See U.S. Appeals Court Throws Out Antitrust Ruling Against Qualcomm: Court rules federal government hadn’t shown chip maker engaged in illegal monopolization by Brent Kendall and Asa Fitch of The WSJ. Excerpts:
"A federal appeals court on Tuesday threw out a sweeping antitrust judgment against Qualcomm Inc., QCOM 0.29% ruling the federal government didn’t prove the dominant cellphone chip maker engaged in illegal monopolization.
The San Francisco-based Ninth U.S. Circuit Court of Appeals ruled unanimously that the Federal Trade Commission hadn’t shown that Qualcomm’s core business practices related to its cellphone chips and patents were anything more than lawful attempts at profit maximization.
San Diego-based Qualcomm “has asserted its economic muscle with vigor, imagination, devotion, and ingenuity. It has also acted with sharp elbows—as businesses often do,” Judge Consuelo Callahan wrote for a three-judge panel.
Judge Callahan said it wasn’t the court’s job “to condone or punish Qualcomm for its success, but rather to assess whether the FTC has met its burden…to show that Qualcomm’s practices have crossed the line to conduct which unfairly tends to destroy competition itself. We conclude that the FTC has not met its burden.”"
"The case dates back to the final days of the Obama administration, when the FTC sued Qualcomm and challenged a central company practice the commission described as “no license, no chips.”
The FTC said Qualcomm enjoyed monopolies in two types of modem chips and adopted a framework in which phone makers couldn’t purchase those chips for their devices unless they also paid to license Qualcomm patents covering a range of its intellectual property. That structure made it difficult for phone makers to challenge Qualcomm’s royalty rates, and the arrangement also meant those manufacturers were paying Qualcomm royalties even if they used a competitor’s chips in their phones.
Qualcomm said it achieved its market position lawfully, developing and investing in breakthrough technologies, an argument accepted by the appeals court. The company argued its licensing practices were well-grounded because every cellphone invariably uses its patented innovations."
The court "cast doubt on using antitrust laws to challenge how a company wields its patents, which give intellectual-property owners the right to exclude competitors from using their inventions unless they pay licensing fees."
"The ruling highlighted the reluctance of some courts to intervene in fast-moving tech markets. “We decline to ascribe antitrust liability in these dynamic and rapidly changing technology markets without clearer proof of anticompetitive effect,” Judge Callahan wrote.
"Adding to the drama, the Justice Department, which shares antitrust enforcement authority with the FTC, last year waded into the litigation—in support of Qualcomm. A DOJ spokeswoman declined to comment."
"The company earns most of its revenue from selling chips, but the licensing division has much higher margins and accounted for more than half of its earnings before taxes in its latest quarter."
See also this WSJ editorial A Defeat for Antitrust Adventurism: An appeals court rebukes the FTC’s assault on Qualcomm. It has more details. Excerpts:
"The Federal Trade Commission in the waning days of the Obama Administration sued Qualcomm under the Sherman Act. According to the government, the technology company leveraged its dominance in the modem market to charge smart-phone manufacturers excessive royalties for “standard essential patents” that it had agreed to license on fair, reasonable and nondiscriminatory (FRAND) terms.
But Apple complained to the FTC that the chipmaker’s royalty policy allowed it to profit too much from its phone sales. Federal Judge Lucy Koh, a Barack Obama appointee, ruled for the FTC last year and ordered Qualcomm to license its patent portfolio to rival chipmakers. This would boost Qualcomm’s competitors while reducing its leverage with smartphone makers.
But as appellate Judge Consuelo Callahan writes, “to the extent Qualcomm breached any of its FRAND commitments, the remedy for such a breach was in contract or tort law”—not antitrust law. Further, phone manufacturers “have been somewhat successful in ‘disciplining’ Qualcomm’s pricing through arbitration claims, negotiations, threatening to move to different chip suppliers, and threatened or actual antitrust litigation. These maneuvers generally resulted in settlements.”"
"The panel concluded that the FTC failed to show that Qualcomm’s licensing policies diminished consumer choice or increased price. “Anticompetitive behavior is illegal under federal antitrust law. Hypercompetitive behavior is not,” Judge Callahan writes, “But profit-seeking behavior alone is insufficient to establish antitrust liability.”
Citing the Supreme Court’s Trinko decision (2004), Judge Callahan goes on to explain that “the opportunity to charge monopoly prices ‘is an important element of the free-market system’” and “‘induces risk taking that produces innovation and economic growth.’”
“‘Antitrust economists, and in turn lawyers and judges, tend to treat novel products or business practices as anticompetitive’” and “‘are likely to decide cases wrongly in rapidly changing dynamic markets,’” the judge notes, quoting a Yale economics article. This “can have long-lasting effects particularly in technological markets, where innovation ‘is essential to economic growth and social welfare.’”"