FTC's antitrust case against Qualcomm heads to trial amid Chinese & German iPhone bans
The U.S. Federal Trade Commission's antitrust case against Qualcomm is going to trial on Friday, the outcome of which could have serious repercussions for Apple's global legal war with the chipmaker.
The non-jury proceedings beginning on Friday in San Jose, California are being overseen by District Judge Lucy Koh. Koh is well known for her involvement in tech industry lawsuits including Apple's infamous, years-long battle with Samsung.
The FTC suit was initiated nearly two years ago, accusing Qualcomm of forcing Apple into an exclusive modem chip deal between 2011 and 2016 in exchange for lower patent royalties. Qualcomm owns a number of key smartphone-related patents, and has often been accused of failing to follow FRAND (fair, reasonable and non-discriminatory) pricing.
Prior to the FTC action Qualcomm had already been hit with a $853 million fine in South Korea for similar practices. In fact that case led directly to Apple filing a $1 billion lawsuit against Qualcomm, accusing it of withholding rebates in retaliation for cooperating with antitrust investigators.
Since then governments in the U.S., China, Taiwan, and Europe have looked into Qualcomm's business deals. The company avoided most of a fine in Taiwan by agreeing to invest $700 million in the country, but has also been saddled with 997 million euros in fines by the European Union.
Meanwhile the private war between Apple and Qualcomm has only escalated with suits and countersuits around the world, and Apple suppliers boycotting royalty payments. Qualcomm has accused Apple of patent violations and handing trade secrets to rival chipmaker Intel, now the only provider of iPhone modems.
Apple has typically had the upper hand, but that changed towards the end of 2018 when Qualcomm managed to secure limited iPhone bans first in China, then in Germany. So far these only affect older models, and Qualcomm has had no luck trying to secure a U.S. injunction. Apple has tried to detour the Chinese ban with iOS tweaks.
The blowback of legal fights could eventually force the two companies to settle. Qualcomm executives have even claimed that a deal could happen within months, but as recently as late November Apple said that no talks were in progress.
The non-jury proceedings beginning on Friday in San Jose, California are being overseen by District Judge Lucy Koh. Koh is well known for her involvement in tech industry lawsuits including Apple's infamous, years-long battle with Samsung.
The FTC suit was initiated nearly two years ago, accusing Qualcomm of forcing Apple into an exclusive modem chip deal between 2011 and 2016 in exchange for lower patent royalties. Qualcomm owns a number of key smartphone-related patents, and has often been accused of failing to follow FRAND (fair, reasonable and non-discriminatory) pricing.
Prior to the FTC action Qualcomm had already been hit with a $853 million fine in South Korea for similar practices. In fact that case led directly to Apple filing a $1 billion lawsuit against Qualcomm, accusing it of withholding rebates in retaliation for cooperating with antitrust investigators.
Since then governments in the U.S., China, Taiwan, and Europe have looked into Qualcomm's business deals. The company avoided most of a fine in Taiwan by agreeing to invest $700 million in the country, but has also been saddled with 997 million euros in fines by the European Union.
Meanwhile the private war between Apple and Qualcomm has only escalated with suits and countersuits around the world, and Apple suppliers boycotting royalty payments. Qualcomm has accused Apple of patent violations and handing trade secrets to rival chipmaker Intel, now the only provider of iPhone modems.
Apple has typically had the upper hand, but that changed towards the end of 2018 when Qualcomm managed to secure limited iPhone bans first in China, then in Germany. So far these only affect older models, and Qualcomm has had no luck trying to secure a U.S. injunction. Apple has tried to detour the Chinese ban with iOS tweaks.
The blowback of legal fights could eventually force the two companies to settle. Qualcomm executives have even claimed that a deal could happen within months, but as recently as late November Apple said that no talks were in progress.
Comments
Contrary to reports the last few days, Apple isn't in any trouble. That said, they might make changes to their business model. One of those could be selling A Series processors to other companies. Apple could make modified versions and replace their Secure Enclave with ARMs own version (which Android vendors use). That would make it easy for Android vendors to adopt Apple processors and would still keep the Secure Enclave "secret". They could also remove (or limit) things like the NPU to bring their processors in line (feature wise) with popular Qualcomm processors.
This is the advantage you have when your processors are superior. You can dumb them down or limit their abilities and still come out ahead of the competition. Apple doesn't have to worry about an Android device outperforming an iPhone with one of their own processors (saving the best stuff for their own devices) but they can still sell a ton of processors to all those mid-range Android devices. Given the choice, who'd buy an inferior Qualcomm processor over a superior Apple processor?That would put a significant dent in Qualcomm's business.
