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Takeaways from the Recent Qualcomm Decision
On May 21, California federal judge Lucy Koh ordered a sweeping injunction against cellphone chipmaker Qualcomm, requiring the company to renegotiate its licenses and alter its business model. Qualcomm's "no license, no chips" policy, which required cellphone manufacturers to license Qualcomm's patents in order to access Qualcomm's modem chips, was challenged by the Federal Trade Commission (FTC) in January 2017. Apple also sued Qualcomm for its patent-licensing practices but in April of this year, reached a surprising settlement on the first day of trial. See, Daniel Siegal, "Apple, Qualcomm Drop Multibillion-Dollar Licensing War," Law360 (April 16, 2019).
The case was long anticipated to have a significant impact on intellectual property law and the technology industry by clarifying the obligations of standard essential patent holders to license their technology on fair terms and deal with competitors. Given the case's potential impact, the Department of Justice took the unusual step of filing a statement of interest after the bench trial to encourage additional briefing on a potential remedy should the court side with the FTC. The DOJ's intervention, and the judge's ultimate decision, has exposed tensions between the DOJ and FTC, and within the FTC itself, and public scrutiny is far from over as the case heads to the Ninth Circuit on appeal.
Asserted Harm and Proposed Remedy
Judge Koh's decision put in place a permanent injunction that requires Qualcomm to license its modem chips on what are known as fair, reasonable and non-discriminatory (FRAND) terms. Typically, a patent holder can unilaterally decide whether to license its patented technology and under what terms. However, Qualcomm's modem chips are "standard essential patents," which means the technology is necessary to meet cellular standards set by industry participants worldwide. Because a standard essential patent holder could prevent other industry participants from meeting this standard and thereby stifle competition, these patent holders are required to commit to licensing on FRAND terms. See, Findings of Fact and Conclusions of Law, FTC v. Qualcomm, No. 17-CV-00220-LHK (N.D. Cal. May 21, 2019).
The court agreed with the FTC that Qualcomm violated its FRAND commitment through its "no license, no chips" policy. Under this policy, the court found that Qualcomm threatened to not to sell its modem chips to cellphone manufacturers unless manufacturers agreed to sign patent license agreements on Qualcomm's preferred terms, allowing Qualcomm to charge unreasonably high royalty rates. The court also found that Qualcomm refused to license its standard essential patents to rival modem chip suppliers, which prevented entry, hampered competition, and further limited manufacturers' chip supply options, maintaining Qualcomm's ability to charge supra-competitive royalties.
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