The three-judge panel of the U.S. Court of Appeals for the Ninth Circuit unanimously reversed an antitrust ruling of the U.S. District Court that imposed serious implications on Qualcomm’s business model.

The Ruling Given by the District Court                            

The Federal Trade Commission brought an action against Qualcomm in May 2019. The Commission alleged that the company’s approach to wireless standard essential patent licensing violated antitrust laws. 

The district court ruled that Qualcomm engaged in licensing practices that were anti competitive.  The court also entered a worldwide injunction against Qualcomm’s business practices. The injunction required Qualcomm to re-negotiate its current license agreements and prohibited future anti-competitive licensing practices.

Findings of the District Court

The ruling was based on the following findings of the Court:

1. Qualcomm has violated the` FTC Act by engaging in conduct that violated the Sherman Act. 
2. Qualcomm had market power in the markets for CDMA modem chips and premium LTE modem chips.
3. Qualcomm sold its chips at prices that were much higher than comparable communications chips.
4. Qualcomm held at least a 96% share of the worldwide CDMA modem chip market from 2014 to 2016. 
5. The anti-competitive conduct of Qualcomm included the following:
   • The company refused to sell modem chips or even provide samples unless the purchaser signed a patent license agreement.
   • By threatening to cut off OEM access to Qualcomm chips, the company's acts show its intent of creating a monopoly 
   • The company engaged in anticompetitive conduct by refusing to extend licenses to rival modem chip manufacturers, including Intel and Broadcom.
   • Qualcomm’s royalty rates were unwarranted as they were based on the value of the smart phone handset, rather than the modem chips. 

The Ruling of the Ninth Circuit

The US Justice Department argued with Qualcomm against the FTC. It stated that the district Court’s ruling could undermine American leadership in technologies including 5G wireless networks.

The appeals court reasoned that Qualcomm’s licensing practices aren’t anti-competitive because “the company is under no antitrust duty to license rival chip suppliers. Obligation to license patents on fair and reasonable terms comes under the purview of contract and patent law. 

The Court also added that Qualcomm’s “no license, no chips” policy does “not impose any surcharge on its rivals’ modem chip sales,” and it does not undermine competition in the market.

Conclusion

In this significant ruling for Qualcomm, the Ninth Circuit has clarified a number of issues. It emphasized on the  distinction between what  is deemed as illegal anti-competitive behavior and lawful hyper competitive behavior. The Court has also highlighted the difference between claims sounding in antitrust law, and royalty disputes sounding in patent law.