DOJ brief on Qualcomm lays bare interagency quarrel with FTC

6 May 2019 10:24pm

3 May 2019. By Leah Nylen and Joshua Sisco.

Siblings often squabble. The two US antitrust authorities, the Department of Justice and its sister agency the Federal Trade Commission, usually do it behind closed doors. But this week, a dispute broke out in full view with the DOJ filing a statement in the FTC’s ongoing case against Qualcomm.

The Justice Department’s intervention in the FTC's antitrust case against Qualcomm over the chipmaker's patent licensing practices is unprecedented and, to the FTC, unwelcome.  While the DOJ gave advance notice about the brief, it is understood that the FTC asked the Justice Department not to file it.

The two agencies have a close working relationship, but each brings its own enforcement actions. The FTC is an independent agency, while the Justice Department is part of the executive branch. It is highly unorthodox for either one to publicly critique the other.

The Justice Department's Antitrust Division — currently led by Makan Delrahim — has made one of its signature issues the intersection of antitrust and intellectual property, particularly the way antitrust enforcement might affect innovation and the development of technological standards. The FTC’s case against Qualcomm, which alleges the chipmaker extracted anticompetitive patent licenses, treads directly into that territory.

Delrahim, who represented Qualcomm in private practice, is recused from cases involving the chipmaker. His No. 2, Andrew Finch, signed the brief.

DOJ officials have frequently spoken out against the use of antitrust cases to challenge allegedly excessive standard-essential patent royalties, but they have always carefully skirted around direct criticism of the FTC’s Qualcomm case.

In Thursday’s brief, the DOJ continued that trend, noting the agency wasn’t taking a position on the merits of the FTC’s case. Instead, DOJ lawyers urged US District Judge Lucy Koh to hold a hearing before imposing a remedy on Qualcomm should she find in the FTC’s favor.

"Holding a hearing on the appropriate remedy is vital in monopolization cases because the obligations courts impose often have far-reaching effects and can re-shape entire industries," the DOJ said.

Koh presided over a 10-day bench trial in the case earlier this year but hasn’t yet issued a ruling. She also hasn’t indicated whether her decision will rule just on liability or on liability and a potential remedy.

“We believe we presented a strong case that Qualcomm violated the antitrust laws, and if the court rules in our favor, we look forward to a discussion of remedies,” an FTC spokesman said.

Qualcomm declined to comment. The DOJ also declined to comment.

Under federal law, the DOJ is permitted to file a “statement of interest” in any pending suit to “to attend to the interests of the United States.” Under Delrahim, the DOJ’s antitrust division has interpreted that law broadly, filing a number of statements in district court litigation.

Most of those filings have focused on questions of antitrust law. While the DOJ didn’t tell Koh how it believes she should rule in Thursday’s filing, the agency expressed specific concerns about the case — namely that any remedy could impact the development of 5G cellular technology. As the world’s 5G networks ramp up, an explosion of connected devices, beyond cell phones, is expected.

The two companies leading that charge? US-based Qualcomm and China-based Huawei.

The US government has prohibited its contractors from using the Chinese telecom company’s equipment. The US has also lobbied other countries, particularly those in the EU, against using Huawei’s 5G technology, arguing it poses a security risk because the company is obliged under a Chinese law to cooperate in security and intelligence probes.

“There is a plausible prospect that an overly broad remedy in this case could reduce competition and innovation in markets for 5G technology and downstream applications that rely on that technology," the DOJ said in its filing.

In a footnote, the DOJ cited internal documents disclosed in the trial last month between Apple and Qualcomm that involved issues similar to those in the FTC case.  Apple and Qualcomm reached a settlement as opening arguments were wrapping up April 16, but during its opening statement, Qualcomm cited internal Apple documents with statements indicating it wanted to "hurt Qualcomm financially."

If Koh agrees to split the liability and remedy portions of the case as the DOJ has asked, Qualcomm would likely benefit. That would likely allow the company to file an immediate appeal on the merits of the case to the US Court of Appeals for the Ninth Circuit. While that appeal is ongoing, Koh would also be more likely to stay whatever remedy she chooses to impose.

Koh has previously indicated in court that she's open to separate decisions on liability and remedy.

Still the DOJ’s move to intervene in the FTC’s case is nearly unprecedented.

In 2005, the FTC asked the Supreme Court to grant cert in a reverse-payment case. The US solicitor general, joined by the DOJ’s Antitrust Division, recommended against the Supreme Court hearing the appeal and the justices ultimately declined to grant cert. In that case, the high court had asked for the DOJ to weigh in and the FTC’s litigation was largely finished.

In contrast, with Qualcomm the FTC has yet to secure a ruling and the DOJ’s intervention could upset the FTC’s success.

ABA 2019