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The US Court of Appeals for the Ninth Circuit on 11-8-2020 rejected a district court judge’s antitrust judgment against Qualcomm Inc. The appeals court found that the Federal Trade Commission (FTC) had not shown that Qualcomm engaged in illegal monopolization.

Qualcomm has contributed to CDMA and LTE cellular standards. It patents and licenses its innovations, which include cellular standard essential patents (SEPs), non-cellular SEPs and non-SEPs. Cellular SEPs are needed to practice a particular cellular standard. International standard-setting organizations require patent holders to commit to license their SEPs on fair, reasonable and nondiscriminatory terms before their patents are incorporated into standards.

The FTC filed suit claiming that Qualcomm violated the Sherman Act by “unreasonably restraining trade in, and unlawfully monopolizing, the code division multiple access (CDMA) and premium long-term evolution (LTE) cellular modern chip markets.” The FTC argued that Qualcomm engaged in anti-competitive conduct, violating § 2 of the Sherman Antitrust Act, even though Qualcomm was not subject to an antitrust duty to deal.

The district court held that Qualcomm’s business practices in CMDA and LTE cellular modern chip markets violated the Sherman Antitrust Act. The court granted a permanent, worldwide injunction prohibiting these business practices.

On appeal, the Ninth Circuit held that the FTC did not show that Qualcomm engaged in illegal monopolization because the FTC did not show how Qualcomm impaired competitors’ opportunities. The court noted that there was a line between anticompetitive behavior and hypercompetitive behavior, and Qualcomm’s behavior was not hypercompetitive. The court said:

“Anticompetitive behavior is illegal under federal antitrust law. Hypercompetitive behavior is not. Qualcomm has exercised market dominance in the 3G and 4G cellular modem chip markets for many years, and its business practices have played a powerful and disruptive role in those markets, as well as in the broader cellular services and technology markets. The company has asserted its economic muscle “with vigor, imagination, devotion, and ingenuity.” Topco Assocs., 405 U.S. at 610. It has also “acted with sharp elbows—as businesses often do.” Tension Envelope Corp. v. JBM Envelope Co., 876 F.3d 1112, 1122 (8th Cir. 2017). Our job is not to condone or punish Qualcomm for its success, but rather to assess whether the FTC has met its burden under the rule of reason to show that Qualcomm’s practices have crossed the line to “conduct which unfairly tends to destroy competition itself.” Spectrum Sports, 506 U.S. at 458. We conclude that the FTC has not met its burden.”

The court held that Qualcomm’s patent-licensing royalties and “no license, no chips” policy were “chip-supplier neutral” and did not undermine competition. The court said:

“First, Qualcomm’s practice of licensing its SEPs exclusively at the OEM level does not amount to anticompetitive conduct in violation of § 2, as Qualcomm is under no antitrust duty to license rival chip suppliers. To the extent Qualcomm has breached any of its FRAND commitments, a conclusion we need not and do not reach, the remedy for such a breach lies in contract and patent law. Second, Qualcomm’s patent-licensing royalties and “no license, no chips” policy do not impose an anticompetitive surcharge on rivals’ modem chip sales. Instead, these aspects of Qualcomm’s business model are “chip-supplier neutral” and do not undermine competition in the relevant antitrust markets. Third, Qualcomm’s 2011 and 2013 agreements with Apple have not had the actual or practical effect of substantially foreclosing competition in the CDMA modem chip market. Furthermore, because these agreements were terminated years ago by Apple itself, there is nothing to be enjoined.”

Because of this, the appeals court held that the district court went beyond the scope of the Sherman Antitrust Act and reversed the lower court’s decision.

See the judgement