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District Court Holds That Qualcomm Patent Licensing and Other Conduct Violates the Sherman Act

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On May 21, 2019, in FTC v. Qualcomm, the U.S. District Court for the Northern District of California issued findings of fact and conclusions of law, holding that Qualcomm’s modem chip licensing and other practices, including its refusal to supply chips unless the customer took a Qualcomm license (“no license, no chips”), violated both Section 1 and Section 2 of the Sherman Act. More specifically, the court concluded that Qualcomm employed its market power in the CDMA (3G) and LTE modem chip markets to coerce cellphone handset manufacturers to sign patent license agreements on Qualcomm’s preferred terms, that the resulting royalty rates were “unreasonably high,” and that Qualcomm violated its duty to license its standard essential patents (“SEPs”) to rival modem chip manufacturers. The court enjoined Qualcomm from engaging in these practices going forward, and required it to renegotiate its prior licenses. As discussed infra, the court’s decision, if not modified by Qualcomm’s promised appeal, will undoubtedly impact Qualcomm and change its licensing model and, because of Qualcomm’s prominent role, this will have a large impact on the wireless business as a whole during the transition to 5G technology. Other licensors may modify their policies in light of the decision. Nevertheless, it is unclear to what extent the court’s decision will impact other SEP holders, as the decision is premised on the court’s detailed review and evaluation of rather extreme facts regarding the combination of Qualcomm’s unique licensing practices, its dominant position in the market, and the court’s evaluation of Qualcomm’s internal documents and prior statements, and evaluation of the credibility of trial witnesses.