Deep Dive Episode 130 – FTC v. Qualcomm: The Ninth Circuit on Tech Antitrust

This live podcast discusses the Ninth Circuit’s recent opinion in FTC v. Qualcomm, in which the court reversed the Federal Trade Commission’s 2019 trial court win. The Ninth Circuit ruled that Qualcomm did not violate antitrust law through its licensing practices for standard-essential patents.

John Shu, a professor, attorney, and legal commentator, discusses the ruling and examines the history, arguments, and ramifications of the case.

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TRANSCRIPT

Nick Marr:  Welcome all to The Federalist Society’s Teleforum conference call as this afternoon—or morning where our speaker’s from—August 19, 2020, we discuss “FTC v. Qualcomm: the Ninth Circuit on Tech Antitrust.” My name is Nick Marr. I’m Assistant Director of Practice Groups at The Federalist Society.

 

As always, please note that all expressions of opinion are those of the expert on today’s call.

 

And today we’re fortunate to have with us Mr. John Shu. He’s an attorney, professor, and legal commentator. After John gives his opening remarks, we’ll then go to audience question and answer, so have those in mind for when we get to that portion of the call. Thanks for sharing with us today, John. The floor is yours.

 

John Shu:   Thank you, Nick, and thanks to everybody who’s listening in today and participating in our teleforum. Today’s case is the recent Ninth Circuit decision on FTC v. Qualcomm. This has been a saga of a lot of time and pain. But on August 11, a three-judge panel — Judge Rawlinson from Nevada, Judge Callahan, and Judge Stephen Murphy, III, who is a U.S. District Court judge from Michigan sitting by designation — it was a 3-0 vote. And it reversed the district court judgement, and it held basically that Qualcomm’s business practices were not anticompetitive.

 

A little history on the case, both subject matter-wise and procedurally because the procedural stuff and the administrative law stuff is particularly interesting. Substantively, the FTC on January 17, 2017 filed suit against Qualcomm, alleging that it violated the Sherman Act and separately the FTC ACT, engaging in anticompetitive behavior, partially because it licensed only to original equipment manufacturers, or OEMs—these OEMs are making smartphones—and not to direct competitors. And it had a “no licenses, no chips” policy. I.e. if you did not license Qualcomm’s very broad and very deep patent portfolio, you could not buy their chips.

 

And also that the FTC alleged and the District court Judge, Judge Lucy Koh, K-o-h, from the northern district of California, i.e. San Francisco, alleged that it breached fair, reasonable and nondiscriminatory commitments. That’s often known as FRAND, F-R-A-N-D, fair, reasonable, and nondiscriminatory. Another acronym that you might hear very often is SEP, which stands for standard essential patents; SSO, which stands for standard setting organization; and SDO, standard development organization. Okay. And that’s — these are very common in high tech licensing and other deals.

 

But the FTC filed suit on January 17, 2017. The reason that date is important —and here we get into some of the inside baseball—is because it was literally three days before the inauguration. It’s very, very unusual for an administrative agency, even one that is run by a commission and independent, to file a lawsuit of this magnitude and this importance three days before an incoming administration, right in the middle of a transition. Generally, for friendliness and comity to the other — to the incoming administration, you kind of hold off until everybody’s settled in at the White House and other agencies.

 

Another interesting inside baseball fact was that the FTC filed suit over the very strong dissent of one of its commissioners, Maureen Ohlhausen. But anyway, they filed suit. The trial was held in 2019 in February. It was a ten-day bench trial.

 

And at the end of it in May 2019, Judge Koh smacked Qualcomm very hard. She had defined the markets as CDMA, co-division, multiple access, and LTE, long-term evolution, modem chips. She held that Qualcomm violated the Sherman Act and the FTC Act. She had significant findings of fact. It was a 233-page opinion and order.

 

And perhaps most importantly was the injunction. She demanded that Qualcomm basically renegotiate each and every one of its licensing agreements with all of its OEMs. And that would have been very powerful. To quote, “Qualcomm must not condition the supply of modem chips on a customer’s patent license status, and Qualcomm must negotiate or renegotiate license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical support or access to software.”

