A few years ago, Qualcomm was being investigated and fined by multiple antitrust authorities around the globe--possibly in more jurisdictions than any tech company before it, but Apple--with new investigations by the UK Competition & Markets Authority and the German Federal Cartel Office having been announced just this week--has meanwhile set a new "record" for drawing worldwide regulatory scrutiny.
In a few Asian jurisdictions, Qualcomm managed to work out settlements. In the United States and the EU, however, it had to fight the antitrust watchdogs in court. In 2020, the United States Court of Appeals for the Ninth Circuit overruled the district court on all counts, denied the Federal Trade Commission a rehearing, and in the end the FTC didn't even seek Supreme Court review.
That was a remarkable outcome. Today, Qualcomm has scored another major victory over a competition authority as the EU General Court annuled a European Commission decision that imposed a fine of approximately $1B (EUGC press release (PDF)). The Commission can appeal that decision, but it can only raise questions of law. I, frankly, don't think it would be a good use of Commission resources (its Legal Services have a lot on their plate) to even try. The EUGC made factual determinations that the Commission has to accept as final; it went beyond the call of duty by holding that the decision had to be annulled for more than one reason; and it's hard to see how the Commission could argue the legal reasoning, such as the EUGC's holding that there are no exception to the rule that the Commission must take notes of its interviews with third parties and put them into the case file so the target of an investigation can properly defend itself.
The case was about the potential anticompetitive effects (foreclosure) from an exclusive-dealing arrangement between Qualcomm and Apple during the period from 2011 to 2016. There was a clause under which Apple was going to lose huge discounts in the event of using other baseband chips than Qualcomm's in its products. Apple went ahead and used Intel chips in some iPads anyway (toward the end of that agreement).
That exclusive deal was one of four types of conduct by Qualcomm that the FTC was challenging. In both jurisdictions, an exclusive-dealing arrangement is not per se illegal: it depends on whether the competitive process was actually harmed by foreclosure. If exclusive dealing was per se illegal, a variety of exclusive business relationships that are procompetitive and ultimately in the interest of consumers would have to be prohibited. And both in the U.S. and the EU, there is no harm if no competitor would actually have been able to supply the relevant goods in the absence of the exclusive-dealing arrangement.
Exclusive dealing is not per se illegal because there are plenty of "legit" use cases. For example, in the early part of my professional life I often negotiated exclusive distribution deals between U.S. software makers and European, or specifically German, distributors. The "foreclosure" effect was that other distributors, if they wanted to buy the German version of a given product from the U.S. company, were referred to the exclusive distributor instead of being able to compete, such as by offering a higher price. But in order to be granted exclusive distribution rights, the distributors had to meet sales quotas and/or provide minimum guarantees and/or commit to certain marketing investments. Only an exclusive distributor had the incentive to promote those products (almost) as if they were its own--and the U.S. companies in all those cases didn't have the resources to set up their own subsidiary, at least not initially. So the legality of such exclusive distribution agreements spurred competition between software products, even though each deal, if viewed in isolation, reduced competition between distributors.
Whether Qualcomm really needed to preclude Apple from buying chipsets from other companies is a difficult question, but not a relevant one in a scenario in which no similarly or more efficient rival would have been in a position to meet Apple's requirements. If any company had been a serious contender during the relevant period, that would have been Intel. By now, Intel's chipset division and most of its cellular standard-essential patents have been acquired by Apple, and Apple hopes to be able to make its own 5G chips in the not too distant future.
Today's Qualcomm decision by the EUGC concludes that Qualcomm's rights as a defendant were not fully respected by the Commission. The Commission held meetings with stakeholders but didn't take notes that Qualcomm's lawyers could have reviewed, which would have enabled Qualcomm to present countervailing evidence. Qualcomm had to aim at a moving target as the Commission's finding of an abuse of a dominant market position was exclusively related to 4G (LTE) in its decision, but the Statement of Objections (SO; a preliminary decision) involved that market as well as the UMTS (3G) chipset market. Only if the SO and the final decision had been consistent in their market definition would Qualcomm have had a fair chance to dispute the alleged foreclosuer effects of the exclusive agreement with Apple. Also, the EUGC believes the Commission failed to take into consideration that Apple didn't really have a technically viable alternative to Qualcomm's chipsets for at least some of its products. The contract at issue may have reduced Apple's incentives to switch to another supplier, but that is not sufficient in its own right to establish actual foreclosure effects, as it doesn't matter if there are no suitable alternatives anyway.
I don't disagree with the EUGC's strict--actually, extremely strict--perspective on the rule of law. It's like that old Roman concept of "in dubio pro reo": in case of doubt, decide for the defendant. But the Court's press release makes it all sound more dramatic than it is. Beyond shortening and simplifying the court's reasoning, the press release borders on Commission-bashing. DG COMP has some lessons to learn from the ruling, and DG&COMP can do better--and in other contexts has done way better--than in the Qualcomm case. That said, it's neither fair nor was it necessary for the court to issue a press release that sounds like the Commission had committed a major wrongdoing. The press release refers to "a number of procedural irregularities." By contrast, the actual ruling mentions the word "irregularities" only once (where it summarizes Qualcomm's appellate argument).
Qualcomm has a reason to celebrate. The Commission has other priorities at this stage, and the EUGC recently upheld the Commission's far, far more important Google Shopping decision (judgment (PDF)). Those are the kinds of the cases for the Commission to focus on. European taxpayers' money would be wasted by appealing today's decision.
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