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From Antitrust Law Daily, December 12, 2018

Evidentiary rulings swing toward Qualcomm as FTC’s suit over patent licensing approaches trial

By E. Darius Sturmer, J.D.

As the January 4, 2019, trial date for the FTC’s antitrust lawsuit against Qualcomm draws near, the federal district court in San Jose, California, has issued several rulings on what evidence will be permitted at trial. The court denied two motions in limine filed by the FTC seeking to exclude certain lay opinion evidence and to exclude evidence relating to topics on which Qualcomm had claimed privilege. However, it granted a motion by Qualcomm to strike portions of a rebuttal expert report offered by an FTC expert witness (FTC v. Qualcomm Inc., December 10, 2018, Koh, L.).

The FTC’s lawsuit alleges that Qualcomm violated antitrust laws by leveraging its power in the modem chips market to impose unfair licensing terms and hurt competition. According to the Commission, Qualcomm voluntarily committed to the two U.S. telecommunications industry SSOs—Telecommunications Industry Association (TIA) and the Alliance for Telecommunications Industry Solutions (ATIS)—that it would grant licenses for the company’s standard essential patents (SEPs) on fair, reasonable, and non-discriminatory (FRAND) terms to applicants wishing to implement cellular standards.

TIA’s intellectual property rights (IPR) policy requires participants to make licenses to relevant SEPs available "to all applicants under terms and conditions that are reasonable and non-discriminatory . . . to the extent necessary for the practice of [the relevant TIA standard]." ATIS’s IPR policy requires participants to make licenses to relevant SEPs available "to applicants desiring to utilize the license for the purpose of implementing the [relevant ATIS] standard . . . under reasonable terms and conditions that are demonstrably free of any unfair discrimination." The FTC asserted that in breach of these contractual commitments, Qualcomm rejected requests from modem-chip competitors to license patents essential to practicing these standards.

Motions in limine. The FTC filed two motions in limine seeking to exclude testimony. First, it sought to exclude lay testimony regarding the "value or importance of Qualcomm’s patents, innovations, or other technical contributions, including any opinion comparing Qualcomm’s contributions to cellular standards and technologies to those made by other cellular industry participants." Second, the Commission sought to exclude any evidence relating to Qualcomm’s "internal valuation of its patents and the technical areas to which its highly-rated patents relate," defining internal valuation "rather broadly" as "evidence on the importance of Qualcomm’s patents."

As to the lay testimony regarding Qualcomm’s contributions to standards and technologies, the FTC argued that it required technical and specialized knowledge regarding Qualcomm’s patent portfolio, and could not be appropriately presented by Qualcomm witnesses who have not been disclosed and qualified as expert witnesses. The court disagreed, finding it did not constitute impermissible lay opinion testimony. However, the court noted, as Qualcomm appears prepared to offer expert testimony on the valuation of its patent portfolio at trial, then to the extent testimony on patent valuation is expert testimony, it may not be offered as lay testimony under Federal Rule of Evidence 701. "If any such lay testimony impermissibly strays into expert testimony, the FTC should object at trial," the court remarked.

Next, finding the FTC’s motion to exclude evidence relating to the importance of Qualcomm’s patents "too broad," the court denied the FTC’s second motion as well. The central piece of the request was Qualcomm’s use of a 1 to 5 scale "to rate patents’ characteristics such as ‘Invention Value’ and ‘Innovation,’ the court explained. The company had previous sought privilege over documents concerning its internal patent valuations the court noted.

On this occasion, however, the request touched upon the doctrine of implied waiver, which occurs only when a party "tenders an issue touching directly upon the substance or content of an attorney-client communication." Qualcomm’s representation that it would not offer "testimony or other evidence that its patents are fundamental or important because the patent ratings so indicate," or "any testimony that relies on privileged documents or the legal advice they embody, including its patent ratings" at trial signified its intent to offer only "evidence that [did] not directly touch upon the substance of the attorney-client communication—i.e., the patent ratings." Thus, implied waiver did not apply to force Qualcomm to either divulge its privileged documents or forfeit its opportunity to present evidence relating to the worth of its patents. Allowing the FTC’s request "would enlarge the scope of the doctrine of implied waiver to a degree that would vitiate the purpose behind attorney-client privilege," the court stated.

Rebuttal expert report. A motion by Qualcomm to strike portions of the rebuttal expert report of one of the FTC’s experts fared better with the court. Qualcomm contended that these portions—paragraphs 72–86 of the report—discussed the relative importance of third-party companies’ standard essential patents ("SEPs") in technology areas not discussed in the Qualcomm expert report that the FTC witness was purporting to rebut. The FTC maintained that paragraphs 72–86 "are proper rebuttal evidence because they ‘contextualize’ the Qualcomm expert’s analysis."

The proffered rebuttal report opined that Qualcomm’s expert had understated the involvement of companies other than Qualcomm in the formulation of various telecommunications standards, had not identified all of the fundamental or important aspects of the standards, and thereby had implicitly argued that Qualcomm’s patent portfolio was superior to those held by other companies. Further, it provided examples of other companies’ patents that were "of similar importance" to the Qualcomm patents identified by the company’s expert. It also discussed "certain example technology areas and patents that … [were] of comparable importance" to those that expert had discussed and were owned by companies other than Qualcomm, namely discontinuous reception, semi-persistent scheduling, handover, and circuit-switched fallback.

Paragraphs 72-86 of the rebuttal report did not discuss the technology areas addressed in the Qualcomm expert report or discuss Qualcomm’s SEPs, and did not attempt to contradict that expert’s opinion that Qualcomm held important or fundamental patents in specific technology areas. Rather, they made "a different point altogether," the court said: that "third-party companies have important patents in other technology areas." Thus, the paragraphs were not "intended to contradict or rebut evidence on the same subject matter" as the Qualcomm expert report.

Moreover, neither the FTC’s expert in his rebuttal report nor the FTC in its opposition brief identified any section of the Qualcomm expert’s report wherein the expert had opined that the technology areas he was discussing were the only technology areas of importance, the court said. The FTC offered no authority for its proposition that a rebuttal expert report may respond to an implied argument and the agency’s "other arguments [were] also not convincing," the court quipped.

This case is No. 5:17-cv-00220-LHK.

Attorneys: Geoffrey M. Green for the FTC. Richard J. Stark (Cravath, Swaine & Moore LLP) and Robert Addy Van Nest (Keker, Van Nest & Peters LLP) for Qualcomm Inc.

Companies: Qualcomm Inc.

MainStory: TopStory Antitrust CaliforniaNews FederalTradeCommissionNews

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