 

Among some of the other things, we talked about OEMs. Some of the OEMs that Judge Koh listed in her opinions: LG Electronics, Sony, Samsung, Huawei (H-U-A-W-E-I)—which has been infamous in the news lately—Motorola, Lenovo, Blackberry, CuraTel, BenQ, Apple, Vivo, Wistron, Pegatron, ZTE, which was also infamous in the news last year—a Chinese company that President Trump and President Shi worked out to survive—Nokia, and several other very small Chinese OEMs.

 

Well, the Ninth Circuit granted a stay of the injunction. And at some point the U.S. Justice Department, in the form of the Antitrust Division, stepped in to express its opinion on the case, especially pointing out the national security implications because Qualcomm is the nation’s leader by far in the upcoming 5G technology and other technologies such as the internet of things. The aforementioned Huawei, of course, has been in the news because of 5G, and the United States, the UK very much in competition with communist China and Huawei over this particular space. It went on to appeal and very long, very difficult oral arguments.

 

And then recently, the Ninth Circuit issued its opinion. And the opinion basically smacked Judge Koh back. The Ninth Circuit opinion said that the legal findings that Judge Koh found were all wrong. So for example, we start with a duty to deal — and Judge Callahan wrote the opinion.

 

So first, the Ninth Circuit examined Judge Koh’s finding that Qualcomm had an antitrust duty to license its standard essential patents, or SEPs, to its direct competitors, not just the OEM. And so any time there’s a duty to deal, you come up with the case of Aspen Highlands Skiing Corporation, also known as Aspen Skiing. There are — there’s a test, Aspen Skiing, does it unilaterally terminate a voluntary and profitable course of dealing? Is the only conceivable rationale or purpose to sacrifice short term benefits in order to obtain higher profits in the long term? And number three, does the refusal to deal involve products that the defendant already sells in the existing market to other similarly situated customers?

 

Now, for those not familiar with Aspen Skiing, you had a case where you had four companies who sold tickets to the ski mountains in Aspen, Colorado. One of them decided they did not want to participate in the scheme, even though the other companies tried to help them out by saying, “Well, you know, we’ll offer money orders, or we’ll offer Amex travelers’ checks. Or we’ll offer other mechanisms.” They just kept saying, “It’s not efficient. It’s not efficient.” And it went to the Supreme Court, and the Supreme Court said, “Well, that was anticompetitive.”

 

But in this case, Qualcomm’s behavior did not meet any of these things. And besides, in a follow up case — Aspen Skiing was a 1985 case. In a follow-on case in 2004, often known as the Trinko case, Justice Scalia had held that the Aspen Skiing case was on the outer boundaries of antitrust law. And I think the Ninth Circuit felt that Judge Koh was trying to expand Aspen Skiing even beyond where it already was and kind of ignoring Justice Scalia’s admonition that it was already on the outer limits. I think the Ninth Circuit was right in saying that Qualcomm started licensing only to OEMs not because of trying to obtain higher profits in the long run by excluding competition but because of the changes in patent exhaustion law. And Judge Koh never found any evidence that Qualcomm singled out any specific chip supplier, such as Intel or Motorola, for anticompetitive treatment in its SEP licensing practices.

 

With respect to FRAND, the FRAND requirements — the Ninth Circuit found, I think correctly — they found FRAND requirements, which are industry requirements, tend to be either contractual or IP oriented. And I think the Ninth Circuit was very firm in saying that, if a competitor or a party to a FRAND agreement had a problem with Qualcomm’s prices, then they could have sued Qualcomm under breach of contract, maybe even tort law, but that antitrust was just too big of a hammer to come in and do that. And again, I would stress that in this instance, in this case it was the FTC, not a private entity, suing.

 

I understand that private parties like to use antitrust because if you win you get guaranteed treble damages. But it’s not like the FTC’s going to get treble damages that are particularly helpful to them. So it wasn’t clear to me why they went this route in the first place. And it also wasn’t clear to me why any of the private parties who were FRAND signatories in deals with Qualcomm didn’t sue themselves on either breach of contract or tort law if they felt that Qualcomm had been unfair.

