FTC v. Qualcomm Incorporated ( 2019 )

FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS AUG 23 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
FEDERAL TRADE COMMISSION, No. 19-16122
Plaintiff-Appellee, D.C. No. 5:17-cv-00220-LHK
Northern District of California,
v. San Jose
QUALCOMM INCORPORATED, a ORDER
Delaware corporation,
Defendant-Appellant,
SAMSUNG ELECTRONICS COMPANY,
LTD.; et al.,
Intervenors,
Before: TASHIMA, M. SMITH, and BENNETT, Circuit Judges.
PER CURIAM:
Appellant Qualcomm Incorporated (“Qualcomm”) moves for a partial stay
pending appeal of the district court’s May 21, 2019 permanent injunction, which it
entered following a trial on antitrust claims brought by the Federal Trade
Commission (“FTC”). We grant Qualcomm’s motion.
The FTC alleged that Qualcomm, a leader in cellular standard technology,
violated Sections 1 and 2 of the Sherman Act and Section 5 of the FTC Act in
connection with the licensing of its standard essential patents (“SEPs”) and sale of
its code division multiple access (“CDMA”) and premium long-term evolution
(“LTE”) modem chips. Specifically, Qualcomm refused to license SEPs to rival
chip suppliers, allegedly in contravention of commitments Qualcomm made to
certain standard setting organizations in the industry; refused to sell modem chips
to any original equipment manufacturers (“OEMs”) that lacked patent licensing
agreements with Qualcomm; and imposed in its OEM licensing agreements
excessive royalty rates on a per-handset basis, irrespective of whether the handset
contained a Qualcomm chip or a chip from one of Qualcomm’s competitors. The
complaint alleged that the upshot of this conduct was to maintain Qualcomm’s
monopoly in the CDMA and premium LTE chip markets and impose an
anticompetitive surcharge on its competitors’ chips.
After a ten-day trial, the district court issued extensive findings of fact and
determined that Qualcomm’s practices violate the antitrust laws. The district court
concluded that Qualcomm (1) has an antitrust duty to license its SEPs to rival chip
suppliers, and (2) engaged in anticompetitive conduct by using its royalty rates to
effectively impose a surcharge on its competitors’ chips. The district court entered
a multipart permanent injunction.
Qualcomm seeks a stay of the injunction’s provisions requiring that
Qualcomm make exhaustive SEP licenses available to its competitors, prohibiting
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Qualcomm from conditioning chip sales on the purchase of patent licenses, and
requiring Qualcomm to negotiate or renegotiate its license agreements in that
respect.
To determine whether to issue a stay pending appeal, we consider “(1)
whether the stay applicant has made a strong showing that he is likely to succeed
on the merits; (2) whether the applicant will be irreparably injured absent a stay;
(3) whether issuance of the stay will substantially injure the other parties interested
in the proceeding; and (4) where the public interest lies.” Nken v. Holder, 556 U.S.
418, 426 (2009) (quoting Hilton v. Braunskill, 481 U.S. 770, 776 (1987)). An
applicant for a stay “need not demonstrate that it is more likely than not they will
win on the merits,” but rather must show “a reasonable probability” or “fair
prospect” of success. Leiva-Perez v. Holder, 640 F.3d 962, 966–67 (9th Cir. 2011)
(quoting Hollingsworth v. Perry, 558 U.S. 183, 190 (2010)). Applying those
factors here, we grant Qualcomm’s motion for a partial stay of the injunction
pending appeal.
It is well-settled that, “as a general matter, the Sherman Act ‘does not restrict
the . . . right of [a] trader or manufacturer engaged in an entirely private business,
freely to exercise his own independent discretion as to parties with whom he will
deal.’” Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP (“Trinko”),
540 U.S. 398, 408 (2004) (second alteration in original) (quoting United States v.
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Colgate & Co., 250 U.S. 300, 307 (1919)). The Supreme Court recognized a very
limited exception to that general rule when a monopolist terminated a voluntary
and profitable course of dealing with a competitor and sacrificed short-term
benefits to exclude competition in the long run. See generally Aspen Skiing Co. v.
Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). That exception, however, is
“at or near the outer boundary of [Sherman Act] liability.” Trinko, 540 U.S. at
409. And, here, even the two government agencies charged with the enforcement
of antitrust laws—the FTC and the Antitrust Division of the Department of Justice
(“DOJ”), see FTC v. AT&T Mobility LLC, 883 F.3d 848, 862 (9th Cir. 2018) (en
banc)—disagree as to whether Qualcomm’s conduct implicates the duty to deal.
Indeed, while the FTC prosecuted this antitrust enforcement action, the DOJ filed a
statement of interest expressing its stark disagreement that Qualcomm has any
antitrust duty to deal with rival chip suppliers.
We are satisfied that Qualcomm has shown, at minimum, the presence of
serious questions on the merits of the district court’s determination that Qualcomm
has an antitrust duty to license its SEPs to rival chip suppliers. See Lair v. Bullock,
697 F.3d 1200, 1204 (9th Cir. 2012). Qualcomm likewise has made the requisite
showing that its practice of charging OEMs royalties for its patents on a per-
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handset basis does not violate the antitrust laws.1 See Doe v. Abbott Labs., 571
F.3d 930, 931 (9th Cir. 2009) (holding that “allegations of monopoly leveraging
through pricing conduct in two markets” do not “state a claim under § 2 of the
Sherman Act absent an antitrust refusal to deal (or some other exclusionary
practice) in the monopoly market or below-cost pricing in the second market”
(citation omitted)).
Turning to the second Nken factor, we conclude that Qualcomm has
demonstrated a probability of irreparable harm. The injunction requires
Qualcomm to enter new contractual relationships and renegotiate existing ones on
a large scale. The fundamental business changes that the injunction imposes
cannot be easily undone should Qualcomm prevail on appeal. See NCAA v. Bd. of
Regents of Univ. of Okla., 463 U.S. 1311, 1313–14 (1983) (White, Circuit Justice)
(equities favored stay where, absent a stay, appellant’s contracts to broadcast
collegiate football games would be void and could not be enforced, putting at risk
business for entire season); Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559
F.3d 1046, 1057–59 (9th Cir. 2009) (irreparable harm likely where order subjected
1
Breaking from her standard practice, then-FTC Commissioner Maureen K.
Ohlhausen issued a written dissenting statement to express her disagreement with
the theory urged in the complaint and adopted by the district court that
Qualcomm’s royalty rates operate as an exclusionary tax or surcharge on
competitor products. See Dissenting Statement of Commissioner Maureen K.
Ohlhausen In the Matter of Qualcomm, Inc., No. 141-0199, January 17, 2017.
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plaintiff to immediate “Hobson’s choice” of either (1) signing agreements that
would cause it to “incur large costs” and “disrupt and change the whole nature of
its business” or (2) refusing to sign agreements, causing “a loss of customer
goodwill” and potentially entire loss of business).
Finally, the balance of equites also weighs in favor of a stay. See Lair, 697
F.3d at 1215. Although the hardship to the party opposing the stay and the public
interest usually merge when the government is the opposing party, see Nken, 556
U.S. at 435, this case is unique, as the government itself is divided about the
propriety of the judgment and its impact on the public interest. Indeed, the
Department of Defense and Department of Energy aver that the injunction
threatens national security, and the DOJ posits that the injunction has the effect of
harming rather than benefiting consumers.
Whether the district court’s order and injunction represent a trailblazing
application of the antitrust laws, or instead an improper excursion beyond the outer
limits of the Sherman Act, is a matter for another day. For now, weighing all
relevant factors, we conclude that the requested stay is warranted. Therefore,
pending the resolution of this appeal or until further order of this court, we stay the
portions of the district court’s injunction requiring that (1) “Qualcomm must make
exhaustive SEP licenses available to modem-chip suppliers,” and (2) “Qualcomm
must not condition the supply of modem chips on a customer’s patent license
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status” and “must negotiate or renegotiate license terms” with its customers in that
respect. This stay has the effect of maintaining the status quo ante during this
expedited appeal. See id. at 429 (“A stay ‘simply suspend[s] judicial alteration of
the status quo[.]’” (first alteration in original) (quoting Ohio Citizens for
Responsible Energy, Inc. v. NRC, 479 U.S. 1213, 1313 (1986) (Scalia, Circuit
Justice))).
The current briefing schedule shall remain in effect, and the clerk shall place
this appeal on the calendar for January 2020. See 9th Cir. Gen. Order 3.3(g).
So ordered.
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