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From Antitrust Law Daily, April 18, 2019

Apple, Qualcomm settle chip dispute with six-year licensing agreement

By Jody Coultas, J.D.

Shortly after opening statements in the licensing dispute between the tech giants, the parties agreed to dismiss all current litigation between the two companies worldwide. Pending decision in FTC suit against Qualcomm could answer questions left unanswered by settlement.

Rather than presenting their antitrust and patent claims to a jury, Apple Inc. and Qualcomm Inc. have agreed to settle claims that Qualcomm violated federal antitrust and patent law by breaching its commitment to license certain patents that were essential to the latest cellular standards on fair, reasonable and non-discriminatory (FRAND) terms. Apple will pay Qualcomm an undisclosed amount to settle the claims. Also, the companies reached a six-year license agreement and a multiyear chipset supply agreement (Apple Inc. v. Qualcomm Inc., Civil Action No. 3:17-cv-00108-GPC-MDD).

Background. According to Apple’s complaint, Qualcomm illegally double-dips by selling chipsets that allow mobile telephones to connect to cellular networks and then separately licensing (but never to competitors) the purportedly necessary intellectual property. By tying together the markets for chipsets and licenses to technology in cellular standards, Qualcomm illegally enhanced and strengthened its monopoly power in each market and eliminates competition. Qualcomm then leveraged its market power to extract exorbitant royalties, and later agreed to reduce those royalties in exchange for additional anticompetitive advantages and restrictions on challenging Qualcomm’s power, further solidifying its stranglehold on the industry. All of this had been forced on Apple, the company avers, because the iPhone and iPad have required Qualcomm chips.

Apple alleged that Qualcomm’s conduct constituted monopolization of the global market for the CDMA (Code Division Multiple Access) standard and premium 4G-LTE standard chipsets in violation of Section 2 of the Sherman Act. Qualcomm purportedly suppressed competition through exclusionary conduct that included refusing to deal with its competitors in contravention of its FRAND commitments, gagging Apple’s ability to challenge Qualcomm’s non-FRAND licensing scheme, tying the purchase of its chipsets to the licensing of its standard-essential patents, and requiring exclusivity from Apple as a condition of partial relief from Qualcomm’s exorbitant and non-FRAND royalties.

On September 7, 2017, the court denied Qualcomm’s motion for an anti-suit injunction to prevent Apple from prosecuting foreign actions that Qualcomm considered duplicative of the present dispute. Apple had filed 11 lawsuits against Qualcomm and its subsidiaries in the United Kingdom, Japan, China, and Taiwan. On September 13, 2017, the court consolidated this case with a related action Qualcomm filed against several manufacturers that license Qualcomm patents and purchase Qualcomm baseband processor chips. Prior to consolidating the cases, the court denied Qualcomm’s preliminary injunction to force the contract manufacturers to continue to make royalty payments during the pendency of the case.

Settlement agreement. The settlement agreement, which took effect April 1, creates a six-year direct license between Apple and Qualcomm and a multi-year chipset supply agreement. Also, Apple will pay royalties to Qualcomm, as well as a one-time payment from Apple to Qualcomm. All worldwide litigation will be dismissed and withdrawn, including claims involving Apple’s contract manufacturers.

FTC action. Qualcomm is awaiting word from the federal district court in San Jose, California, over charges filed in January 2017 by the FTC, alleging that the company violated federal antitrust laws by unfairly leveraging its power in the modem chips market. A bench trial was held earlier this year.

The agency is seeking injunctive relief to undo and prevent the company’s "unfair methods of competition." According to the FTC, Qualcomm voluntarily committed to the two U.S. telecommunications industry "standard setting organizations"—the Telecommunications Industry Association and the Alliance for Telecommunications Industry Solutions—that Qualcomm would grant licenses for the company’s standard essential patents on fair, reasonable, and non-discriminatory terms to applicants wishing to implement cellular standards. Among other things, the FTC contends that Qualcomm has breached these contractual commitments and that the company rejected requests from modem-chip competitors to license patents essential to practicing these standards. The FTC complaint specifically addressed exclusive dealing arrangements between Qualcomm and Apple.

In a blog post released today, the Public Knowledge and Open Markets Institute encouraged the FTC to "stay the course in its ongoing lawsuit against Qualcomm." The think tanks continued: "Companies like Apple have to look out for their bottom line, and drawn-out litigation with a key business partner doesn’t usually make sense. Only public authorities like the FTC can stand up to companies like Qualcomm, and end their anticompetitive practices, hopefully lowering prices for consumers and making new market entry possible."

Attorneys: Anthony Van Nguyen (Fish & Richardson PC) for Apple Inc. Alexander Rudis (Quinn Emanuel Urquhart & Sullivan, LLP) for Qualcomm Inc.

Companies: Apple Inc.; Qualcomm Inc.

MainStory: TopStory Antitrust CaliforniaNews

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