 

Now, we go to probably the heart of the problem: Qualcomm’s “no license, no chips” policy. The FTC had alleged, and Judge Koh agreed, that this “no license, no chips” policy amounted to an anticompetitive surcharge or an anticompetitive tax on the chips. That was a problem for the Ninth Circuit because the surcharge — the idea behind the FTC’s argument is that they were charging higher prices, and that blocked off any kind of competition. And that was a problem because usually for this kind of theory to work you’d have to have a company that was intentionally trying to lower its prices to try and muscle out any potential competitors as opposed to jacking up prices such that — and giving that space for competitors to come in. So that was a little unusual to allege, and I think the Ninth Circuit found that to be the case.

 

Now, I want to stress that if the opposite had been the case, if Qualcomm had a “no chips, no license” policy, I think that would have been very problematic for Qualcomm with respect to anticompetitive behavior. “No chips, no license” really would be Qualcomm using its market power and dominance to muscle around the market. But that’s not what happened. That’s never been the policy at Qualcomm. It’s always been “no license, no chips” for the relevant time period. And so that’s exactly what happened. So the Ninth Circuit, I think, properly found that the “no license, no chips” policy, while aggressive and, as the Ninth Circuit said, hypercompetitive, that doesn’t mean that it’s anticompetitive. And I thought that was a very important distinction that the Ninth Circuit made in its opinion.

 

And finally, the Ninth Circuit — or the FTC had alleged that exclusive dealings between Qualcomm and Apple — exclusive arrangements — was anticompetitive. Qualcomm in 2011 and 2013 had signed agreements with Apple where Qualcomm offered a lot of money, billions of dollars in incentive payments, which were dependent on Apple sourcing its iPhone chips exclusively from Qualcomm. Well, the Ninth Circuit found that these exclusive agreements were fine, that they were not anticompetitive. And as a matter of fact, Apple later on decided to terminate these agreements, and they got its modem chips from Intel in 2016 anyway.

 

All right. So that’s a very short and quick summary of the case. I think there’s some impact and implication issues that I’d like to discuss. First is the issue of administrative law in the sense that we really haven’t seen recently where you have two administrative agencies that deal with the same topic, antitrust enforcement, that are at such complete loggerheads. I mean, the Antitrust Division’s point of view on the case and mix that in with the National Security Division’s also on national security — there’s no way you can square that with the FTC’s decision to really aggressively push this case. And I think that was a real problem.

 

Even after President Trump’s FTC chairman, Joseph Simons, had been sworn inconfirmed and sworn in—he ended up having to recuse himself at that time, not for anything that he did but because Paul Weiss — his former firm, Paul Weiss, had been involved somehow with Qualcomm. So you left the Commission with a 2-0 situation. And basically a 2-4 tie vote at the commission is essentially a no vote.

 

The other thing that I think was very interesting in this case is that Simons actually lifted — he just lifted his own recusal in May, several months ago, before the Ninth Circuit opinion. But it was not clear to me why he did that. I mean, any problem that may have allegedly existed with either himself personally or with Paul Weiss still would have existed in May. So I don’t really — I don’t really understand what situational change happened that he felt he could now un-recuse himself.

 

At any rate, there are now a few options that can happen. Number one, the FTC can decide to do nothing. If they wanted to either ask for en banc review of the Ninth Circuit or direct appeal of petition of certiorari to the Supreme Court, the FTC commission would have to take a vote. And now that Simons’ un-recused himself as of May, presumably it would be a three to two vote to not apply for en banc review or not petition for certiorari.

 

Additionally, the FTC does not have independent Supreme Court litigation authority. Any litigation that they did do would have to go through the Solicitor General’s office. And to make things a little more complicated, we actually don’t have a confirmed SG.

 

Noel Francisco stepped down. He’s gone back to the firm, and we have an acting SG, Jeffrey Wall, an excellent and superb attorney in general and particularly an appellate attorney. But generally, acting SGs don’t like to do things that are very, very controversial, especially in the middle of an election year. Yes, unfortunately, politics always rears its ugly head, even in antitrust situations. So we have a case where it’s unlikely that the Commission would authorize a petition to either hear en banc or certiorari. And even if they did, it’s unlikely that the SG would go ahead and do that.

 

Now, something that’s very unusual in the Ninth Circuit is the en banc procedure. First, because of the size of the Ninth Circuit, both geographically and in the number of judges, the en banc in the Ninth Circuit is not all of the judges. It’s only 11. It’s the chief judge and 10 other judges that are allegedly drawn by the wheel of random chance.

