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Ninth Circuit:
Plaintiffs’ Antitrust Claims Against Qualcomm Largely Fail
Opinion Affirms Summary Judgment to Defendant, Except for Single Claim Which May Be Refiled in State Court, Effectively Ending Years of Litigation Over Company’s So-Called ‘No License, No Chip’ Policy
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday largely affirmed summary judgment in favor of defendant Qualcomm Incorporated in litigation accusing the technology giant of violating antitrust laws by engaging in a “no license, no chip” policy—under which the company would only sell modem chips to cellular manufacturers who purchased licenses—and by engaging in an allegedly exclusive deal with Apple Inc.
In addition to manufacturing cellular modem chips, Qualcomm has exercised market dominance in the development of technologies relating to how cellular devices communicate with their respective third-generation (“3G”) or fourth generation (“4G”) networks. The company protects its technology through patents that it licenses to third-party original equipment manufacturers (“OEMs”) of cellular devices such as Apple.
Offering “patent-infringement indemnifications” to rival chip manufacturers, Qualcomm agrees not to assert its patents against the other companies so long as the competitors do not sell to OEMs who do not have a licensing agreement with Qualcomm. In exchange, the rival companies are permitted to utilize Qualcomm’s patents relating to 3G or 4G communication.
Beginning in 2011, Qualcomm signed licensing agreements with Apple, offering billions of dollars in incentives if the cellular device company exclusively sourced its chips from Qualcomm. Apple terminated the agreements in 2014, but these contracts, along with the company’s “no license, no chip” policy caught the attention of the Federal Trade Commission (“FTC”), which brought an action against Qualcomm in 2017.
FTC Action
After FTC filed its action asserting that the company’s “no license, no chip” policy and purportedly exclusive dealings with Apple and Samsung violated antitrust laws, multiple plaintiffs filed lawsuits asserting similar theories of liability and claims under the federal Sherman Antitrust Act as well as California’s Cartwright Act and Unfair Competition Law (“UCL”).
Those matters were consolidated and District Court Judge Jacqueline Scott Corley of the Northern District of California certified a nationwide class; Qualcomm appealed the class certification order.
Meanwhile, in the FTC litigation, the Ninth Circuit found that “Qualcomm’s…licensing policy…is not [a]…violation of the Sherman Act” because the practice is “chip supplier neutral” and the exclusive contract with Apple “did not have the actual or practical effect of substantially foreclosing competition in the…modem chip market.”
After the decision in the FTC matter, the Ninth Circuit vacated the class certification order in the consolidated class action and remanded with instructions to consider whether the plaintiffs’ claims were viable in the wake of the FTC decision.
On Remand
On remand, plaintiffs Sarah Key, Andrew Westley, Terese Russell, and Carra Abernathy were granted leave to file an amended complaint in which they abandoned their Sherman Act allegations and proceeded only with their state-law claims under the Cartwright Act and UCL challenging the “no license, no chip” policy and the purportedly exclusive deals between the defendant and the cellular device manufacturers.
Following a defense motion, Corley dismissed the plaintiffs’ tying claims under the Cartright Act based on the “no license, no chip” policy, saying that they had failed to cite any case “finding an antitrust…violation” under similar circumstances but declined to strike the exclusive dealing claims.
Qualcomm then moved for summary judgment as to the claims under the UCL arising from the policy and the exclusive Apple agreement.
The judge concluded that the plaintiffs had failed to show a triable issue as to two necessary elements of the exclusive dealing claims—market foreclosure and consumer injury. She declined to issue the equitable restitution available under UCL, saying that the plaintiffs had an adequate remedy at law under the Cartwright Act, and granted the defendant’s motion.
Judgment was entered in favor of the defendant on Oct. 5, 2023.
In an opinion authored by Circuit Judge Ryan D. Nelson, and joined in by Circuit Judge Ronald M. Gould and Senior Circuit Judge Jay S. Bybee, the Ninth Circuit affirmed with one caveat: the plaintiffs were entitled to refile their UCL exclusive dealing claim in a California superior court because equitable relief, though unavailable in federal court, may be open to them at the state level.
