Restoring IP Rights after the Destructive, Unjust Antitrust Rendering in FTC vs. Qualcomm

If a judge ever botched an antitrust case involving patents, the prize may go to federal district Judge Lucy Koh for her ruling in favor of the Federal Trade Commission (FTC) in its antitrust action against Qualcomm.

The intersection of intellectual property and antitrust is riddled with land mines and booby traps. The danger of getting an IP issue in this vicinity wrong becomes all the more likely after the Koh ruling and, thus, all the more dangerous and far-reaching.

Judge Koh managed to step on several trip wires in her decision for the FTC in a case that should never have been brought, never tried, and should have been withdrawn or dropped. The damage from this ruling will reverberate far beyond the global leader in wireless connectivity technology the FTC unfairly hammered in this case.

“Patents are a form of property,” Assistant Attorney General for Antitrust Makan Delrahim has said, “and the right to exclude is one of the most fundamental bargaining rights a property owner possesses. Rules that deprive a patent holder from exercising this right . . . undermine the incentive to innovate.”

Basic principles like property rights, exclusivity, dynamic competition and the incentive to innovate escaped Judge Koh’s grasp.

The Wall Street Journal opined that Judge Koh’s “sweeping 233-page ruling” is based on “scant evidence that Qualcomm’s pricing directly harmed competitors or consumers.”

Sitting FTC Commissioner Christine Wilson said in an op-ed she is “dismayed that the judge took this opportunity to create new legal obligations, undermine intellectual property rights, and expand the application of our antitrust laws beyond U.S. borders.”

Commissioner Wilson criticized Judge Koh’s “judicial innovations.”  One is “reviving and extending a discredited Supreme Court case” (Aspen Skiing v. Aspen Highlands Skiing, 1985). The upshot is creating “a perpetual antitrust obligation to sell every product to every competitor.” In other words, Koh establishes an antitrust-based compulsory license.

A second concern could “require Qualcomm to negotiate or renegotiate contracts with customers and competitors worldwide,” imposing an extraterritorial remedy despite the Justice Department’s and FTC’s practice of limiting remedies to the United States.

If public criticism by a sitting FTC commissioner isn’t damning enough, Judge Koh also got schooled by the erudite New York University law professor Richard Epstein for her “disastrous opinion.” He noted how “Judge Koh concedes the [patent licensing] practices challenged are not ‘collusive, coercive, predatory or exclusionary in character,’ and thus she has to rely on some residual notion of antitrust ‘unfairness’ that has no structure or content.”

Among Mr. Epstein’s several skewerings of Judge Koh’s failings in this case, her misunderstanding of the U.S. Supreme Court’s 2004 opinion in Verizon Communications v. Law Offices of Curtis V. Trinko qualifies as an unavoided tripwire. “Trinko stands for the proposition that, except in rare cases, the antitrust law does not require any firm to do business with its competitors.” Epstein regards the Koh blunder an “utter failure.”

Judge Koh disregarded that Qualcomm’s “no license, no chip” practice is the industry standard, as well as the efficiencies Mr. Epstein describes. She allowed the FTC to call the security risk-Chinese rival Huawei as a witness for the prosecution against one of the most inventive American companies in any field. She bought the farcical claim that a 3.25% patent royalty rate per iPhone, with a cap of $400 on the phone price—that is, $13 per iPhone—was anticompetitive for Apple, one of the richest companies in the world. She disregarded the Justice Department’s request for briefing on the remedy.

In short, Judge Koh thoroughly missed the boat in major respects—in the law, in the facts, in the bigger picture of the battle for global 5G leadership between Qualcomm and Chinese-subsidized national champion Huawei, in the Obama administration’s politicization of the FTC’s powers, in IP and antitrust basics.

If the 9th Circuit has any credibility, it will stay the misguided ruling, grant an appeal and reverse the district court in this case.

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