 

However, in the Ninth Circuit, a judge, any judge, can — number one, they can stop the clock on the time for petitions to file for rehearing. Number two, any judge — and that judge remains anonymous. Any judge can sua sponte ask for an en banc review. And that’s called a request for a — a sua sponte request for an en banc call.

 

On average, the Ninth Circuit hears around 20 en banc cases a year, plus or minus. And on average, the Ninth Circuit gets about 50, plus or minus, calls for en banc. I should also say that there is a procedure in the Ninth Circuit to have the panel — the three-judge panel review its own case. But because this is a three to zero vote and because I think the Ninth Circuit panel’s reasoning — the antitrust reasoning and the analysis of the existing antitrust law as it is, not as the FTC or Judge Koh wishes it would be, is spot on, I just don’t see the three judge panel overruling itself.

 

But it is possible that any judge could sua sponte ask for an en banc review. If that happens, you have the parties then who are asked to brief that. And then the judges have to vote on whether to grant the en banc petition or not. And in the Ninth Circuit you need a simple majority vote. In this case it’d be 14 of 27 judges in favor. And again, senior judges are not part of the vote process, and senior judges generally do not sit en banc unless they were on the original panel in the first place.

 

We’re all familiar with the cert process, and so even after en banc, if it doesn’t go the way that somebody particularly wants, then they can petition for cert. But if it was the FTC, they’d still have to go through a commission vote, and they’d still have to go through the SG’s office. Very complicated but I think particularly interesting especially because it is not usual for Judge Thomas, the en banc coordinator and the chief judge of the Ninth Circuit — that’s Sidney Thomas who’s based in Montana, a Clinton appointee.

 

He’s been known to exercise his en banc authority. He usually does it in social issue cases, not antitrust cases. I think he probably feels that antitrust is not particularly sexy. But you never know, and that option is available to the judges.

 

So that’s a quick rundown of the case. I think Qualcomm clearly did very well before the Ninth Circuit. I think it’s interpretation of the law — the existing law was much more in line with the existing state of the law, both the Ninth Circuit precedent and the Supreme Court precedent. And the Ninth Circuit — I think probably for them it was generally an easy decision because it’s just not the kind of case where you could expand Aspen Skiing or any of the other precedent, even if they wanted to. Nick?

 

Nick Marr:  Great. Thanks, John. So just a quick announcement for the audience. We’ll open up the floor to audience questions now, but first I think John might have a few more comments. And then we can go to questions that are already starting to line up.

 

John Shu:  Great. I’d like to point out that the Ninth Circuit took great pains to say in its opinion, actually more than once, that harming the competition process as opposed to harming a competitor are two different things. And I think that was something that they felt — the Ninth Circuit panel felt that Judge Koh conflated, that in a rough and tumble field like high tech, especially chips, you know, companies are going to compete very hard. But as long as they don’t harm the actual process of competition, then there’s no breach of the Sherman Act.

 

And I think that’s a very important distinction. I saw in media coverage that some people were saying, “Oh, so now because of the Ninth Circuit opinion is it okay in the Ninth Circuit for, say, pharmaceutical companies to get together, you know, and just jack up prices for drugs?” And I was kind of like, well, as usual, the media in this case got it wrong because, number one, in this case it wasn’t a cartel — a price fixing cartel. This is just one company, Qualcomm. And number two, price fixing is a per se violation. There’s no rule or reason needed for that. So I thought that some of the discussions in the media regarding the future legal implications of this FTC v. Qualcomm case were not on point and definitely were not consistent with the existing state of the law.

 

Nick Marr:  Okay. We can go to our first audience question now.

 

John Holcomb:  Yes, hi. This is — hi, Professor Shu. Thanks very much for that great presentation. This is John Holcomb from Costa Mesa, California. I had a question about jury trials in these types of cases. You mentioned that Judge Koh had a 10-day bench trial. What remedies was the FTC seeking, would it have been entitled to a jury trial, and what’s the status of jury trials in FRAND cases right now? Thank you.

