Appeals Court Overturns Dismissal of Qualcomm Antitrust Charges

In what could become a precedent setting finding, a three-judge panel of the US Third Circuit Court of Appeals on Tuesday overturned a lower court's dismissal of antitrust complaints raised by Broadcom against Qualcomm. At the heart of the debate is whether the exclusivity rights granted to a patentee corporation should enable it to obtain a legal monopoly over markets the patented technology may create. US District Court in New Jersey said it should, when dismissing Broadcom's claims in August 2006. But the appeals court soundly rejected that basis, and reinstated the case.

"In dismissing Broadcom's claim of monopolization in the WCDMA technology markets," wrote Judge Maryann Trump Barry in her formal opinion Tuesday, "the [N.J. District] Court reasoned that Qualcomm enjoyed a legally-sanctioned monopoly in its patented technology, and that this monopoly conferred the right to exclude competition and set the terms by which that technology was distributed."

That might sound shocking, so let's go over that again: The District Court ruled in August 2006 that a patent by design gives its holder a legal monopoly over an invention. Thus, if that invention creates a new market and gives the patent holder monopoly power over that market, so be it.

Thus, Judge Barry continued her characterization, the Court concluded that Qualcomm's conduct couldn't have possibly harmed competition in the WCDMA technology market "because an absence of competition was the inevitable result of any standard-setting process."

There was actually considerable legal precedent to support Judge Mary Cooper's dismissal decision. Essentially, her ruling last year stated, you can't monopolize a market essentially created by your own patent; and just because the law grants you the exclusive right to license your patents does not mean you're necessarily bound by law to license them to everyone who applies.

"To maintain a claim against Qualcomm for monopolization of the WCDMA technology market, either the incorporation of Qualcomm's patents into the standard, or Qualcomm's alleged inducement of the [standards development organization] and refusal to license its patents on FRAND [fair, reasonable, and non-discriminatory] terms, must have injured competition in the WCDMA technology market," Judge Cooper wrote then. "For the purposes of this motion, the Court assumes that there is no competition in the WCDMA technology market. This lack of injury to competition, however, is not the result of Qualcomm's conduct, it is the natural consequence of the standard-setting process.

"Qualcomm's 'power' to control the licensing of its patents is derived from the rights it enjoys as a patent-holder," her dismissal order continued. "The adoption of an industry standard neither diminishes nor augments this exclusionary right." In other words, just because you own a standard does not mean you have a duty to ensure its "openness," contrary to arguments made in another recent, globally significant debate over international standards.

But Judge Cooper's dismissal was overturned, on the grounds that there's significant legal grounds in other cases for establishing that a patent holder may still be guilty of exclusionary conduct. You may be thinking "Microsoft," and we'll get to that in a moment. The basis for the panel's judgment comes first from the August Federal Trade Commission unanimous ruling against Rambus.

There, the FTC found that the memory manufacturer was leveraging its presence as a member of standards bodies to glean new information that it would then use to amend its own existing patents. The company's goal, the FTC discovered, was to either learn which way the market was headed or drive the market in a given direction, where it would then be in the best position to license its patents to those who had just adopted a new standard.

For the FTC's foundation, it referenced the US antitrust case against Microsoft - which, while partly overturned, still sets a tremendous precedent. As Judge Barry wrote on Tuesday, "There, the Court found that Microsoft had marketed software-development tools that would permit software developers to create programs that, ostensibly, did not need to run on Microsoft's ubiquitous operating system, but that, in fact, could operate properly only on Microsoft's operating system. The Court found that in an environment in which software developers reasonably expected Microsoft not to mislead them, Microsoft's deceptive conduct was anticompetitive."

So indeed, it is possible that a patent holder can be found anti-competitive in the field where its own patents would otherwise ensure a legal monopoly. The Appeals Court did not have to find Qualcomm guilty; instead, it only had to find that the premise with which the District Court dismissed Broadcom's complaints, was unsound.

That said, the Appeals Court actually does not give Broadcom's complaint much chance for success. Judge Barry continued, "There are simply insufficient factual allegations that Qualcomm, by maintaining its monopolies in the 3G CDMA technology and chipset markets, intended to cause harm to Broadcom in the WCDMA technology and UMTS chipset markets. Any causal connection, moreover, is highly speculative. Injury to Broadcom is extremely remote, and there is no apparent reason why Qualcomm's competitors in the CDMA markets could not assert a monopoly maintenance claim."

She went on to write that Broadcom could not claim it was being harmed by a monopolist in the same way as Microsoft harmed its competition. The DC District Court found that Microsoft was able to erect barriers to entry by building its development technologies in such a way as to stifle a potential competitor from building anything remotely close to what Microsoft already produced in other areas - for instance, office applications.

For Broadcom to make a similar argument, wrote Judge Barry, it would have to prove Qualcomm developed CDMA technologies in such a way as to prevent Broadcom from developing competitive CDMA chips...when in reality, Broadcom hasn't proven to the court that it ever really intends to enter the CDMA market in the first place.

So only two of Broadcom's original complaints are being un-dismissed, not the full set. For that reason, Qualcomm claimed victory Tuesday.

"Broadcom did not appeal the dismissal by the District Court of four of its claims," the company stated, "therefore, six of Broadcom's eight federal claims in this case have now been conclusively resolved in Qualcomm's favor."

Linux Foundation attorney Andrew Updegrove was the co-author of an amicus brief for the Appeals Court. This afternoon, Updegrove stated, "The opinion is the latest in a string of court and regulatory holdings that recognize the importance of the standard setting process and its reliance on good faith conduct, and demonstrate a willingness to step in when participants engage in deceptive conduct."

While Tuesday's decision stops well short of finding Qualcomm guilty of deceptive conduct, it is allowing Broadcom to resume two of its arguments, on the grounds that the District Court should not have used one factor alone in dismissing them all last year.