Today, Judge Koh issued an important ruling in the FTC v. Qualcomm litigation centered on Qualcomm’s anti-competitive trade practices. Ruling on a motion for partial summary judgment, Judge Koh determined that Qualcomm is obligated to license its standard-essential patents to anyone who asks for a license.
Qualcomm admits that it refuses to license other modem chip makers. Which means that it admitted to systematically violating its contractual obligations. And by doing so, Qualcomm has violated its legal obligations in order to harm competitors—a classic example of an unfair trade practice and a § 5 violation.
Why Does Qualcomm Have To License Competitors?
Ordinarily, a patent owner is under no obligation to license anyone to their patent. But for a particular class of patents—standard-essential patents—patent owners voluntarily agree to license their patents on “fair, reasonable, and non-discriminatory” (FRAND) terms in order to ensure that their technology (as claimed in the patent) is incorporated into an industry standard by a standards development organization. The consequence of this to the patent owner is that anyone who then implements the industry standard has to license their patent—thus making the patent “standard-essential.” This voluntary agreement trades away the patent owner’s right to refuse to license in exchange for a wider market of licensees.
Judge Koh ruled that—as explained in detail in CCIA’s amicus brief in this case—precedent clearly requires that non-discriminatory licensing means licensing anyone who asks, not just those you want to license to.
What Was At Stake?
Qualcomm, as a significant participant in various cellular standardization efforts, has declared its willingness to abide by FRAND terms with respect to thousands of its patents. But historically, Qualcomm has refused to license in a non-discriminatory fashion. It’s happy to license phone manufacturers, but refuses to license the companies that make baseband chipsets that compete directly with Qualcomm’s products.
As Qualcomm’s lead attorney put it in court, “[w]e do not license other chip manufacturers. We do not.” Qualcomm’s paid experts in its ITC action against Apple have confirmed that they are unaware of any instance in which Qualcomm has licensed a chip manufacturer to its patents.
By confirming that Qualcomm is, in fact, obligated to license competing chip manufacturers to its standard-essential patents, today’s ruling makes clear that Qualcomm is in long-standing violation of its obligations.
All this means that the FTC is in an even stronger position than before. The FTC and Qualcomm were discussing a settlement—but any such settlement needs to be made in light of today’s ruling. Judge Koh made clear that Qualcomm has violated its legal obligations. And, in a different ruling, Judge Koh also made clear that there is significant documentary evidence of Qualcomm abusing its positions in order to raise prices to supra-FRAND rates.
Given these rulings, any settlement between the FTC and Qualcomm that respects the public’s interest in fair trade must require Qualcomm to drop the anti-competitive practices that led to this case. That means that any settlement must require Qualcomm to license its competitors, abandon its “no license, no chips” policy, and refrain from the use of exclusionary deals with major smartphone manufacturers to crowd out competitors.