Qualcomm Incorporated (“Qualcomm”) is an American multinational company that specializes in manufacturing wireless chips used in smart phones, such as the ones used in iPhones. As the predominate manufacturer, Qualcomm has remained at the forefront of innovation in this field, evidenced by its many patents. A large part of Qualcomm’s revenue, in addition to its own product sales, stems from the licensing of the technology subject to these patents. As such, Qualcomm has made it part of its business model to license this technology to major smartphone providers like Apple. Knowing it has the best technology in the field, Qualcomm licenses its highly demanded chips for significant royalty rates.
The initial dispute between the Federal Trade Commission (“FTC”) and Qualcomm came to fruition in a federal civil action alleging anti-trust violations against Qualcomm concerning this patent licensing practice and the corresponding royalty fees. The FTC alleged that Qualcomm is using its position in the market as the predominate supplier of these chips to negotiate for high royalty rates. As a result of these large licensing fees, Qualcomm’s actions are claimed by the FTC to have diminished the competition of chip makers. The district court issued an injunction in favor of the FTC requiring Qualcomm to make the licenses available to modem-chip suppliers and to renegotiate its current license terms with customers. The Ninth Circuit stayed the injunction and set the appeal for January 2020. Briefing on the matter will continue as scheduled.
The FTC continues to claim that Qualcomm’s actions are anti-competitive and in violation of anti-trust laws. Its arguments are related to the position that Qualcomm unfairly used its position of power to exclude certain customers and in turn require the other licensees to pay obscene fees to have access to the technology. The FTC further claims that Qualcomm has a duty under the anti-trust laws to issue these patent licenses to other chip manufacturers. This stance is grounded in the argument that Qualcomm is involved with the groups that set the technology standard in the field and, thus, has a duty to license its technology to other chip makers, including its biggest competition. The FTC moved for the injunction on this basis.
The Department of Justice (“DOJ”) raised its hand and issued a brief in favor of Qualcomm following the issuance of the injunction. The DOJ is another governmental body charged with regulating anti-trust laws and anti-competitive activity, so it is alarming to see a disagreement between it and the FTC. The DOJ believes that this injunction would damage a major supplier of technology to the federal government. In other words, the injunction would be so burdensome as to ruin a supplier of wireless chip technology to the point that the federal government would not be able to receive said technology as easily. Specifically, the DOJ’s brief challenged the FTC’s assertion that Qualcomm was obligated to issue license fees due to Qualcomm’s involvement with groups that set the technology standards in the field.
Qualcomm and the DOJ were on the same page, as Qualcomm claimed that the injunction would irreversibly damage its operations. The Ninth Circuit agreed that the requirements of the injunction would likely result in harm to Qualcomm that could not be easily undone and stayed the injunction for the time being.
It will be interesting to see how the Ninth Circuit decides on the merits of this case. Generally, the issuance of a patent is a bargain with the government; an inventor is asking to receive a short monopoly of 20 years over technology created by the inventor, and in exchange, the inventor must publicly disclose the technology at the time of issuance for widespread use after the patent term. This facilitates innovation. At first glance, this situation appears to be one where the patent holder of a widely used technology became extremely successful in utilizing its rights under the patent to license its technology. With that said, there are compelling points made by the FTC that may overcome these general principles. Either way, we will have to wait until at least January 2020 to see how the Ninth Circuit will decide.
To read the decision by the Ninth Circuit staying the injunction, please go here: http://cdn.ca9.uscourts.gov/datastore/general/2019/08/23/19-16122_Order.pdf