Mergers & Antitrust Law News

Qualcomm’s Fate in Phone User Class Action Hinges on FTC Case

Dec. 6, 2019, 11:46 AM

A potential defeat for the Federal Trade Commission in its fight against Qualcomm Corp.’s headset chip licensing practices could also lead to a collapse of a separate class action brought by cell phone purchasers.

Qualcomm faces similar accusations in the FTC’s antitrust case and the consumer class action, both of which are currently on appeal at the U.S. Court of Appeals for the Ninth Circuit.

The same lower district court judge, Lucy Koh, had ruled that Qualcomm acted anticompetitively in both cases.

A reversal of the lower court’s ruling in the FTC’s suit could bolster Qualcomm’s fight to limit and potentially overturn the separate class suit given that Koh’s reasoning was similar in the two cases, said Benjamin Sirota, a litigator at Kobre & Kim LLP and former prosecutor with the Justice Department’s Antitrust Division.

The parallel antitrust suits allege that Qualcomm unfairly used its dominant market position to force phone makers and other equipment manufacturers to pay more for chips and patent royalties.

Consumers in the class action further claim that because cell phone makers had to pay more for Qualcomm chips, manufacturers had to recoup those costs by passing them on to consumers. That in turn resulted in higher phone prices, meaning that millions of consumers are entitled to damages, the class says.

The Ninth Circuit is set to hear Qualcomm’s appeal in the FTC’s challenge on Feb. 13. An appeals panel heard arguments in the related class action Dec. 2.

It’s uncertain which case will be ruled on first. Qualcomm, in the FTC’s case, has asked the Ninth Circuit for an expedited ruling. Analysts believe an appeals court decision in that case could come within the first half of 2020.

“Since the legal issue presented in both cases is very similar and both cases are before the same district court judge, a ruling in either case would likely affect the other,” Timothy Cornell, head of Clifford Chance LLP’s antitrust practice, said.

California Specific

One major difference between the two cases is that the class suit was brought under California’s antitrust law, the Cartwright Act, whereas the FTC filed suit under federal law.

A reversal of Koh’s opinion in the FTC’s case wouldn’t automatically preclude the consumer suit from continuing to move forward. However it would make it very hard for the plaintiffs to win, Jennifer Rie, a Bloomberg Intelligence antitrust analyst, said.

It’s possible that the Ninth Circuit could move the consumer suit forward by only addressing issues surrounding class certification status, leaving the actual merits of the case untouched, Cornell said.

That’s because a main sticking point in the class suit is that it’s premised on California’s antitrust law, which, unlike other states, allows indirect purchasers, i.e. cell phone users, to sue for damages.

Since not every state gives indirect purchasers the right to recover antitrust damages, the class ought to be limited or outright rejected, Robert Van Nest, Qualcomm’s trial lawyer, said Dec. 2 during arguments before the Ninth Circuit. Koh, in the lower district court, has certified a nationwide class of 250 million cell phone purchasers.

Rie said in a Dec. 4 note that based on oral arguments the Ninth Circuit “appeared likely” to either reject or limit certification.

Qualcomm Edge

Qualcomm has already been granted a temporary stay by the Ninth Circuit on Koh’s order forcing the chipmaker to renegotiate its chip licensing agreements with manufacturers.

That temporary order is a positive sign that Qualcomm “has a shot at winning reversal,” Rie said.

“Even if Judge Koh’s decision is affirmed, reversal is more likely if the Supreme Court takes the case,” she added.

Van Nest said during the Dec. 2 oral argument that a ruling that Qualcomm didn’t violate antitrust law would cast doubt on the consumer suit, even under California antitrust law.

“If the Ninth Circuit were to decide that the FTC action was improperly brought or the judgment for Qualcomm was improper, then yes this case would be moot,” he said.

The cases are FTC v. Qualcomm Inc., 9th Cir., No. 19-16122, oral argument scheduled 2/13/20; Stromberg v. Qualcomm Inc., 9th Cir., No. 19-15159, oral argument 12/2/19.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editors responsible for this story: Seth Stern at sstern@bloomberglaw.com; Alexis Kramer at akramer@bloomberglaw.com

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