 

John Shu:  Well, I think that one of the reasons the FTC decided to hold a bench trial because generally these — I hate to guess what was going on in the FTC’s mind or their chief litigator, Daniel Francis. But I think in this case it was the complexity of such involved, plus the sheer number of witnesses involved. Both the FTC and Qualcomm called a lot of witnesses. As a matter of fact, Judge Koh criticized Qualcomm trial counsel by tell them, you know, “You’re speeding through these witnesses on your side.” And she didn’t like that.

 

I do think that the remedies that the FTC wanted, specifically the injunction — the global injunction and forcing Qualcomm to renegotiate all of its FRAND agreements and licensing agreements — I mean, they got it from Judge Koh. And I think if the Ninth Circuit — for some reason if the Ninth Circuit had decided not to grant the stay, I think that Qualcomm would have been in a lot of hot water business-wise. Most people don’t realize this, but Qualcomm makes two-thirds about, plus or minus — but about two-thirds of its income comes from licensing, not from the actual physical sale of the chip. And so if the Ninth Circuit had not granted the stay, I think that would have been bad.

 

You’re in California, and you know a lot about the intellectual property field. A lot of IP cases tend to be bench trials, and I think it’s because they may not necessarily trust a jury to either understand the complexity behind it or, perhaps more importantly, pay attention throughout a very long trial. But the FTC got everything it wanted from Judge Koh, including the ruling that Qualcomm’s exclusive agreements with Apple in 2011 and 2013 were anticompetitive.

 

I will say that today was a historic day for Apple in that it broke the $2 trillion, “T” trillion, market cap. And so it’s not clear to me that whatever happened in 2011 and 2013 harmed Apple in any way. But in any rate, the Ninth Circuit had specifically found that those exclusive licensing agreements were not anticompetitive. So thank you very much.

 

Nick Marr:  We’ll go to our next caller now.

 

Caller 2:  Hi, Professor Shu. Thank you again for giving this talk. My question for today would just be do you see this case changing how American Express might be treated in the future? Thank you.

 

John Shu:  Oh, thank you. Excellent question. I don’t. You know, I think the Ninth Circuit was trying to send a message that the existing state of antitrust law is really not bad as to where it is. So I don’t. I don’t see that at all. I mean, the fact that Judge Koh tried to expand Aspen Skiing, well, and to a lesser extent Trinko — and as hard as the Ninth Circuit slapped that down — I mean, the panel minced no words in striking down Judge Koh’s reasoning about that. So I think that was a real problem.

 

And beyond that, with respect to the AMEX case — I’m assuming you’re referring to the recent AMEX case in 2018. You know, you have to have market power plus some evidence — I mean, specific evidence that there’s a harm to competition and that a huge problem that the Ninth Circuit has was that Judge Koh felt that it could infer, just infer without the specific evidence, that there was a specific causal connection between Qualcomm’s conduct or its licensing plan or whatever and anticompetitive harm to the process, not an actual competitor. And that was a problem.

 

You know, I think at the heart of it I feel like the Ninth Circuit — or I’m sorry. I felt like Judge Koh in her opinion — it almost seemed like she felt like because Qualcomm made a lot of money with the “no license, no chips” policy that automatically it was bad. And that’s clearly not the case in existing antitrust law, and I don’t think it ever will be the case where just because you’re big or just because you’re profitable that that’s automatically bad or automatically an antitrust violation.

 

And so I think the Ninth Circuit was very clear on that. And that’s the way it should be. I think to be big or to be profitable without something else that’s anticompetitive to the process I think that would be bad if the direction of the law were to make that illegal.

 

Nick Marr:  We’ll go to our next question now.

 

John Vecchione:  Hi, John Vecchione from New Civil Liberties. Do you think that this case will stop the civil war between the FTC and the Justice Antitrust department on this issue, or do you think they’ll try it again somewhere else?

 

John Shu:  Well, I’m so glad you asked that question because I keep talking about this very usual conflict. Again, I saw a lot of the news coverage the day of and the day after the opinion. And there was just all this hammering about the Antitrust Division on how evil it is and in the “pocket of big business”. And it seemed to me that the reporters and/or editorial writers completely forgot that the assistant attorney general, Makan Delrahim — he’s completely recused from the case. And I think he’s recused on Qualcomm stuff in general. And he certainly was not one of the lawyers who argued this at any point along the way.

