By Brent Kendall and Asa Fitch
A federal appeals court on Tuesday threw out a sweeping
antitrust judgment against Qualcomm Inc., 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
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
The decision served as a major victory for Qualcomm after years
of litigation, and its shares initially jumped more than 4%, then
ceded some of those gains during a broader market decline.
Don Rosenberg, Qualcomm's general counsel, called the decision a
validation of the company's business model that underscored the
contributions the company had made to the industry.
Ian Conner, director of the FTC's bureau of competition, said
the ruling "is disappointing and we will be considering our
options." The commission could ask for a rehearing of the case with
the full court participating, or potentially seek Supreme Court
review. But the FTC's strategic options are complicated because the
commission itself has been divided over the lawsuit, and the
Justice Department, which shares antitrust authority, has opposed
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
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.
Tuesday's ruling tossed out a decision issued last year by U.S.
District Judge Lucy Koh in San Jose, Calif., who ordered Qualcomm
to change its business practices after concluding the chip designer
improperly leveraged its dominance to keep tight reins on the
Qualcomm has been able to maintain business as usual during the
litigation because the Ninth Circuit previously put Judge Koh's
ruling on hold while it considered the company's appeal.
The appeals court rejected all of Judge Koh's central
conclusions that Qualcomm's tactics unlawfully harmed rival chip
makers and phone manufacturers, and it 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 opinion goes a long way toward saying that antitrust has no
role to play in reviewing patent use and misuse," said Wayne State
University law professor Stephen Calkins. But the ruling, he said,
also adopted a flawed analysis of how to evaluate alleged harms to
customers, which could give the FTC an opening to ask for the case
to be reconsidered.
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.
The case has unfolded amid unusual circumstances. FTC leadership
changed after President Trump took office, but the commission's
current chairman, Joseph Simons, is recused in the case and the
other four commissioners, two Republicans and two Democrats, have
been deadlocked, leaving a potential legal settlement with the
company out of reach.
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.
For Qualcomm, the decision is a long-awaited vindication. The
case had threatened to force the company to restructure its
business and renegotiate licensing deals with its customers,
denting a highly profitable patent royalty division.
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
While the company is still facing an investigation from European
antitrust authorities, the decision removes one of the last major
hurdles after several years of monumental business and legal
Qualcomm was the subject of a $117 billion hostile takeover bid
by Broadcom Inc. that President Donald Trump blocked in 2018 on
national-security grounds. Qualcomm is a leading developer of
technologies that underpin superfast 5G communications technology
and has come to be seen as a national champion during growing
technological competition with China.
In recent years, the company has also faced pressure from an
activist investor and prominent disputes with customers, including
Apple Inc., which filed suit over the company's licensing practices
at around the same time the FTC challenged them. Qualcomm and Apple
settled their differences out of court last May. The company's
other major remaining licensing dispute, with Chinese telecom giant
Huawei Technologies Co., was settled in July.
"Over the last five years it's been one thing after the other,"
said Stacy Rasgon, an analyst at Sanford Bernstein & Co. The
FTC case, he said, had threatened to be especially damaging because
it went to the heart of the company's business model.
Write to Brent Kendall at email@example.com and Asa Fitch at
(END) Dow Jones Newswires
August 11, 2020 17:44 ET (21:44 GMT)
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