In a highly-anticipated decision in the Federal Trade Commission’s (FTC) antitrust enforcement case against Qualcomm, U.S. District Court judge Lucy Koh found that Qualcomm’s licensing practices clearly violate U.S. antitrust law and rejected U.S. Department of Justice’s Assistant Attorney General for Antitrust Makan Delrahim’s newfangled legal theory that competition law has no role in addressing the abuse of standard-essential patents (SEPs).

Judge Koh’s decision provides much-needed certainty for any stakeholder as to the role of U.S. competition law in protecting innovation, particularly those who rely on standardized technologies. The court found that Qualcomm has continued its anticompetitive conduct despite rulings by competition authorities around the world demanding it end these practices and, therefore, ordered five remedies:

Based on her findings, Judge Koh has ordered that:

  • Based on their dominant position, Qualcomm can no longer tie their supply of chips to a customer’s patent license and has to negotiate (and for existing arrangements, renegotiate) licensing terms with its customers without using its “no license, no chips” policy.
  • Qualcomm has to make its SEPs available on fair, reasonable, and non-discriminatory (FRAND) terms, even to competitors.
  • Qualcomm can no longer employ exclusive dealing agreements (agreements only to purchase from Qualcomm) for supplying chips.
  • Qualcomm can no longer interfere with its customers in communicating with a government agency about a potential law enforcement or regulatory matter.
  • Qualcomm has to submit to compliance and monitoring for seven (7) years and must annually report to the FTC about its compliance with the above remedies.

Judge Koh’s remedies build on an important holding from an earlier phase of the trial: refusing licenses to competitors is not compatible with the FRAND patent policies Qualcomm voluntarily embraced in return for getting its technology included in key standards.  Judge Koh found that the plain meaning of two leading American standard setting organizations’ patent policies that Qualcomm was subject to provided that it must offer SEP licenses to any willing licensee (in other words, Qualcomm cannot arbitrarily refuse to license its SEPs on which it has made a FRAND commitment).

For the ACT |The App Association, the FTC’s enforcement case has always been about the importance of open standards and the importance of FRAND, not just Qualcomm’s behavior.

Small business innovators need to be able to use technical standards to build new products and innovate, particularly in new internet of things (IoT) verticals. These standards often include contributed solutions that have patents in them, making it necessary for one seeking to use a standard to exercise patents contained in the standard (such patents are known as “standard-essential patents,” or SEPs). To offset the potential for SEP holders to abuse their dominant position, standard setting organizations have companies that volunteer these patents into standards also license access to their SEP on FRAND terms. That FRAND commitment ensures certainty in reasonable access to SEPs, and, therefore, the standards they are essential to, for anyone who may want to use the standard. For small businesses like the thousands of App Association members, this certainty is so crucial for research and development (and other business) planning – namely, knowing they can count on access to standards at reduced risk of expensive and lengthy litigation that would easily drive them out of business.

As the only voice for the small business tech innovator community in standard-essential patent policy and law debates, the App Association has been involved in this case since it was filed in 2017. The App Association has filed numerous amicus briefs with Judge Koh during this important case to bring our viewpoint forward. Also, recognizing that large companies like Qualcomm can simply pay a fine and continue their behavior, we have consistently urged the FTC to avoid a settlement due to the valuable precedent a judgement addressing conduct can mean for all IoT stakeholders seeking clarity on the intersection of competition law, innovation, and intellectual property.

And not only does Judge Koh’s decision provide much needed clarity about U.S. competition law’s role in protecting innovation and advance U.S. global leadership in pro-innovation law and policy, but it is also a complete rejection of AAG Delrahim’s newfangled legal theory that competition law has no role in addressing SEP licensing abuse despite over 20 years of U.S. case law and bipartisan policy.

The App Association, along with leading voices for the auto and retail industries, have publicly disagreed with AAG Delrahim, issuing a detailed white paper in June of 2018 that urges him to engage with innovators affected by his policies. We are still waiting on his response to this paper and call for engagement.

While SEP law and policy debates will continue to swirl in key jurisdictions across the globe, the importance of Judge Koh’s findings of fact and law is hard to overstate, both in the context of U.S. law and policy, as well as for other countries. The App Association aims to continue our efforts to bring the small business innovator voice to SEP-related debates, building on Judge Koh’s thoughtful and well-reasoned decision.