 

So I do think that one of the reasons we ended up where we are is because of politics, which is not cool, because ideally, right, this whole process is supposed to be independent of that. The fact that the FTC was in such a rush to file the lawsuit on January 17, 2017, three days before — that’s insane.

 

John Vecchione:  I remember.

 

John Shu:  That is insane. Nobody does that. No one does that. Well, let me rephrase that. No one did that until that happened. And there was definitely some body English involved when Chairman Simons was confirmed and sworn in. And that body English was designed to make him recuse so that the vote would then be 2-2, which it was, in going forward with the case.

 

And so you had this — now, some people theorize that a lot of the career staffers at the FTC were pushing for it to go forward, whereas the Antitrust Division was a little more circumspect about the case. And then there was the basic problem that the FTC’s legal theories behind its complaint were not in line with existing antitrust law. I think anyone who reads Commissioner Ohlhausen’s—Maureen Ohlhausen—dissent of — original dissent — it’s a very powerful dissent. I mean, it’s also very angry. But if you put aside any kind of tone issues, I think she does have it right that the FTC’s theory of the law really wasn’t in line with what the existing law is.

 

And it didn’t seem to me that the case was really on solid ground to go forward. But I do think that this is one of these situations where you hope that the administrative agencies would get together and get their act together before they decided to do such an important case, not just because of the legal issues but also because of, as the Antitrust Division and National Security Division pointed out later, the National Security Division — or national security issue’s an implication of the case. So an excellent question on your part.

 

And again, I would also say that the recent Supreme Court decision — I think it was Justice Kavanaugh’s on the CFPB — this is exactly why the initial — the original structure of the CFPB with a completely shielded director, single director term — they can’t be fired but for a specific cause. I think the Supreme Court was right to say —

 

John Vecchione:  Seila Law.

 

John Shu: Huh?

 

John Vecchione:  Seila Law.

 

John Shu:  Yeah. Exactly. Thank you very much.

 

John Vecchione:  Thank you.

 

Nick Marr:  We’ll go to our next question now.

 

Laura Peterson:  Laura Peterson. I appreciate your addressing, please, the difference between harm to the competitive process and harm to competition. You had distinguished yourself between harm to the competitive process and harm to a competitor. But I’m interested in the finer distinction between harm to the competitive process and harm to competition. What do you see as the essential difference? Thank you.

 

John Shu:  Thank you. We’re getting a lot of question from the swamp today. That’s outstanding. So I’m going to go with one of the classic antitrust cases: the United States v. Microsoft case. And that was essentially a tying case involving Microsoft Windows 95, Internet Explorer, and Netscape Navigator, which nobody uses anymore.

 

I think part of the problem that people — it is possible that you can harm the process and harm the competitor at the same time. I mean, I think that’s possible. Okay. So if that’s happening, then there is an antitrust problem and an anticompetitive problem. But it has to be — but if they’re separate — in other words, if an entity, like Qualcomm or Microsoft — if it harms the consumer or harms the competitor, that’s a lot different than harming the competitive process.

 

So for example, if Qualcomm happens to charge high prices, which it did, does that mean that the consumer is harmed? I guess, in the sense that you and I will have to pay more for our smartphones, whether they’re Samsung phones or iPhones or whatever. What if Qualcomm makes awesome chips and other companies like Intel or Motorola, for whatever reason, they make crappier chips? And Qualcomm is very aggressive in marketing and licensing and so on and so forth? That definitely harms the competitors.

 

As a matter of fact, at some point after 2016 when Intel inked its deal with Apple, Intel decided to exit that space completely. So technically, did Qualcomm injure a competitor? Yes. Was it because they have better chips or better customer support or whatever? Probably.

 

Now, what if Qualcomm decided to say, “Well, because we have this market power in chips, you have to buy our chips before we’re going to license a single piece of intellectual property for you to use or before we’re going to provide any kind of customer support to the OEMs”? Oh, that’s damaging to the process. It is harmful to the competitors — that’s true — and to the consumers. But more importantly, using its market power in chips to require mandatory licensing or customer support, that’s bad. That’s harmful to the competitive process.

 

But Qualcomm never did that. Qualcomm did the exact opposite in saying we are not — “You have to license our stuff first, and then we’ll give you the chips.” And in some ways, you could consider that as almost saying, “If you license our stuff and then you buy our chips, don’t worry. We’re not going to go after you for any potential patent infringements or whatever.”

