I described that opposition-to-stay brief as "solid but lackluster." They can do better than that, but the answering brief filed last week recalls the key results of the January trial while still remaining focused on the questions the appeals court is presumably interested in--and will likely receive far more support from amici curiae (their deadline is on Friday).
What made me so sure during the course of the trial that the FTC was going to win was the combination of roughly a dozen industry players validating the agency's competition concerns and Qualcomm's own witnesses being, at best, evasive. Then, when Qualcomm's economic experts failed to an extent I wouldn't have thought possible before it happened, the FTC had an unassailable lead. There was hardly a judge who could have helped Qualcomm in that situation--short of appointing Qualcomm's General Counsel to the Northern District of California just for that case.
But trials and appeals are different types of battles, and some parties who won a trial rely too much on their original success factors. The FTC, however, strikes a balance between recapturing the most important revelations from the trial and addressing the issues that matter now. What the appeals court will see very clearly when reading the answering brief is that the FTC's competition concerns are shared by almost the entire industry. The FTC notes that Judge Koh's factual findings "were supported by an extensive trial record, including Qualcomm's own ordinary-course documents and strikingly consistent testimony from its rivals and customers."
"Qualcomm's own ordinary-course documents" (and Qualcomm's IRS interview) contrast starkly with the testimony of Qualcomm's employees. Judge Koh found that those witnesses lacked credibility; it was all prepared and unconvincing. Since the district court ruling came down, many observers of this case have said that this complicates Qualcomm's efforts to get the ruling overturned on appeal. The FTC, too, notes that "[s]pecial deference is paid to a trial court's credibility findings," as the Ninth Circuit stated in Exxon Co. v. Sofec, Inc. back in 1995 (affirmed by the Supreme Court the following year).
Large parts of the appeal are about legal arguments. Qualcomm masterfully tries to raise the standard for an antitrust violation involving patent licenses in different ways. But the level of abstraction isn't infinitely high: even the strongest legal argument typically involves at least some case-specific facts. That's where Qualcomm faces a huge problem that the FTC's footnote 3 highlights:
"Although Qualcomm does not challenge any of these credibility findings, its brief pervasively relies on testimony from witnesses the district court declined to credit. See, e.g., Br. 9-18, 44-45, 78-79, 91, 94-95, 97, 100, 120, 122, 127-28, 132."
What I wish the FTC had made very clear is that even if Qualcomm can point to companies who accepted its patent license terms without depending on chip supplies at the time, it doesn't disprove anything. All it takes for a SEP holder is to force significant players in the market into a license on certain terms--and even those immune to such coercion would still face the problem that comparable license agreements would bear a lot of weight with a court setting a FRAND rate.
Of the passages of the FTC's brief that address precedent, I liked the part on linkLine best. I've talked about that case before and will address it again between now and the appellate hearing--but that's not a suitable topic for this bird's-eye view post.
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