Long Overdue Victory for the FTC Restores Balance to Standard Essential Patents

“Qualcomm made the choice to engage in standards setting and contribute its technology. Judge Koh is holding Qualcomm to account for the promises they made to industry through the FRAND commitment.”

https://depositphotos.com/10088061/stock-photo-opinions-talking-comments-and-feedback.htmlIn a June 4 op-ed to IPWatchDog, James Edwards launched a scathing attack against Judge Lucy Koh and her 233-page ruling, which found Qualcomm to have engaged in anticompetitive behavior against competitors within the cellular chipset market. However, just as Mr. Edwards claims Judge Koh failed in her undertaking, so too has Mr. Edwards by ignoring the context and facts of the case.

His argument against Judge Koh, deliberately or otherwise, does not mention the fact that this case involved the licensing of standard essential patents (SEPs) subject to the FRAND commitment, a contract between the patent holder and the standard setting organization to license the relevant patents on “fair, reasonable, and non-discriminatory” terms.

Indeed, Mr. Edwards makes no mention of standard essential patents in a deliberate attempt to obfuscate the facts and fit a narrative that intellectual property rights writ large are under attack by this decision.

Mr. Edwards claims, “Koh establishes an antitrust-based compulsory license”. Wrong, the standard setting organizations have done this, when they wrote their IPR policies, which Qualcomm agreed to when they contributed their technology to the standard. The Alliance for Telecommunications Industry Solutions (ATIS) and Telecommunications Industry Association (TIA) policies clearly state that holders of SEPs must license “to all comers”. Qualcomm has systematically failed to do this despite repeatedly being asked for a license by competitors.

Global Consensus: This is Not the Standard

The second concern which would “require Qualcomm to negotiate or renegotiate contracts with customers and competitors worldwide” is a natural reflection of what has been happening around the world. When almost every other major jurisdiction, including Japan, South Korea, China, Taiwan and the European Union have also found against Qualcomm in similar antitrust cases, then yes, Qualcomm might have to renegotiate its contract with multinational partners.

Mr. Edwards claims that Qualcomm’s “no license, no chips” is the industry standard. It is not. No other competitors to Qualcomm have this policy of “no license, no chips”. Others, such as Nokia and Ericsson, who have comparable patent portfolios, license at a fraction of the price to what Qualcomm does. Also, it is well documented that both Nokia and Ericsson have had their own issues with Qualcomm in the past. Then again, perhaps by “industry standard,” Mr. Edwards, means to suggest that Qualcomm itself is “the industry”, in which case Qualcomm would by definition be a monopolist.

Mr. Edwards supports intellectual property when it is convenient, but then ignores fundamental intellectual property doctrines when it isn’t. Qualcomm is the only company to force companies to sign patent license agreements before they can purchase chipsets (albeit state of the art chipsets). For someone who cares so deeply about intellectual property rights, Mr. Edwards conveniently ignores the doctrine of patent exhaustion. In normal licensing circumstances, the value of intellectual property is included in the price of the product—in this case a chipset. Qualcomm cannot claim a portion of value from others’ inventions, just as Microsoft cannot claim a portion of value from JK Rowling because she wrote Harry Potter with Microsoft Word.

For the past 25 years, Qualcomm has hijacked the standards setting process in order to gain a monopoly in certain cellular standards, namely CDMA and LTE, and then used this monopoly to extract super-normal profits from the rest of the industry by leveraging both its (admittedly) large patent portfolio and chipset business in tandem. Qualcomm’s own documents show at one point in time they had a 96% share of the CDMA chipset market, and 86% for LTE.

Restoring Balance

Mr Edwards’ attack tries to paint a picture that Judge Koh is cutting to the core of intellectual property rights. She is not. The simple fact of the matter is that SEPs are not treated in the same manner as a normal patent. Qualcomm made the choice to engage in standards setting and contribute its technology. They did so knowingly, and to gain a strategic stranglehold on the licensing and chipset markets linked to the standards.

Judge Koh is holding Qualcomm to account for the promises they made to industry through the FRAND commitment. Yes, Qualcomm helped to set the CDMA and LTE standards. But they did so to exploit their “ownership” of these standards and foreclose competition in the market. In doing so they have run roughshod over the concept of FRAND and made a mockery of the open standards system.

To allow this sort of anticompetitive behavior to continue in the future would be to fundamentally undermine the rollout of 5G around the world and deny consumers the immense benefits and economic growth it is set to unleash. Qualcomm does not own the telecommunications industry, nor should it. The Federal Trade Commission’s victory in this case is long overdue and restores a semblance of balance to the standards system.

This article reflects the author’s personal views on the topic and does not reflect any other interest.

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