Now I know this isn't currently likely, but if Apple comes out on the losing end in this legal fight (doubtful, but possible) then they have options available to really stick it to Qualcomm.
No idea if she'll buy into the arguments made by Ass't AG Delrahim or not, but the US Attorney General's office stated roughly a month ago that they will be drafting new guidelines regarding standards-essential patent enforcement and cures. Changes are coming, and they may be more IP-holder friendly than might be presumed.
Regarding the FTC case itself I suspect this will be the tipping point. If Apple doesn't get most of what they want from it I would not personally be surprised at all if they go back to the negotiating table. That's a big if tho as I don't think Qualcomm can successfully argue every point needed for that to happen.
In any event the trial may not be as much of a slam-dunk for licensees as it may have appeared to be a few months ago.
Trying to bring Delrahim into this as if he has any say shows your grasp of this trial/issues is limited.
Why don't you both wait until the arguments are made before insisting I'm wrong...
At NotSoFast specifically as you may actually be interested...
The Attorney General's office is offering their comments based on settled law as determined by the Supreme Court. If you had been aware of what was actually said I don't believe you would have made the same comments you did.
I'll link it here for you
https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-iam-s-patent-licensing
Then a month later there was this speech expanding on the AG's view, and especially as it regards SEP's and infringement thereof.
https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-19th-annual-berkeley-stanford
and Eric? Same as it ever was, I wouldn't expect you to follow the links.
has to do with the concept of patent "holdup". This informs the
issues of FRAND, etc. mentioned in earlier comments. An article
from the FTC explains things well, with case histories from Motorola and
Microsoft over H.264 royalties, and LSI/Realtek over underlying SEPs.
https://www.ftc.gov/system/files/documents/public_statements/1350033/mcsweeny_-_the_reality_of_patent_hold-up_3-21-18.pdf
The holders who often lay in wait until standards settle often demand an unreasonable
percentage of product sales for implemented ideas which are only a tiny percentage of
the total IP content of a device.
For example VirnetX wants a $1.20 per iPhone for a few patents which are warmed-over
ideas pre-dated by public RFC (2401) network protocol standards. They've actually been
declared invalid via a parallel adjudication by PTAB body technical experts. Yet
at the same time VHC has convinced lay juries (in Texas, natch) for multiple hundreds
of millions for "VP on demand" which Apple doesn't even use anymore. For just
one obvious idea they want a percentage of sales, when an iPhone has thousands
of hacks to make it all work. Perhaps Qualcomm's ideas are worth 0.5% of sales
in toto, just like Nokia's or Motorola's of yesteryear, but less as time goes on when
more software ideas are integrated into a product. Dolby is an example of a
company that isn't too greedy, historically.
So, how can fair apportionment of patents too "big for their britches" be made to work?
Courts coming up with random outcomes seem to be the wrong places to determine such.
Of course QC wouldn't suggest ignoring "the law" and that's among the points that Qualcomm will use to bolster their argument: They ARE following the law, and citing the DoJ in support of the claim.
EDIT: This legal blog link agrees
https://www.law.com/therecorder/2019/01/03/six-things-to-think-about-as-curtain-raises-on-apple-qualcomm-antitrust-trials/?slreturn=20190004123706
The FTC isn't arguing that Qualcomm violated antitrust laws by seeking, or threatening to seek, injunctions or exclusion orders. I've looked over the FTC's proposed findings of fact and conclusions of law, and I don't think it mentions those kinds of actions on Qualcomm's part. (You can, of course, correct me if I'm wrong on that point.) I also don't recall Qualcomm arguing that such actions don't represent antitrust violations or components thereof. It wouldn't need to argue to that effect because the allegations against it aren't based on such actions. The FTC's antitrust arguments are based on other actions which Qualcomm is alleged to have taken.
FWIW (and keeping in mind that it appears to me Mr Mueller may have a new paying client) FossPatents blog also agrees with me on one of the arguments QC will be making:
"My feeling is that the FTC has a very strong case. There's every indication that Judge Koh agrees, at least in principle, with the FTC's legal theories. Qualcomm points to Assistant Attorney General Makan Delrahim's positions on SEPs, but Mr. Delrahim can't do away with all the case law that already exist in this area. That means Qualcomm now needs to prevail on the facts, but those same facts actually persuaded antitrust enforcers in different countries and cultures to deem some of Qualcomm's practices anticompetitive. (emphasis mine)
That said, what is it that AAG Delrahim has said that you think is relevant? What would Qualcomm's legal argument be based on what he's said about shifting enforcement policy? I'm open to the possibility that something he said could help Qualcomm's position (in this case), but I'd need to have someone make the case how it could in order to be able to assess that possibility.
