An opinion issued on the first Friday of the year considered the adequacy of California consumers’ state law antitrust claims against Qualcomm Incorporated in the long-standing suit alleging that Qualcomm’s anticompetitive conduct caused consumers to overpay for phones and tablets containing impacted modem chips.
In her 37-page decision, Judge Jacqueline Scott Corley found that the plaintiffs’ exclusive dealing theory and derivative unfair competition claim could proceed but that their tying theory was unviable.
The decision comes six years after the Federal Trade Commission (FTC) first challenged Qualcomm’s strength and business practices in the related chip manufacturing and cellular patent licensing markets. Shortly after the FTC filed suit, consumer plaintiffs asserted similar claims on behalf of millions of tablet and smartphone purchasers.
The agency’s case ended at the Ninth Circuit in 2020, when a panel held that the FTC failed to show that Qualcomm’s business practices were unlawful under Sections 1 or 2 of the Sherman Act. Subsequently, the Ninth Circuit remanded the consumer action, which was also on appeal due to Qualcomm’s challenge of the certification of a class of 250 million consumers, to the Northern District of California in view of the FTC decision.
After remand, the consumer plaintiffs filed an amended complaint, asserting only violations of California’s Cartwright Act and Unfair Competition Law (UCL) on behalf of California consumers. Specifically, they contested three of Qualcomm’s business practices.
First, they claimed that Qualcomm refused to license its cellular standard essential patents (SEPs) to other chip manufacturers; second that Qualcomm’s “no license, no chips” policy denied original equipment manufacturers (OEMs) access to chips unless the OEMs purchased Qualcomm’s cellular SEP license for an unreasonably high price and gave up the right to challenge Qualcomm’s SEPs; and lastly, that Qualcomm made “exclusive dealing” arrangements with OEMs to maintain its chip market monopoly.
Based on the Qualcomm’s conduct, the plaintiffs estimate that OEMs overpaid by over $9 billion during the class period, and OEMs passed 93.2% of these overcharges on to consumers.
The analysis opened by noting that the parties debated the impact of the Ninth Circuit’s FTC v. Qualcomm ruling on the case. Taking the plaintiffs’ tying claim first, the court said that they satisfied two of the three underlying elements, that Qualcomm, using its monopoly power, agreed to sell chips on the condition that OEMs also purchase SEP licenses. However, the decision said that the plaintiffs failed to satisfy the third element: that Qualcomm foreclosed a substantial amount of business to competitors.
The plaintiffs fell short and instead asked the court “to strike a new path in tying jurisprudence under the Cartwright Act,” which Judge Corley declined, reasoning that as California law stands, such agreements cannot restrain trade when no competitor exists from whom to purchase the tied product.
Conversely, the court permitted the plaintiffs’ exclusive dealing cause of action to proceed on grounds that the record presented at trial in FTC v. Qualcomm did not bind the plaintiffs, causing Qualcomm’s sole argument to fail.
Unlike the record in the FTC case, the plaintiffs’ allegations demonstrated substantial market foreclosure based on exclusive deal agreements with device makers like Apple. In exchange for “incentives” or “reduced royalties,” the complaint says other OEMs bought between 85% and 100% of their chipsets from Qualcomm, showing how it suppressed competition in the chip market.
For the same reasons, the plaintiffs’ UCL claim, to the extent it was premised on the exclusive dealing cause of action, also survived.
Qualcomm is represented by Keker Van Nest & Peters LLP, and Morgan, Lewis & Bockius LLP, and the consumers by interim co-lead counsel Susman Godfrey L.L.P. and Cotchett, Pitre & McCarthy LLP and steering committee Hagens Berman Sobol Shapiro LLP.