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FTC v. Qualcomm: Standard Essential Patent Holders Must License to Competitors

Reports Patent

Federal Trade Commission v. Qualcomm, Inc., No. 17-CV-00220-LHK (N.D.Cal. Nov. 06, 2018)

On November 6, 2018, the Northern District of California Judge Lucy H. Koh granted a motion for partial summary judgment in favor of the Federal Trade Commission (“FTC”) in its lawsuit against Qualcomm, Incorporated (“Qualcomm”). The FTC brings its Complaint against Qualcomm under § 5 of the Federal Trade Commission Act (“FTCA”), which prohibits “[u]nfair methods of competition in or affecting commerce.” But the issue in which partial summary judgment was granted by the Court here regarded whether Qualcomm is obligated to license its standard essential patents (“SEPs”) to competing modem chip suppliers in light of Qualcomm’s industry agreements with the Telecommunications Industry Association (“TIA”) and the Alliance for Telecommunications Industry Solutions (“ATIS”).

TIA and ATIS are standard-setting organizations (“SSOs”) that are responsible for developing and managing cellular communications standards to ensure global standardization. These standards often incorporate patented technology that is essential to complying with the standard. SSOs maintain intellectual property rights (“IPR”) policies to encourage SEP holders to contribute their technology to the standardization efforts. The IPR policies of TIA and ATIS require an SEP holder to license rights to their SEP to all applicants wanting to utilize the patent to meet a TIA or ATIS standard on terms that are fair, reasonable, and nondiscriminatory (“FRAND”).

Qualcomm is the holder of SEPs essential to widely adopted cellular standards, and has committed to comply with the TIA and ATIS IPR policies. The FTC alleged that Qualcomm refused to license its SEPs to competing modern chip suppliers but Qualcomm contends that these policies only require Qualcomm to license its SEPs to applicants that supply complete devices like cellular handsets, not applicants that supply components like modem chips.

Qualcomm entered into binding contracts with TIA and ATIS when it assured them that it would follow their IPR policies. The Court considered the text of IPR policies, and relied on Ninth Circuit precedent from Microsoft Corp. v. Motorola, Inc. (“Motorola II”) to establish that the FRAND commitments in the IPR policies obligated Qualcomm to license its SEPs to all applicants, including competitors. The Ninth Circuit interpreted a nearly identical IPR policy in Motorola II as the TIA and ATIS IPR policies and held that “SSOs require[e] members who hold IP rights in [SEPs] to agree to license those patents to all comers on terms that are [FRAND].” The Court bolstered its conclusion that Qualcomm must license to competitors by referring to IPR guidelines that the refusal of SEP holders to license to competitors is an explicit example listed in the TIA Guidelines of discriminatory conduct that does not align with FRAND commitments in the TIA IPR policy.

The prior practices of Qualcomm rebuts its argument in this case. Qualcomm has received licenses from SEP holders from over 120 companies. Qualcomm also argued in prior litigation against Telefonaktiebolaget LM Ericsson that SEP holders must license SEPs to all industry participants and may not withhold SEP licensing discriminatorily.

The Court went on to further counter Qualcomm’s argument that its FRAND commitments do not apply to modem chip suppliers because modem chip suppliers do not practice the TIA and ATIS standards. In addition to the non-discriminatory argument, the Court pointed out that the TIA and ATIS IPR policies do not limit the FRAND commitment to those who practice the whole standard. The Court also noted that Qualcomm’s own documents indicated that a modem chip can be standard compliant in and of itself. Finally, the Court emphasized the importance of the non-discrimination requirement in IPR policies. Without such a requirement, undesirable consequences could unfold for cellphone manufacturers and ultimately consumers, if one SEP holder is able to monopolize a critical component. For the foregoing reasons, the Courts granted the FTC’s motion for partial summary judgement that the TIA and ATIS IPR policies both require Qualcomm to license its SEPs to modem chip suppliers.

The Court’s decision is an obvious blow to Qualcomm as it proceeds in litigation against the FTC, but it may also have a major impact on other SEP holders across a variety of industries going forward as they may no longer be able to control how and to whom they license their patents.

Additional commentary and analysis regarding the Court’s decision and its possible implications is available from Bryan Koenig and Matthew Periman of Law360.