Also, I'm not sure what Mr. Mueller (from Foss Patents) means when he says Qualcomm points to AAG Delrahim's positions. Do you know? Qualcomm hasn't, as far as I'm aware, made arguments based on AAG Delrahim's positions in its filings, e.g. in its proposed findings of fact and conclusions of law. Are we talking about generic out of court statements? Or actual legal arguments relevant to this case?
I just don't see how the shift in policy which AAG Delrahim has discussed is relevant to the issues involved in this case. Can you explain how it is? It could, of course, matter when it comes to other cases and when it comes to DOJ decisions (on whether to bring actions) in other cases. But how so here?
Specifically, according to the filing by FTC found here,
https://www.courtlistener.com/recap/gov.uscourts.cand.306945/gov.uscourts.cand.306945.1.0.pdf ;
the legal basis of the complaint was FTC Act Section 13 (b).
And, according to your link of the speeches by AAG Delrahim, he argues against using Sherman Act to enforce FRAND patent disputes.
While the two Acts have significant overlap, the FTC explicitly states that it does not enforce Sherman Act,
https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws
Since FTC is an independent from DOJ, same between the court and the DOJ, let alone the original filing does seem to suggest, at least to layman such as myself, an "exclusionary" practice as mentioned by AAG Delrahim, how can one take AAG Delrahim's "recommendation" as much more than individual opinion?
Even FTC chair Simon (an appointed position just like the AG) admits in recent weeks, there's some danger of confusion on the part of both licensees SEP contributors with views regarding enforcement efforts appearing at odds with each other. Based on his comments in a recent speech they may not be so entirely different in their approach to SEP's and F/RAND commitments going forward. IMHO their views are converging more than differing as recent months have passed.
https://www.ftc.gov/system/files/documents/public_statements/1413340/simons_georgetown_lunch_address_9-25-18.pdf
In that speech he echoed some of AAG Delrahim's statements, pointing out that potential instances of patent "hold-up" on the part of potential SEP licensees deserves enforcement scrutiny, particularly so if licensees appear to be in collusion in order to unfairly influence contract negotiations.
Chairman Simons also stated that he agrees with DOJ that a breach of a F/RAND commitment alone, even a fraudulent one, is not sufficient proof of an antitrust violation unless that it results in "the acquisition or maintenance of monopoly power in a properly defined market, or involve... an agreement that unreasonably restrains trade." Thus the basis for the Qualcomm lawsuit (note the specific wording, i believe used by the FTC in its QC filing)
But no, like you I don't believe using the DoJ for support will be a highly effective strategy, but yet could factor into some of Koh's final ruling anyway. There's another couple of weeks of trial to be held.
So my original post was for two purposes.
First:
Making those few interested readers aware of a shifting policy re:SEP standards and contracts, primarily by the DoJ who might no longer be expected to file nor support an action such as the FTC's, (and it appears the FTC may be leaning that direction too now)
Second:
Qualcomm will use Delrahim's comments and the citing of SCOTUS decisions that he believes should influence US policy as evidence for their belief of the legality of SOME licensing practices the FTC is taking issue with.
Just my viewpoint of course....
Oh, and welcome to the forum, nice first post!
Thinking folks that enjoy a little research before commenting as you've done are great to have here. Look forward to seeing more from you.
I was asking you because you indicated that you believed that the shift in enforcement policy which we're referring to (wrt, e.g., injunctions and exclusion orders) would be a major point which Qualcomm would try to make with Judge Koh. I suggest that it wasn't relevant to this particular case. Then you asked me to read both of the links you provided. So I asked you to tell me how you thought what was said there was relevant to the FTC case.
If you think Qualcomm will try to use this indicated policy shift to argue to Judge Koh in this case, then I'm asking how so? In what way is it relevant to allegations made by the FTC? Because I can't see how it helps Qualcomm in this particular case.
In short, Apple, Samsung, and Judge Koh are relying on existing interpretations, rather than a verbal shift in enforcement policy that hasn't happened yet, and may not at all.
and just as I said in my very first comment I don't know that Koh will consider any of it. At the same time we don't yet know if she might be swayed, even if only a little, by it.
That's certainly not the entirety of Qualcomm's defense.
FWIW Samsung is no longer an important witness for the FTC anyway. In the year+ since the case was filed Samsung negotiated an acceptable licensing agreement with Qualcomm and isn't going to be terribly helpful. Surprisingly the FTC's case might instead hinge on the unlikeliest of witnesses: Huawei.
Fun fact: Huawei would just as soon Samsung not be involved anyway. The two have their own legal spat going on over patent licensing.
I'm guessing you've read something that I haven't yet. Any link?