FTC v. Qualcomm


The appellate court unanimously ruled in favor of Qualcomm, citing reasons that closely followed the expert’s testimony.

Cravath, Swaine & Moore; Morgan, Lewis & Bockius; and Keker, Van Nest & Peters

Qualcomm, an innovator in cellular technology, both licenses its patented technology and sells cellular modem chips that embody portions of its technology. In a suit filed in the Northern District of California in January 2017, the Federal Trade Commission (FTC) alleged that Qualcomm’s business practices relating to its licensing of patents and its selling of cellular modem chips were anticompetitive. Among other allegations, the FTC claimed that Qualcomm’s royalty rates are unreasonably high and “impose an artificial and anticompetitive surcharge” on its chip market rivals’ sales. A ten-day bench trial was held in January 2019.

Professor Nevo testified to several shortcomings in the FTC’s theory of harm and to several procompetitive justifications for Qualcomm’s practices.

Counsel for Qualcomm retained Cornerstone Research to support the expert testimony of Aviv Nevo of the University of Pennsylvania. At trial, Professor Nevo addressed numerous issues, including a number of shortcomings in the FTC’s surcharge theory. For example, Professor Nevo explained that any supposed “surcharge” would be chip neutral, meaning that the royalty was the same regardless of whether the original equipment manufacturer (OEM) used a Qualcomm chip or a competitor’s chip. Consequently, it would not affect the OEM’s decision of which chip to purchase. Professor Nevo also described a number of procompetitive justifications for Qualcomm’s practices.

The district court ruled in favor of the FTC. Qualcomm appealed the decision to the Ninth Circuit. In a decision issued on August 11, 2020, a three-judge panel unanimously reversed the ruling, stating “the district court’s ‘anticompetitive surcharge’ theory fails to state a cogent theory of anticompetitive harm.” The panel noted that Qualcomm’s practices “do not impose an anticompetitive surcharge on rivals’ modem chip sales. Instead, these aspects of Qualcomm’s business model are ‘chip-supplier neutral’ and do not undermine competition in the relevant antitrust markets.” The Ninth Circuit also found that Qualcomm presented reasonable procompetitive justifications that were consistent with industry practices. The appellate court’s rulings on both the logical flaws in the FTC’s “surcharge theory” and the reasonableness of Qualcomm’s procompetitive justifications closely follow Professor Nevo’s testimony.

Counsel for Qualcomm also retained Professor Nevo for the cases Apple v. Qualcomm and Qualcomm v. Korea Fair Trade Commission (KFTC). The former case settled in April 2019 just as trial began. For the latter case, Professor Nevo testified before the Seoul High Court in May 2019.

For more information on this case, contact Michael TopperCeleste Saravia, or Darwin Neher.