US District Court confirms that Qualcomm must offer RAND SEP licences to rival chipset manufacturers

In California, Judge Koh has granted partial summary judgment in favour of the FTC against Qualcomm, making an order that Qualcomm must license its SEPs to rival chipset manufacturers (such as Intel). 

We explained the background to this judgment and its significance in a previous post. Although the ruling is limited to Qualcomm’s position vis-à-vis competing manufacturers without commenting on the position of other SEP holders, it indicates that FRAND requires ‘licensing to all’ (at least in respect of the rules of ATIS and TIA, which, like ETSI, are members of the Third Generation Partnership Project, the collaboration of standard setting organisations behind the development of standards such as 4G LTE and 3G UMTS). The result could be a shift in the focus point for licensing SEPs in cellular standards from the manufacturers of end devices (handsets) to the manufacturers of chipsets.

The issue

Qualcomm had declared its SEPs as essential to two US standard setting organisations (SSOs), the Alliance for Telecommunications Industry Solutions (ATIS), and the Telecommunications Industry Association (TIA). In return, each SSO required Qualcomm to license its SEPs on RAND terms (note that the exact wording of the ATIS IPR policy and TIA IPR policy differ slightly, although this made no substantive difference in these proceedings).

The FTC alleged that both of these policies required Qualcomm to license its SEPs to all applicants, including competing chipset manufacturers. Qualcomm argued that the IPR policies contain limitations and that Qualcomm is not required to license its SEPs to applicants, like chipset manufacturers, that only produce components of devices. The FTC applied for partial summary judgment on this point (the trial on the wider issue of whether Qualcomm’s actions have harmed competition is scheduled for January 2019).

The decision

Judge Koh preferred the FTC’s interpretation, taking into account the following points:

  • Non-discrimination: Judge Koh reasoned that “if a SEP holder could discriminate against modem chip suppliers, a SEP holder could embed its technology into a cellular standard and then prevent other modem chip suppliers from selling modem chips to cellular handset producers”. She suggested that such discrimination could enable a SEP holder to achieve a monopoly, in direct contradiction of the stated purpose of the TIA IPR policy.
  • Industry practice: as part of its argument, Qualcomm claimed that chipset manufacturers never receive SEP licences. However, Qualcomm itself had received licences to manufacture and sell components, and had received exhaustive licences from over 120 companies, indicating that it could not be contrary to industry practice for chipset manufacturers to obtain SEP licences. 
  • Prior litigation:  when defending a patent infringement case against Ericsson, Qualcomm had previously claimed that the TIA policy required Ericsson to license any patents ‘required to develop products compliant’ with a given standard. Qualcomm suggested that this requirement would enable all industry participants to develop, manufacture and sell compliant products, and importantly, that chipsets were ‘compliant’ products covered by the policy.
  • Implementing the standard: Judge Koh also dismissed Qualcomm’s arguments that chipset manufacturers do not practise its patents. She noted that neither the ATIS not TIA policy restricts a SEP holder’s FRAND obligations to applicants that themselves practice or implement a whole standard. She emphasised that Qualcomm’s own documents demonstrate that a modem chip is a core component of a cellular handset, and that such chipset implements key cellular technologies.

Judge Koh also referred to a Ninth Circuit precedent (Microsoft II) as establishing that that Qualcomm’s RAND commitments include an obligation to license to all comers, including competing chipset manufacturers. She noted that in Microsoft II the Ninth Circuit had been interpreting a SSO IPR policy with almost identical language to the TIA and ATIS IPR policies.

For all of those reasons, Judge Koh agreed that the test for partial summary judgment (that ‘the meaning of the contract is unambiguous’) was met, and that both IPR policies required Qualcomm to license its SEPs to chipset manufacturers.

Conclusion

Although it was only a hearing for partial summary judgment, this case aired a significant number of the issues and arguments involved in the ‘licensing to all’ debate. These were all dealt with thoroughly by Judge Koh, though Qualcomm is expected to appeal. 

Judge Koh’s reliance on Qualcomm’s previous conduct highlights a frequent problem for large SEP holders that act as both licensor and licensee; it is difficult for such companies to eliminate conflicting positions in different cases.  However, not every judge will place the same weight on such considerations: in Unwired Planet, Birss J dismissed the relevance of past statements made by Ericsson and other SEP holders as to the appropriate total royalty burden (although in TCL Judge Selna took the opposite approach).   

In any event, this ruling is unlikely to be the last word on the matter. The case primarily focussed on contractual interpretation, rather than on antitrust as such. Establishing a contractual requirement for Qualcomm to offer licences to competing chipset manufacturers is one thing. Whether Qualcomm and any chipset manufacturers can agree the terms of a (F)RAND licence is quite another, particularly given that the order relates only to the ATIS and TIA IPR policies and so has a direct impact only on licences to those of Qualcomm’s SEPs which have been declared to ATIS/TIA, rather than necessarily on its global portfolio.  It remains to be seen whether Qualcomm will elect to carry this finding across to SEPs declared to other standards bodies, such as ETSI, and whether chipset manufacturers will in fact benefit from an exhaustive licence from Qualcomm.

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