Yesterday, the Federal Trade Commission's Acting Chairwoman Rebecca Kelly Slaughter issued a statement on the fact that the FTC did not file a petition for writ of certiorari (Supreme Court review) in the Qualcomm case. On the decision itself I had already commented a few days ago, with a particular emphasis on the fact that Qualcomm's lawyers are now representing Epic Games against Apple and Google.
The FTC's press release is now the first high-profile statement by a federal government agency on standard-essential patent (SEP) matters since President Biden took office, deserving a closer look.
I totally agree with Mrs. Slaughter that the agency's "staff did an exceptional job presenting the case" at the trial stage. And it's a good thing to give Judge Lucy H. Koh credit. It obviously looks strange that the trial court agreed with the FTC all the way (except for a duty-to-deal theory that the FTC didn't defend on appeal) while the appeals court reversed everything it could and vacated the remainder (the FRAND contract interpretation) as moot. Judge Koh deserved better. The Trump presidency was really bad for her. She had already been nominated to the Ninth Circuit, but her confirmation got derailed by the 2016 presidential election. And then the Antitrust Division of the Department of Justice, under Trump appointee Antitrust Assistant Attorney General Makan Delrahim, fought hard against her ruling--and against the FTC.
It's often easy to be wise after the event, but if there's only one aspect of trial management that Judge Koh could have done better in retrospect, it's that she could have allocated more time to a discussion of the law with counsel. This was a complex case with multiple claims and theories. After all the witnesses had been heard, some more extensive back-and-forth between judge and counsel, partly in writing perhaps, might have helped to reach more solid conclusions--maybe the same result in the end, even on the duty to deal (for a component-level license), but on a more appeals-proof basis. Instead, the parties were basically just viewed as delivery boys: they had to present the facts, but the judge thought she knew all about the law. Then, I also sometimes disagreed with Judge Koh in the Apple-Samsung context (as did the appeals court, the Fedreal Circuit in that case), but all in all she is and remains an impressive judge especially on technology industry issues.
The FTC's Acting Chairwoman didn't concede the battle to Qualcomm without a stern warning to SEP abusers:
"I am particularly concerned about the potential for anticompetitive or unfair behavior in the context of standard setting and the FTC will closely monitor conduct in this arena."
Maybe the automotive SEP licensing and enforcement context would provide the FTC with another bite at the apple that is called component-level licensing. Tesla has apparently just been coerced into an Avanci license. Obviously, Tesla itself would find it hard to enforce the antitrust laws against those who sued it over patents, after just signing a settlement agreement. But the FTC could step in and investigate what happened, and possibly take action. If the FTC won, the Avanci-Tesla agreement might be annulled. Tesla wouldn't have to violate any enforceable agreement because it would simply have a legal obligation to answer the FTC's questions.
In the automotive context, SEP holders can't argue that the industry they're dealing with has traditionally taken licenses at the end-product level. The opposite is the case. And it's a multi-tier supply chain: baseband chips get incorporated into network access devices, which in turn are incorporated into telematics control units, and the TCUs are finally built into cars.
Addressing the component-level licensing issue in the SEP context would help not only Tesla but also other U.S. car makers such as Ford and GM. And, by extension, it would benefit Apple.
But there is a significant roadblock: under the aforementioned Mr. Delrahim, the DOJ cleared Avanci's business model by means of a non-binding business review letter.
That roadblock isn't insurmountable, and as a side effect of helping Tesla, GM, Ford, Apple and especially consumers, a victory over a licensing model designed to coerce OEMs into end-product-level SEP license agreements would be the best way to dedelrahimize U.S. SEP policy.
But what about the Biden DOJ? That question already came up in my podcast a couple of months ago, where I asked DC-based antitrust attorney Jay Jurata of Orrick Herrington Sutcliffe for his thoughts on how U.S. SEP policy might evolve after the transition of power.
Mrs. Kelly Slaughter's statement starts by acknowledging "the significant headwinds facing the Commission in this matter." That passage may or may not hint at a continuing FTC-DOJ divide over this case.
My most optimistic scenario would be that the "new" DOJ will pick up where the Obama Administration left off in terms of SEPs, and the same would ideally happen at the USPTO as well, in which case we could soon return to a better SEP licensing and enforcement framework. In that case, the term "headwinds" might have been limited to the fact that the outcome before the Ninth Circuit was obviously disappointing for the FTC and Qualcomm (through its allies) had succeeded in portraying FTC v. Qualcomm as an Obama case, which wouldn't help when you face a Supreme Court with a 6-3 conservative majority.
A moderately optimistic scenario would be that the FTC talked to the DOJ, as the Solicitor General (the second highest-ranking DOJ official) would represent it before the Supreme Court, and the DOJ discouraged a cert petition not because it still shared Delrahim's positions but because it genuinely believed that chances were slim (such as for the "Obama case" reason I just mentioned, and/or because of the significant challenge that it would have been to come up with a couple of good questions for review).
The pessimistic scenario is that DOJ-ATR and FTC are still far apart on the issue.
It won't take long before we find out. For example, if DOJ-ATR again supported Fortress Investment against Apple and Intel (who recently brought a second amended complaint, with Mr. Delrahim having played a key role in enabling Fortress to get earlier versions dismissed), then there would clearly be the same divide as before.
As an app developer, I'm personally most interested in the FTC and the DOJ combating the abuse of mobile app store monopolies. The decision to abandon the Qualcomm case freed up agency resources.
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