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12 August 2020PatentsRory O'Neill

‘No licence, no problem’: Qualcomm cleared of antitrust charges

A US federal appeals court has overturned a  landmark antitrust ruling against  Qualcomm, in a defeat for the US Federal Trade Commission.

In an  opinion issued yesterday, August 11, the US Court of Appeals for the Ninth Circuit held that Qualcomm did not have an antitrust obligation to license its IP to rival chip makers.

The decision gives legal backing to Qualcomm’s controversial “no licence, no chips” policy, which the FTC argued was tantamount to blocking competitors out of the market.

No licence, no chips

The case centred on the way in which Qualcomm uses its strength in two markets, patent licensing and modem chip manufacturing, to its advantage.

Qualcomm licenses its standard-essential portfolios (SEPs) exclusively to end-product manufacturers of smartphones and smart cars, which practice telecommunications standards like 4G.

This delivers a higher return for Qualcomm than licensing downstream to the manufacturers of individual components.

In the case of rival chipmakers, Qualcomm refused to license its SEPs unless they agreed not to sell to unlicensed end-product manufacturers.

Qualcomm also refuses to sell its modem chips to smartphone manufacturers unless they also agree to license its SEP portfolio—no licence, no chips.

The FTC was initially successful in bringing Qualcomm to task over its supposedly anti-competitive business practices.

Last May, the US District Court for the Northern District of California held that Qualcomm had violated the Sherman Act, which governs antitrust law. According to District Judge Lucy Koh, “Qualcomm’s licensing practices and unreasonably high royalty rates have strangled competition in the market for years”.

Koh held that Qualcomm’s licensing practices violated not only US antitrust law, but also its commitment to license its SEPs on fair, reasonable, and non-discriminatory (FRAND) terms.

In order for their innovations to be adopted into technical standards, SEP owners must agree to license these patents on FRAND terms to “all applicants”.

Koh concluded that Qualcomm’s refusal to license its patents to rival chipmakers violated this commitment, but the Ninth Circuit disagreed that this amounted to anti-competitive behaviour.

No licence, no problem

In yesterday’s opinion, the appeals court held that Qualcomm is not obligated to license its SEPs to rival chipmakers.

Furthermore, the court found, although it does not license its patents to other chipmakers, it “declines to enforce its patents against these rivals even though they practice Qualcomm’s patents”.

If Qualcomm’s policy towards smartphone makers is “no licence, no chips”, the Ninth Circuit panel wrote, then its policy towards other chip makers is “no licence, no problem”.

On Qualcomm’s FRAND commitments, the court wrote: “Even if the district court is correct that Qualcomm is contractually obligated via its [FRAND] commitments to license rival chip suppliers—a conclusion we need not and do not reach—the FTC still does not satisfactorily explain how Qualcomm’s alleged breach of this contractual commitment itself impairs the opportunities of rivals.”

The Ninth Circuit also criticised the district court for blurring the lines between the two separate areas of Qualcomm’s business.

“Qualcomm’s patent-licensing royalties and ‘no licence, no chips’ policy do not impose an anti-competitive surcharge on rivals’ modem chip sales,” the Ninth Circuit decision said.

The decision comes as a blow for rival chipmakers such as  Intel, who had backed the FTC’s case against Qualcomm.

The Department of Justice, meanwhile, had taken a different view to the FTC, and warned that the district court ruling could undermine Qualcomm’s position in the 5G market.

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