Seven Questions for FTC v. Qualcomm

Today the FTC marches into U.S. District Judge Lucy Koh's San Jose courtroom, accusing Qualcomm of using monopoly power over the supply of cellphone chips and its massive patent portfolio to extract inflated royalties on technology that's essential for connecting mobile devices.

Specifically, the FTC is demanding that Qualcomm license standard-essential patents to its chipmaking rivals on fair, reasonable and non-discriminatory (FRAND) terms, and that it stop threatening to withhold chips from smartphone makers who balk at its licensing terms.

Apple and five of its contract manufacturers, meanwhile, are demanding tens of billions of dollars in damages in a separate action scheduled for a jury trial in April in San Diego, while Qualcomm has countersued for similarly vast sums in unpaid royalties. Koh also has certified a class of consumers seeking $5 billion over higher prices based on Qualcomm's alleged anticompetitive behavior. That case is scheduled for trial in June.

Qualcomm is represented by a team of lawyers from Cravath, Swaine & Moore; Quinn Emanuel Urquhart & Sullivan; Morgan Lewis & Bockius; Keker, Van Nest & Peters; Jones Day and others. Backing Apple is Fish & Richardson and Boies, Schiller Flexner, while Gibson, Dunn & Crutcher represents contract manufacturers Compal Electronics Inc., FIH Mobile Ltd., Hon Hai Precision Industry Co. Ltd., Pegatron Corp. and Wistron Corp. Susman Godfrey and Cotchett, Pitre & McCarthy are co-lead counsel for the consumer class. FTC senior trial counsel Jennifer Milici heads up the government's team.

Here are seven questions that come to mind as the FTC trial gets under way.

➤ Wasn't this litigation supposed to be settled already? Last fall the FTC and Qualcomm asked Judge Koh to delay a summary judgment ruling because they were nearing a settlement, but Koh went forward with the ruling. In late November, Qualcomm CEO Steve Mollenkopf told CNBC that he believed Qualcomm and Apple were “on the doorstep of finding a resolution” by the end of 2018 or the first half of 2019. Qualcomm general counsel Donald Rosenberg later told Bloomberg that Mollenkopf meant resolved either through settlement or court proceedings all over the world. “We believe the basis of the FTC case, like several other cases, is unfounded, and we think we can prove that,” Rosenberg said.

➤ What does the government want to get out of the case? Not much, really—just an injunction requiring Qualcomm to end its “no license, no chips” policy; that it license its standard-essential patents to chipmaking rivals on FRAND terms; and that it renegotiate potentially hundreds of chip licenses with existing customers or submit them to arbitration or judicial dispute resolution. Qualcomm says the FTC is trying to enjoin “legitimate, pro-competitive business practices that facilitated the growth of a phenomenally successful industry that bears all the hallmarks of healthy and vigorous competition.”

➤ Does the FTC have a strong case? So far it's been winning the big pretrial battles. Koh ruled on summary judgment that Qualcomm's FRAND commitment requires it to license competitors. Last month, the judge refused to allow evidence of market conditions after the March 2018 close of fact discovery (Qualcomm argues companies like Intel and Huawei have been gaining market share since then). The FTC's challenge now is to prove that Qualcomm's licensing practices actually changed the behavior of market participants, Goodwin Procter counsel Monte Cooper said. The commission will have to show that handset makers “abandoned concerns over royalty rates and instead took the deal they were handed,” said Cooper, who's been following the case as a veteran of SEP litigation and as counsel to Sequans Communications, one of numerous third parties in the case.

➤ What are Qualcomm's strongest defenses? Qualcomm argues that a FRAND commitment doesn't give rise to an antitrust duty to deal with competing chipmakers. The company notes that DOJ antitrust chief Makan Delrahim has been saying as much recently. More broadly, Qualcomm argues that there's no problem with the modem chip market that needs to be solved. “Prices keep falling. Product quality keeps improving. Consumer choices for cellular devices keep broadening. Data speeds keep increasing,” Qualcomm argues in a trial brief signed by Keker partner Bob Van Nest. And there's no evidence that Qualcomm's side deals with Apple hurt anyone, “least of all Apple (which made billions from the deals) or Intel (which now supplies 100 percent of modems for Apple's latest iPhones and iPads),” he writes.

➤ How big a factor is Huawei in this drama? From Qualcomm's perspective, the bigger the better. “In its zeal to hobble a quintessential American technology company,” Van Nest writes, “the FTC risks providing an opening for Huawei to dominate 5G technology, and stifling innovation just when it's needed most.” Will that argument have extra resonance, given events of the past month? Goodwin's Cooper doesn't think so. “I think Judge Koh is going to tune out any noise from outside the courtroom,” Cooper said. “She's shown she's good at that.”

