Potential FTC Pick Might Not Be Good News for Qualcomm

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By Alexei Alexis

Qualcomm Inc. could find itself continuing to fight a lawsuit from the Federal Trade Commission if President Donald Trump’s lead candidate for FTC chairman is installed.

Antitrust lawyer Joseph Simons previously led an agency enforcement action similar to one pending against the smartphone chipmaker. Bloomberg News has reported that Simons, an antitrust partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP, is Trump’s likely choice for the post and should be formally announced in September.

The FTC’s lawsuit against Qualcomm, filed in the last days of the Obama administration, accuses the company of violating antitrust laws by employing abusive patent licensing tactics. The case can be withdrawn by a majority of commissioners, but the two seated commissioners are deadlocked on it, which means it continues.

Whether the case will be withdrawn in the future depends entirely on the nominees to fill vacant commission seats. Acting FTC Chairman Maureen Ohlhausen opposes the case, but Democratic Commissioner Terrell McSweeny supports it. They are the only two commissioners on the normally five-member agency.

If Simons is installed as chairman, he may not be convinced by Ohlhausen’s argument that the FTC overstepped its bounds in bringing the lawsuit. He led a related action against semiconductor manufacturer Rambus Inc. as head of the FTC’s competition bureau during the George W. Bush administration.

The Rambus case “would suggest that he would favor maintaining the Qualcomm action,” Stephen Wilson, an antitrust partner in the Dallas Office of Locke Lord LLP, told Bloomberg BNA.

In Rambus, the commission voted 5-0 in 2002 to sue the company for deliberately withholding information about its patents to an industry standard-setting organization. Several of Rambus’s patented technologies were adopted as the industry standard for memory chips that were used in products like computers, fax machines, and printers. Well-known companies, including Hitachi Ltd., Samsung Electronics Co., and Toshiba Corp. then acquiesced to Rambus’s royalty demands, which increased prices and decreased innovation incentives, the FTC said.

At the time, Simons said Rambus’s anticompetitive conduct caused “substantial harm to important technology markets.”

Intellectual Property Differences

Ohlhausen has emphasized the importance of regulatory caution, particularly when it comes to intellectual property matters. With cases such as Rambus, Simons has shown a willingness to be more aggressive and innovative in non-merger cases, according to Stephen Calkins, an antitrust law professor at Wayne State University and a former general counsel at the FTC.

“There’s a much better chance the Qualcomm case would continue under a Chair Simons than under a Chair Ohlhausen,” Calkins told Bloomberg BNA.

The FTC claims Qualcomm violated antitrust laws by refusing to license technology to competitors and conditioning the supply of devices to cell-phone manufacturers on acceptance of its license terms. The trial is set to begin in the U.S. District Court for the Northern District of California in 2019.

In June, Judge Lucy Koh rejected Qualcomm’s motion to dismiss the case, finding that the FTC alleged sufficient facts to show that Qualcomm’s actions were motivated by “anticompetitive malice.”

“Judge Koh’s opinion makes clear that the FTC is pursuing a very substantial case against Qualcomm,” Calkins said. “A Chair Simons would have to think long and hard before working to withdraw the complaint.”

Koh has had two other antitrust cases cross her desk, and both were affirmed on appeal, according to Bloomberg Law’s Litigation Analytics.

Flawed Theories?

Ohlhausen says the Qualcomm complaint is based on flawed legal theories and insufficient evidence. She has also been critical of other patent-related cases, including the Rambus action.

In a research paper published last month, Ohlhausen said that antitrust enforcers worldwide, including the FTC, have been missing the mark on patent licensing issues by condemning behaviors that don’t harm competition.

“[I]t is a profound error to equate a negative market outcome with harm to competition,” she wrote. “Yet it is a mistake to which even an expert antitrust agency — the FTC — has fallen prey.”

The U.S. Court of Appeals for the District of Columbia Circuit sided with Rambus in a 2008 ruling, finding that the FTC failed to demonstrate that Rambus’s alleged conduct was illegal under antitrust law. The U.S. Supreme Court declined to hear the case.

To contact the reporter on this story: Alexei Alexis in Washington at aalexis@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

For More Information

Bloomberg Law subscribers can access Litigation Analytics at http://src.bna.com/rVv

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