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FTC Challenges Qualcomm Antitrust Win

The U.S. Federal Trade Commission urged a U.S. appeals court to reconsider an Aug. 11 ruling that threw out antitrust claims against San Diego chipmaker Qualcomm Inc.

The three-judge panel erred when it ruled Qualcomm’s “no license no chips” policy didn’t result in an unfair surcharge on its competitors, the trade agency said Sept. 25 in a petition with the Ninth U.S. Circuit Court of Appeals in San Francisco.

“The panel’s decision blesses the continued stifling of competition in multi-billion-dollar markets for cellular-communications chips on which much of the digital economy depends,” the agency said in the petition. The FTC is asking that the case be heard before all active judges on the court.

Re-Hearing Plea

Unsatisfied with the verdict, the FTC decided to consider its legal options and requested the appeals court to reconsider its decision.

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“The panel’s errors have cast doubt on fundamental matters of antitrust principle and will encourage monopolists to cloak anticompetitive practices beneath false invocations of patent law and the appearance of neutrality,” the FTC argued. “Any one of these errors would justify en banc review; in combination, they cry out for the full court’s intervention.”

The U.S. appeals court is not obligated to grant the request. Reviews typically depend on whether the case is of exceptional importance or creates a conflict with other rulings from different appeals courts, among other things.

The Justice Department, which splits antitrust duties with the FTC, is on Qualcomm’s side, arguing that any complaints over Qualcomm’s royalty charges should be addressed through contract or patent law, not antitrust law.

Trial Background

The crux of this issue was Qualcomm’s practice of earning revenue both from patent royalties as well as chips. The antitrust verdict in the case posed a major threat to the San Diego company’s lucrative patent licensing business.

U.S. District Judge Lucy Koh ordered Qualcomm to renegotiate its licenses, however, that order never took effect before it was tossed on appeal back in August this year.

The favorable decision validated its patent licensing business and reinforced the fairness of the competitive marketplace.

The appeals court ruled that, even if the royalty charge is unreasonably high, the legal theory adopted by Koh “fails as a matter of law and logic” and showed no anticompetitive harm — the payment is made by the manufacturers, not the rival chipmakers, the court said.

High Bar

A local analyst predicted the FTC would request the reconsideration, pointing out that the move took minimal effort on their end to complete an en-banc review.

“This move was a well expected action by the FTC,” said Prakash Sangam, an analyst at Tantra Analyst. “It doesn’t require much effort, only a short brief need to be submitted. Another reason this was expected, is that, the FTC would not like to appear as if it has given up on the case.”

The rehearing has a quite high bar. Historically, less than one percent of the requests have been accepted.

“I believe, eventually, this case will go into the history books as a great precedent for antitrust law in the realm of patents and licensing,” said Sangam.

There is no timetable for 9th Circuit to decide. If it declines, the FTC could appeal to the U.S. Supreme Court. Although, rehearing requests are rarely granted, the FTC’s decision to push the issue keeps a cloud over Qualcomm that investors thought was over.

Headquartered in Sorrento Valley, Qualcomm is the largest maker of chips that run the computer and radio communication functions in smartphones. The company employs more than 37,000 employees globally.

Qualcomm declined to comment.

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