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FTC to Come Back Stronger After Dropping Qualcomm Litigation

April 2, 2021, 3:31 PM

The Federal Trade Commission’s decision to drop its antitrust case against Qualcomm Inc. is part of a broader strategy to regroup and build more favorable case law rather than a retreat from this type of litigation, attorneys say.

Appealing the case to the U.S. Supreme Court now could end the FTC’s ability to target companies with similar business models if the justices rule against the agency.

But leaving in place last summer’s ruling from the U.S. Court of Appeals for the Ninth Circuit means the commission is free to pursue cases similar to Qualcomm in other areas of the country.

“From a legal standpoint, the decision in Ninth Circuit will be binding on the FTC with regards to what goes on out West, but that won’t be binding when it comes to, say, the Fifth Circuit which covers Texas and some other places,” said David Long, a patent attorney and managing partner at Essential Patent LLC.

“So there’s a chance they thought, well let’s see if we can get some more victories in some other circuits,” he said.

And an upcoming shift in the independent agency’s political makeup likely means increased scrutiny of companies using similar patent licensing models.

The FTC currently has two Democrat and two Republican members following former Chairman Joseph Simons’ departure at the end of January. President Joe Biden March 24 nominated Lina Khan to replace Simons, which would fill out the commission’s five-member panel if she’s confirmed by the Senate.

Democrats in general like to target large corporations’ abuse of power, while Republicans favor a more conservative approach to avoid chilling otherwise legitimate competitive behavior, said Lucy Clippinger, an antitrust attorney at Baker & Miller PLLC.

“I would anticipate that once there are three Democrats and two Republicans on the Commission, they will be much more likely to vote in favor of pursuing additional cases” similar to Qualcomm, she said.

Overstepped Authority

Last summer, the Ninth Circuit ruled that Qualcomm hadn’t engaged in anticompetitive practices by threatening to cut off the licenses to its “essential” semiconductor components unless electronics makers like Apple and Samsung paid “unreasonably high” royalties.

The company gets most of its revenue from selling chips, but the majority of its profit comes from licensing the thousands of patents it owns on technology that underpins how modern phone systems work.

“The Ninth Circuit acknowledged our historic contributions to the industry and reminded us all that hypercompetitive behavior should be encouraged,” Don Rosenberg, Qualcomm’s executive vice president and general counsel, said in a statement to Bloomberg Law. “Now, more than ever, we must preserve the fundamental incentives to innovate and compete,” he said.

Announcing that the FTC is dropping the case, acting Chairwoman Rebecca Kelly Slaughter recently said the commission faces “significant headwinds” if goes before the Supreme Court.

Those “headwinds” could relate to the appeals court’s view that the FTC overstepped its antitrust authority to accuse Qualcomm of abusing its ownership of an essential patent to engage in illegal monopolization, Long said.

At the heart of the Qualcomm case is a standards-setting rule under patent law that requires an essential patent, or standard-essential patent, to be available on fair, reasonable, and non-discriminatory terms. The Ninth Circuit held that the FTC’s reliance on the FRAND rule was outside the agency’s purview.

“So the FTC knew they were on the fringe of antitrust law and that was a tough place to begin with,” Long said.

A representative for the FTC declined to comment on the Qualcomm case beyond the agency’s March 29 statement.

Political Shift

Khan’s nomination to lead the FTC signals the White House’s intent to take a more aggressive antitrust enforcement stance.

The Columbia Law School professor and tech industry critic is likely to favor broad applications of antitrust law and tip the commission toward bringing more cases like Qualcomm.

The FTC’s decision to abandon Qualcomm is “indicative of what would happen” if the commission continued to have two members of each political party, said Kevin Post, a patent attorney with Ropes & Gray LLP. “I suspect there will be another nomination, so you wouldn’t get a split vote,” he said.

Biden is likely to replace Commissioner Rohit Chopra, a Democrat who’s been nominated to head the Consumer Financial Protection Bureau.

“The Qualcomm decision really highlights the very thin and not well defined line between hyper-competitive activity and anti-competitive activity—and that line often falls along political lines,” Clippinger said.

“The FTC’s decision to abandon the Qualcomm case should not be read as a policy statement that it will no longer be pursuing similar cases,” she said.

Spotlight on Semiconductors

Texas’ semiconductor industry is likely to be the FTC’s next target, Post said. Like Qualcomm’s dominance in cellular chips, a few large companies there produce the technology that’s essential to manufacturing electronic devices.

Semiconductors are “such an important technology across a variety of end products, and there are only a few companies that have power” in this area, Post said.

Manufacturers with connections to Texas should be mindful of antitrust concerns, he said.

Long said the chance for an appeals court ruling that contradicts the Ninth Circuit will be years in the making.

In the meantime, startups could see the decision as a green light to develop new, patented innovations that they license in the same manner as Qualcomm.

Yet companies should pay close attention to the details in Qualcomm and use it as a roadmap when developing licenses, Post said.

“I would advise companies considering adopting licensing practices similar to those used by Qualcomm to consult with their antitrust counsel and consider the risk that the FTC may bring additional actions targeting this type of conduct,” Clippinger said.

To contact the reporter on this story: Siri Bulusu in Washington at sbulusu@bloombergtax.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Michael Ferullo at mferullo@bloomberglaw.com

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