➤ What impact could this trial have on the San Diego case and the consumer class action? This might be the most intriguing question of all. “There are a number of directly overlapping issues involving Qualcomm's conduct,” Gibson Dunn partner Ted Boutrous said. He represents the contract manufacturers, who are seeking $27 billion in the San Diego trial. If Qualcomm loses on those issues in the first round, “it's going to be bound by negative findings in all these cases, and that's not a pretty picture for them,” Boutrous said. Timing is a question though—judges often need months, even a year, to write up detailed findings of fact and conclusions of law following a complex bench trial. Goodwin's Cooper notes that Koh has been processing complex orders in the case “on a fairly rapid basis.” So it's conceivable something could come by April. If it doesn't, he says, there's always a possibility the San Diego trial could be continued.

➤ Could the International Trade Commission and President Trump beat Koh to the punch? Last fall, Thomas Pender, an ITC administrative law judge, found that Intel-supplied iPhones infringe a Qualcomm power conservation patent. But he recommended against an import ban on the ground that it would force Intel out of the modem chip market and hand Qualcomm a monopoly over upcoming 5G network technology, contrary to the public interest. The full ITC is reviewing that recommendation and is expected to rule in mid-February—or at least it was before it was forced to shut down most of its operations two weeks ago. A 60-day presidential review period will follow the commission's decision. Who's likely to speak first, Koh or the ITC/Trump? Cooper could only laugh when asked the question. “All I can say is whatever party comes out best will be pointing it out” to the other tribunal.

Who's Arguing?

The Federal Circuit is still open for business, at least through its upcoming calendarnext week. Once again, Apple will be in the thick of things, with three appeals related to a $440 million judgment that VirnetX Inc. won last year over secure communications patents in the Eastern District of Texas.

Apple is arguing that it's won the case “several times over” at the U.S. Patent and Trademark Office in reexamination and IPR decisions. VirnetX points out the Federal Circuit has already found the patents valid in a previous appeal. Just to make things more interesting, Apple was time-barred from bringing one of the IPRs—until a hedge fund called The Mangrove Partners filed a petition and Apple was then allowed to join in. VirnetX argues that Mangrove was a front for RPX Corp., which the PTAB had already excluded for trying to do Apple's bidding.

The pharmaceutical and biotech trade associations are going to bat for VirnetX, urging an overhaul of the PTAB's joinder rules. The PTAB has announced that its new precedential review panel will make joinder its first order of business. Apple insists there's no there there. “VirnetX's conspiracy theories make for entertaining reading, but the reality here is duller,” the company argues in a brief signed by Wilmer, Cutler, Pickering, Hale and Dorr partner Bill Lee.

Lee will argue on behalf of Apple before the Federal Circuit on Tuesday in Virnetx v. Apple, VirnetX v. The Mangrove Partners and VirnetX v. Cisco Systems. Haynes and Boone partner David McCombs will argue for Cisco. Paul Hastings partnerNaveen Modi and MoloLamken partner Jeff Lamken will argue for VirnetX.

Latham Further Bolsters Copyright Ranks

Latham & Watkins has scooped up copyright lawyer Joseph Wetzel from King & Spalding. It's the second notable copyright pickup for the firm in the last year, following the arrival of Sy Damle, the former general counsel of the U.S. Copyright Office.

Latham S.F. copyright partner Andy Gass said in a written statement that Wetzel's knowledge of the field, “especially in the fast-evolving music licensing space, makes him a tremendous addition to our team.”

“I look forward to building my practice at Latham by working alongside phenomenal practitioners from across teams,” Wetzel said.

DLA Brings Aboard Boies Schiller Partner

DLA Piper has announced the hiring of patent litigator Michael Jay from Boies Schiller Flexner.

“Michael is a skilled patent litigator whose experience covers a wide variety of areas,” Mark Fowler, global co-chair and U.S. chair of DLA's patent litigation practice, said in a written statement.

Stuart Liner, DLA's co-managing partner in Los Angeles, said Jay “will play an important role in strengthening our growing Intellectual Property and Technology practice in Los Angeles.”

Alito Back Behind the Wheel for Rimini Street

Supreme Court Justice Samuel Alito has unrecused himself and will participate in the Jan. 14 oral arguments in copyright case Rimini Street v. Oracle. My ALM colleague Tony Mauro reports that Alito and his wife apparently have sold off some Oracle stock—less than $50,000 worth—that was part of a family inheritance. Alito had recused himself from the September certiorari vote, but the court's online docket now states, “Justice Alito is no longer recused in this case.”

Mauro reports this is the ninth time that Alito has rejoined a case after initially recusing himself.

That's all from Skilled in the Art today. I'll see you all again on Tuesday.