The U.S. Federal Trade Commission urged a U.S. appeals court to reconsider an Aug. 11 ruling that threw out antitrust claims against chipmaker Qualcomm Inc.

The three-judge panel erred when it ruled Qualcomm’s “no license no chips” policy didn’t result in an unfair surcharge on its competitors, the trade agency said Friday in a petition with the Ninth U.S. Circuit Court of Appeals in San Francisco.

“The panel’s decision blesses the continued stifling of competition in multi-billion-dollar markets for cellular-communications chips on which much of the digital economy depends,” the agency said in the petition. The FTC is asking that the case be heard before all active judges on the court.

The antitrust case, which the FTC had won at the trial level, threatened to undermine Qualcomm’s business model. The company gets the bulk of its revenue from selling chips, but the majority of its profit from licensing the thousands of patents it owns on technology that underpins how modern phone systems work.

Rehearing requests are rarely granted, but the FTC’s decision to push the issue keeps a cloud over Qualcomm that investors thought was over.

Analysts had questioned whether the agency would file the petition, since some commission members were vocally opposed to the case. Qualcomm rival Intel Corp., along with automakers Daimler AG and Ford Motor Co., warned the agency that the decision would “weaken the ability of the FTC to protect consumers through future enforcement actions.”

The Justice Department, which splits antitrust duties with the FTC, is on Qualcomm’s side, arguing that any complaints over Qualcomm’s royalty charges should be addressed through contract or patent law, not antitrust law.

Qualcomm doesn’t include patent licenses in the chips it sells, but it will only sell those chips to manufacturers who have a license to the patents. The company said the royalty charged to manufacturers on its patents is the same no matter which company’s chips are used, what the FTC and critics call the “Qualcomm tax.”

That charge, up to $20 per phone, prevents rival chipmakers from offering their products at a lower price, while Qualcomm can provide incentives that lower the total price if Qualcomm chips are used, the FTC alleged. U.S. District Judge Lucy Koh agreed, and ordered Qualcomm to renegotiate its licenses. That order never took effect before it was tossed on appeal.

The appeals court ruled that, even if the royalty charge is unreasonably high, the legal theory adopted by Koh “fails as a matter of law and logic” and showed no anticompetitive harm -- the payment is made by the manufacturers, not the rival chipmakers, the court said.

The case is FTC v. Qualcomm Inc., 19-16122, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

To contact the reporter on this story:
Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editors responsible for this story:
Jon Morgan at jmorgan97@bloomberg.net

Peter Blumberg

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