 

Another thing that I think Judge Koh missed was that OEMs, the original equipment manufacturers, they’re not competitors. OEMs are consumers. The competitors would be the chip makers, like Motorola or Intel. But Apple and Samsung, Sony, they’re consumers, not competitors. So it’s a very subtle difference, I guess, but it’s also very important. So I hope that helps to answer your question.

 

Nick Marr:  Thanks, all. We don’t have any questions in the queue right now.

 

John Shu:  Oh, great. So I want to close by going forward. I think, regardless of what happens on November 3, my hope is that parties who are involved in FRAND agreements, when they are unhappy with the existing agreement — that they don’t use an antitrust tool to go after the other party or parties. I think a big problem that — first of all, it’s not even good for the allegedly injured party because, first, I think they need to understand that to prove an actual antitrust harm you have to have very specific findings and specific facts.

 

You can’t just say, “Well, for example, Qualcomm or Microsoft or Apple or whoever, boy, they’re huge. And they’re the only ones that make this product. And so because they’re the only ones and because they’re huge, therefore, they’re bad.” And then you go off with a lot of press releases saying the same. That’s a problem because that’s not the status of the law. I just don’t see how that’s going to change.

 

The other thing I’d like to say is Congress — there’s been some talk that Congress could go ahead and change the law or amend the law, and I suppose they could. Recently, we had supposedly antitrust hearings in the House of Representatives. I don’t know how many of you watched that, but it was extremely painful. And I think all of it tended to surround, “Well, gee, Mr. Bezos, Amazon is huge, so you should charge us lower prices.” Uh, okay. Presumably, they’re charging the lowest prices that they can.

 

I mean, I’m not a fan or critic of Amazon, per se. I’m just saying that I hope Congress, if it really does intend to tackle this, would bear in mind that automatically bigness is not badness. Tim Wu has a book that argues the complete opposite, and it’s a good book. And I think he makes some good points. However, as far as the current status of the law and the current state of the economy, I just don’t think that’s good.

 

The other thing is antitrust law you always see that when it comes to mergers and acquisitions, right? If it’s above a certain level or a certain amount, you have to do the Hart-Scott-Rodino process, blah, blah, blah. Okay. Well, if bigness automatically equals badness, there’s going to be a lot of M&A attorneys out there that are going to be broke, and we don’t want that to happen. We have to save them. No, I’m just kidding.

 

But it is true that I think it would really contract economic activity that’s otherwise legal. And that’s a big problem. And also in this case, with the Qualcomm case, you have — Qualcomm is unique. I mean, there’s no other company that had — was a pioneer in the “no license, no chips” scheme. It worked very well for them. They certainly made a lot more money on the scheme. I don’t mean scheme in a bad way. I mean just its plan. They made a lot more money doing “no license, no chips” than it did before.

 

But you know, it was good. It was good for the consumers, meaning the OEMs, and it was good for the competition. Again, what do we do as a matter of policy? Do we wait to see how it goes and then we sue? And if we do wait, how long does it take? I don’t think that’s the smart way to do it. I think the better way to do it is to focus on behavior and focus on their activity. If the existing behavior and existing activity as it is is anticompetitive and if it harms the competition, as opposed to just competitors and customers, then that’s something that we can certainly address.

 

But I hope this presentation, this Teleforum has been helpful to all of you. For me, Qualcomm is important because it’s obviously a California company. But the saga itself is so long and so complicated it involves the administrative law problems, contractual problems, IP problems, antitrust problems, and political problems, and I just think that people will be writing about this for a long time, especially if some judge in the Ninth Circuit decides to ask for en banc review.

 

Nick Marr:  All right. Thanks very much, John. And on behalf of The Federalist Society, I want to thank you for the benefit of your valuable time and expertise today and a thanks to the audience for calling in and listening to this great Teleforum call on the Ninth Circuit decision. As a note, we welcome listener feedback by email at info@fedsoc.org. So send in comments and questions or if you want to learn more and keep an eye on the FedSoc website and your emails for announcements about upcoming Teleforum calls. We have a couple more this week to finish out before Friday. So thank you all for joining us this afternoon — or morning, John. We’re adjourned.

John Shu

Attorney and Legal Commentator


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