Two Sides of the Same Chip: The Antitrust Showdown over Mobile Phone Chips
On October 28, 2020, the Ninth Circuit denied the Federal Trade Commission’s (“FTC”) request for rehearing en banc, rendering final its decision to vacate a worldwide injunction imposed by the District Court in FTC v. Qualcomm. Even though the court vacated the injunction, the case was an important step in antitrust enforcement. The FTC and Department of Justice (“DOJ”) have been hesitant to bring enforcement actions in recent decades because of their narrow view of their legal authorities, but in bringing this suit, the FTC signaled a renewed interest in antitrust enforcement.
In the complaint, the FTC alleged that Qualcomm violated sections 1 and 2 of the Sherman Act when Qualcomm charged a licensing royalty for its mobile phone chip patent to competing chip manufacturers. While that seems expected under U.S. patent law, the patent was a “standard essential patent,” meaning no other technology could connect to the U.S. cell tower network. Because standard essential patents could be a barrier to technology adoption, international standard-setting organizations require holders of these patents to license them on fair, reasonable, and nondiscriminatory (“FRAND”) terms. The District Court found that Qualcomm had a “duty to deal” and license the chip technology to rival chip manufacturers, and that Qualcomm’s patent-licensing royalties were an anticompetitive surcharge in violation of FRAND principles. The Ninth Circuit vacated the decision, and its recent en banc denial renders the decision final.
A private class action suit, Stromberg, et. al. v. Qualcomm, also seeks to enforce antitrust laws against Qualcomm. The plaintiff class, certified in September 2018, alleges that Qualcomm inflated mobile phone prices by its refusal to license standard essential patents for mobile phone chips on FRAND terms. The class includes every mobile phone buyer in the United States since 2011—250 million people. The class argues that the holding in FTC v. Qualcomm is not binding while Qualcomm argues that it is.
Although the theory of liability in the class action is similar to that alleged by the FTC in FTC v. Qualcomm, there are subtle differences. For example, the class asserts claims under both the Sherman Act and the Cartwright Act, California’s antitrust statute. Even the FTC agrees that the class lawsuit differs in ways that do not preclude class certification. Under footnote 7 of Parklane Hosiery Co. v. Shore, Qualcomm cannot assert defensive non-mutual collateral estoppel at the class certification phase since the class plaintiffs were not parties in FTC v. Qualcomm. Stromberg is currently pending before the Ninth Circuit on Qualcomm’s appeal of the class certification.
While FTC v. Qualcomm should not preclude class certification, the Sherman Act claims in Stromberg would have to follow FTC v. Qualcomm as binding precedent if the class action goes to trial. Class attorneys, in a brief to the Ninth Circuit, struggled to distinguish the legal justification for its case as distinct from FTC v. Qualcomm. The class raises additional claims under California’s Cartwright Act, which should provide some justification to proceed. But if the class is only able to pursue claims under California law, the court will have to decide whether state law can apply to a nationwide class. The class eagerly awaits the Ninth Circuit’s decision in response to briefs filed by Qualcomm, the class, and a numerous amici about the impact of the court’s decision in FTC v. Qualcomm. The court could either remand with instructions to dismiss, reverse class certification, or uphold class certification and remand the case for a trial on the merits.
Despite the outcome of FTC v. Qualcomm, the tech industry may face increased antitrust enforcement in the coming years. On October 6, 2020, the House Judiciary Committee presented a 449-page report proposing new antitrust enforcement powers, specifically targeting the tech industry. On September 15, 2020, the DOJ vocally opposed the FTC’s position in Qualcomm, but in October, the DOJ asserted a similar position in Google, alleging anticompetitive and exclusionary practices similar to those alleged in FTC v. Qualcomm. While antitrust decisions rarely turn on political lines, antitrust scholars posit that conservative judges favor non-intervention. Even if the FTC files a request for certiorari to the Supreme Court, it is unclear that this conservative Court will take the case. But, if Congress adopts the legislative proposals from the House Judiciary Committee report, tech companies could face stricter antitrust policies and increased regulatory intervention. The report recommends three key actions: first, increase Congressional oversight of tech market mergers; second, restore FTC and DOJ enforcement to the maximum available under current law; and third, increase private enforcement by scrutinizing forced arbitration clauses in contracts. While it is unlikely that the enforcement agencies and Congress will adopt the Committee’s recommendations whole cloth, any one of the recommendations would have a significant impact on antitrust enforcement.
Tech companies face uncertainty given the renewed interest in antitrust enforcement in Congress. However, the decision in FTC v. Qualcomm might indicate that courts are not yet ready to raise the standard. Stromberg v. Qualcomm could prove to be an important indicator of the future in antitrust jurisprudence.
Kevin X. Kuhn
GLTR Staff Member; Georgetown Law, J.D. expected 2022; U.S. Coast Guard Academy, B.S. 2008. Kevin Kuhn.