No Cartwright Violation
Nelson wrote:
“[T]he district court did not err by dismissing Plaintiffs’ claim that Qualcomm’s ‘no license, no chips’ policy violated the Cartwright Act. To begin, we see no reason that the Cartwright Act would depart from the Sherman Act to undercut FTC v. Qualcomm’s holding that the ‘no license, no chips’ agreements did ‘not impose an anticompetitive surcharge on rivals’ modem chip sales’ because Qualcomm’s policy was chip supplier neutral….As we decided, the “no license, no chips” policy is not anticompetitive in the first place.”
Addressing California law, he noted:
“Additionally, much like its federal counterpart, the Cartwright Act defines a tying arrangement as one in which ‘a party agrees to sell one product (the tying product) on the condition that the buyer also purchase a different product (the tied product), thereby curbing competition in the sale of the tied product.’…
“…The tying products here are Qualcomm’s chips; the tied product is Qualcomm’s cellular [patent] portfolio.”
Under the unique circumstances surrounding the claims against Qualcomm, he opined:
“[The practice] is not an anticompetitive tying arrangement and it ‘could not have foreclosed competition in the tied product market’ since OEMs could ‘not have purchased the tied product elsewhere.’…Those patents…are available only from Qualcomm, which is given a legitimate monopoly over its patents by law….
“At bottom, ‘[u]nder both the Cartwright Act and the Sherman Act, in the absence of evidence of some tied market foreclosure or anticompetitive impact in the tied product market, the plaintiff cannot establish an unlawful tying claim.’
UCL Claims
The UCL prohibits “unfair competition,” which includes “any unlawful, unfair or fraudulent business act or practice.” Nelson said that “[t]he district court correctly concluded that Plaintiffs failed to state a claim that Qualcomm’s practices were fraudulent under the UCL” and “Qualcomm’s ‘no license, no chips’ policy is not ‘unfair’ under any theory.”
He continued, saying “[a]s to their exclusive dealing theory, Plaintiffs cannot avail themselves of equitable relief—the only relief afforded by the UCL” in federal court because injunctive relief is unavailable due to the fact that the contract with Apple has already been terminated.
Nelson pointed out that equitable restitution is only available in federal court if there is no adequate legal remedy available and said that the plaintiffs’ “failure to prove their Cartwright Act claim…‘does not make that remedy inadequate.’ ”
However, he concluded that “rather than grant summary judgment, the court ‘should have dismissed [Plaintiffs’] UCL claim without prejudice to refiling the same claim in state court’ ” and declared:
“[W]e vacate the district court’s grant of summary judgment on Plaintiffs’ UCL claim and remand with instructions to dismiss this claim—to the extent that it relies on a theory of unfairness and relates to Qualcomm’s purported exclusive dealing agreements seeking restitution—without prejudice for refiling in state court. In all other regards, we affirm the district court’s disposition of the UCL claim.”
Exclusive Dealing
The jurist reasoned:
“ ‘In California, exclusive dealing arrangements are not deemed illegal per se.’….They may have procompetitive effects by incentivizing ‘the marketing of new products and a guarantee of quality-control distribution.’….Because of this, they are analyzed under a rule of reason analysis: an exclusive dealing arrangement is illegal only when it (1) significantly foreclosed the market to competitors and (2) this foreclosure injured the plaintiffs.”
Applying this analysis, he commented that “[w]e affirm the grant of summary judgment against Plaintiffs on this claim because Plaintiffs do not raise a genuine dispute about (1) substantial market foreclosure or (2) antitrust injury caused by any agreement between Qualcomm and Apple” noting that the pleading fatally failed to identify the relevant market and any evidence presented that higher costs were passed on to consumers was “highly speculative.”
The case is Key v. Qualcomm Incorporated, 23-3354.
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