A panel of appellate judges unanimously overturned a lower court ruling on Wednesday in a lawsuit against Qualcomm Incorporated alleging that the leading cellular technology company’s monopoly over modem chips caused consumers to overpay for cell phones. According to the opinion, the trial court erred in its choice of law analysis and in view of a subsequent Ninth Circuit decision finding that Qualcomm’s modem chip licensing practices did not violate the Sherman Act.
The 35-page disposition authored by Circuit Judge Ryan D. Nelson explained that consumer cases were filed and consolidated before Judge Lucy H. Koh, dovetailing with the Federal Trade Commission’s (FTC) 2017 suit. The plaintiffs, indirect purchasers of the allegedly impacted products, argued that as a result of its monopoly, Qualcomm was able to strong-arm original equipment manufacturers (OEMs) into paying above fair, reasonable, and non-discriminatory (FRAND) prices for its chips.
Allegedly, the amount OEMs paid in excess of FRAND royalties was passed through the distribution chain to consumers in the form of higher prices or slackened quality in cell phones. In addition, the plaintiffs complained that the company refused to license its standard essential patents (SEPs) to chip supplier competitors and “enter[ed] into exclusive dealing arrangements with Apple that prevented rival chip suppliers from competing with Qualcomm to supply Apple’s chip demand.”
In 2019, the trial court certified a nationwide class of up to 250 million individuals raising claims under the Sherman Act and California law. In this week’s opinion, the panel first determined that the district court failed to properly analyze California’s choice of law rules, and in turn, erroneously held that common issues of law predominate as required by the class action provision of the Federal Rules of Civil Procedure.
The opinion explained that state laws beyond California’s Cartwright Act, the state’s antitrust law that permits indirect purchasers to sue for treble damages, applies to the nationwide suit. In contrast to Judge Koh’s reasoning, Judge Nelson determined that “other states, including [Illinois Brick] non-repealer states, have an interest in how their markets are managed and how best to enforce antitrust violations and regulate commerce in their states.”
The ruling next directed the lower court to address the effect of its August 2020 decision on Rule 23(a) requirements, as well as the viability of plaintiffs’ claims moving forward. “Because Plaintiffs’ arguments in this case overlap with those brought in FTC v. Qualcomm, there would have to be some extraordinary difference for Plaintiffs’ claims here to not fail as a matter of law,” Judge Nelson wrote. The court noted that because Qualcomm filed an interlocutory appeal, the question of whether to dismiss the plaintiffs’ claims based on that holding was for the district court to decide on remand.
On appeal, Qualcomm is represented by Keker Van Nest & Peters LLP, Cravath, Swaine & Moore LLP, and Morgan, Lewis & Bockius LLP, and the consumers by Cotchett, Pitre & McCarthy LLP, Susman Godfrey L.L.P. and Hagens Berman Sobol Shapiro LLP.