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From Antitrust Law Daily, January 17, 2017

Qualcomm faces FTC monopolization allegations over licensing of SEPs

By Jeffrey May, J.D.

Qualcomm Inc. unlawfully maintained its monopoly in a type of semiconductor device that enables cellular communications in cell phones and other products by, among other things, consistently refusing to license standard-essential patents on fair, reasonable, and non-discriminatory, or "FRAND," terms to competing suppliers of these baseband processors, according to a complaint filed today by the FTC in the federal district court in San Jose, California. In a two-to-one vote, the Commission authorized the filing. The agency said in a statement that the company’s sales and licensing practices hamper Qualcomm’s competitors and threaten innovation in mobile communications. The agency is seeking an injunction against Qualcomm "to undo and prevent its unfair methods of competition in or affecting commerce" (FTC v. Qualcomm Inc., FTC File No. 141 0199, Civil Action No. 5:17-cv-00220).

Qualcomm has long been the leading supplier of baseband processors worldwide, according to the FTC’s complaint. The agency defined baseband processors as semiconductor devices (sometimes referred to as "chips," "chipsets," or "modems") within handsets. They allow handsets to communicate with an operator’s cellular network by performing functions such as signal generation, modulation, and encoding.

According to the agency, Qualcomm has participated in cellular standard setting processes through various standard setting organizations (SSOs) and has committed to the SSOs that it would license certain cellular standard-essential patents or SEPs on FRAND terms. The FTC is challenging Qualcomm's alleged efforts to condition the supply of baseband processors on licenses to FRAND-encumbered patents on Qualcomm’s preferred terms. Moreover, Qualcomm has allegedly refused to license FRAND-encumbered SEPs to its competitors. In addition, the company purportedly extracted baseband processor exclusivity from Apple in exchange for partial royalty relief.

Dissent. FTC Commissioner Maureen K. Ohlhausen, the lone Republican on the Commission, voted against authorizing the litigation. Ohlhausen took the unusual step of writing a dissenting statement.

The commissioner said that the enforcement action was "based on a flawed legal theory (including a standalone Section 5 count) that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide."

Ohlhausen added that she had "been presented with no robust economic evidence of exclusion and anticompetitive effects, either as to the complaint’s core ‘taxation’ theory or to associated allegations like exclusive dealing."

In conclusion, the dissenting commissioner expressed her view that the agency’s decision to pursue the complaint "unfortunately bears out my concerns that the Commission’s 2015 statement was too vague and abbreviated to discipline Section 5 enforcement." In August 2015, the FTC released a one-page document identifying general principles that guide the agency when deciding whether to bring an action against "unfair methods of competition" that do not amount to traditional antitrust violations.

"[I]f the Commission is going to issue a policy statement in this controversial area, it should provide meaningful guidance to those subject to our jurisdiction," said Ohlhausen in dissenting from issuance of the guidance.

Korea Fair Trade Commission action. The FTC's action comes just a few weeks after the Korea Fair Trade Commission (KFTC) fined Qualcomm $865 million for allegedly coercing the execution and performance of unfair license agreements by using its chipset supply as leverage and circumventing FRAND commitments. Qualcomm said that it would file an appeal in that matter when the order became final.

Attorneys: Geoffrey M. Green for the FTC. Gary A. Bornstein and Yonatan Even (Cravath, Swaine & Moore LLP) and Willard K. Tom (Morgan Lewis & Bockius LLP) for Qualcomm Inc.

Companies: Qualcomm Inc.

MainStory: TopStory Antitrust FederalTradeCommissionNews

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