Font Size: 
3rd Circuit Rules on Patent Holders' Antitrust Liability in Qualcomm Case
New Jersey Law Journal
September 06, 2007
In a decision that may increase competition in the cell phone industry, a federal appeals court says a patent holder can be sued under antitrust laws for deceptive conduct toward an organization that sets uniform telecommunications standards.
The ruling, issued Tuesday by the 3rd U.S. Circuit Court of Appeals in Broadcom Corp. v. Qualcomm Inc., No. 06-492, is the first to address the issue and reverses a lower court holding that dismissed the antitrust claims.
The litigation involves computer chipsets, the core electronics that allow cell phones to transmit and receive data. They are made in accordance with one of two sets of standards to ensure that phones can communicate with each other.
One of the standard-setting groups, European Telecommunications Standards Institute, based its standards on a technology for which Qualcomm held the patent.
Because the decision to use a proprietary technology can confer monopoly power on whoever controls it, standard-setting groups require patent holders to agree they will license their technology on fair, reasonable and non-discriminatory (FRAND) terms.
Qualcomm allegedly agreed to do so but then demanded higher royalties from Broadcom and other competitors and from companies using chipsets not made by Qualcomm.
The complaint accuses Qualcomm of intentional deception and of monopolizing certain markets for cell phone technology in violation of sections 1 and 2 of the Sherman Act and sections 3 and 7 of the Clayton Act.
On Aug. 30, 2006, U.S. District Judge Mary Cooper dismissed the complaint for failure to state a claim, reasoning that Qualcomm has a legally sanctioned monopoly in its patented technology, including the right to exclude competitors and to set terms for distribution.
Cooper also concluded that even if Qualcomm was deceptive, it did not matter under antitrust law because the standard-setting process would inevitably result in the absence of competition.
In reversing, the appeals court said Cooper failed to consider that the FRAND commitments "were intended as a bulwark against unlawful monopoly" and that the standards groups could otherwise have chosen an unpatented technology.
"We hold that ... in a consensus-oriented private standard-setting environment, ... a patent holder's intentionally false promise to license essential proprietary technology on FRAND terms, ... coupled with [a standard setting group's] reliance on that promise when including the technology in a standard, and ... the patent holder's subsequent breach of that promise, is actionable anticompetitive conduct," wrote Judge Maryanne Trump Barry, joined by Julio Fuentes and Leonard Garth.
Though the appeals court acknowledged that no court or agency had decided the issue, it did point to several Federal Trade Commission proceedings that lent support to its position, especially In the Matter of Rambus, No. 9302, decided Aug. 2, 2006. There, the FTC found that Rambus, a developer of computer memory technologies, misled a standards group about the nature of its patent interests, leading the group to adopt a standard using a proprietary Rambus technology. The FTC found Rambus engaged in anticompetitive conduct and violated antitrust law.
Other cited cases, involving Dell Computer Corp. and Unocal, demonstrate the types of products subject to comparable industry standard-setting.
The FTC accused Dell of concealing its patent for what wound up as an important design feature of a standard for a computer switch. Dell even allegedly certified to the standards group that its proposed standard did not infringe any Dell patent, but once the standard proved successful, Dell tried to assert its patent rights. The case, In the Matter of Dell Computer Corp., 121 F.T.C. 616, ended in 1996 with a consent order requiring Dell to cease and desist from asserting that use of the standard violated its intellectual property rights.
A 2005 consent order in In the Matter of Union Oil Company of California, No. 9305 (F.T.C. July 27, 2005), similarly resolved allegations that the company made misrepresentations to a standards board about its intellectual property rights.
Broadcom's lawyer, David Stone, says "the court below, to some extent, immunized people and companies who manage to get their technology put into a standard," allowing them to have a monopoly without looking at how they got it. "The 3rd Circuit said that's not right," adds Stone, of Boies Schiller & Flexner in Short Hills, N.J.
Evan Chesler, who represents Qualcomm, calls the case "a business dispute between two companies" over licensing rates and "not an antitrust case."
The standards groups left FRAND "explicitly undefined" so that "participants in the market setting" could decide what it requires, says Chesler of New York's Cravath Swaine & Moore.
But Mark Patterson, a professor of antitrust and intellectual property at Fordham University School of Law who had been following the case, says the appeals court's ruling "potentially offers more room for competition."
The lower court ruling offered "firms carte blanche to mislead standards organizations in order to gain an advantage," an interpretation that would have increased monopolies, he says.
Several standards-setting groups, including the Institute of Electrical and Electronics Engineers and the PCI Industrial Computer Manufacturers Group, were amici in the appeal.
The American Antitrust Institute and the Consumer Federation of America also weighed in. Their lawyer, Eric Cramer of Berger & Montague in Philadelphia, said in his amicus brief that the case "reach[es] to the heart of how antitrust law should function in connection with standard setting and licensing involving intellectual property rights" and implicating the interests of consumers, who pay the price for unlawful monopolization in the form of higher prices and less innovation.
Other amici were several companies that produce cell phones or related technology, including Texas Instruments Inc. and Nokia Corp.
