SAN FRANCISCO (CN) — Qualcomm may have ducked the Federal Trade Commission’s antitrust action over its chipsets when the Ninth Circuit ruled it engaged in legal “hypercompetitive” — not anticompetitive — conduct, but it’s still on the hook for consumer claims under California’s stricter antitrust law, barely.
U.S. District Judge Jacqueline Scott Corley ruled this past week that a group of cellphone users who filed an antitrust class action against Qualcomm can pursue just two claims: that Qualcomm violated California's Cartwright Act and the state's Unfair Competition Law. She dismissed all other claims.
The plaintiffs, Sarah Key, Andrew Westley, Terese Russell, and Carra Abernathy, all of California, had argued Qualcomm engaged in “three connected business practices” that resulted in unfair competition. Each of them had purchased a variety of devices utilizing Qualcomm's chipset technology.
They said Qualcomm refused to license its standard essential patents, or SEPs, to other chip manufacturers and its “no license, no chips” policy blocked original equipment manufacturers like Apple and Google from having access to chips unless they purchased Qualcomm’s cellular SEP for “unreasonably” high prices. They also said Qualcomm made exclusive deals with manufacturers to preserve its monopoly on the chip market.
Qualcomm manufactures chips that are used in advanced cellular technology, allowing smartphones to communicate with cellular networks. In some instances, Qualcomm boasted an 80% market share of a specific chip. Since the chips are foundational pieces of technology in the cellular market they are protected by standard essential patents.
The plaintiffs said Qualcomm's business practices resulted in manufacturers overpaying Qualcomm by more than $9 billion and passing 93.2% of those overcharges on to their own customers.
The plaintiffs’ claims ran parallel to those made by the Federal Trade Commission, which in 2018 also sued the chip manufacturer and prevailed in federal court — with potentially devastating consequences to its business.
At issue was Qualcomm’s novel business practice of requiring smartphone manufacturers — called OEMs, or original equipment manufacturers, during the trial — to license certain aspects of its cellular technology as a condition of providing those manufacturers with chips necessary for the phones to connect to the cellular network.
The Federal Trade Commission said the practice was monopolistic because it forced companies like Apple, Samsung, Google, LG and others to pay licensing fees in order to get equipment needed to make their devices function. This cost was then passed onto consumers even as Qualcomm gained significant market share and then used that share to extract licensing fees.
But a Ninth Circuit panel overturned the verdict, ruling in August 2020 that Qualcomm did not engage in antitrust behavior. Instead, the panel found Qualcomm had engaged in perfectly legal "hypercompetitive" conduct.
“The district court erred in holding that Qualcomm is under an antitrust duty to license rival chip manufacturers,” U.S. Circuit Judge Consuelo Callahan wrote in the unanimous opinion. “We hold that Qualcomm’s OEM-level licensing policy, however novel, is not an anticompetitive violation of the Sherman Act.”
While it did not rule directly on the cellphone buyers' case, the panel ordered Corley to consider whether their claims could stand in light of its finding. Corley found they could — but only under California law, and only narrowly.
"In sum, plaintiffs’ Cartwright Act claims survive in part. Plaintiffs fail to state a claim under the Cartwright Act for tying. But plaintiffs’ exclusive dealing claim remains because the factual determinations in FTC v. Qualcomm do not bind plaintiffs here," Corley wrote, also advancing the exclusive dealing claim under the Unfair Competition Law.
She set a case management conference for Feb. 23.
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