Section 2 Mangled: FTC v. Qualcomm on the Duty to Deal, Price Squeezes, and Exclusive Dealing

26 Pages Posted: 7 Aug 2019 Last revised: 19 Aug 2019

See all articles by Douglas H. Ginsburg

Douglas H. Ginsburg

U.S. Court of Appeals for the District of Columbia Circuit; George Mason University - Antonin Scalia Law School, Faculty

Joshua D. Wright

George Mason University - Antonin Scalia Law School, Faculty

Lindsey Edwards

Wilson Sonsini Goodrich & Rosati

Date Written: August 7, 2019

Abstract

Judge Koh handed down a sweeping opinion in May 2019 condemning as antitrust violations many of Qualcomm’s business practices related to the royalty rates it charged to license its SEPs. The district court opinion significantly expands the scope of liability for refusals to deal and for non-predatory pricing behavior, further eroding the longstanding symmetrical approach to antitrust enforcement regardless of the kind of property involved.

We find three glaring errors in the district court opinion. First, the court expands the exception to the general rule permitting refusals to deal, as laid out in Aspen Skiing, well beyond the outer boundary of Section 2 by applying it to contracts negotiated by Qualcomm over 20 years ago and by inferring the company was willing to sacrifice profits even in the face of evidence that the change in dealing was implemented to increase short-term profits. Second, the district court accepted a price squeeze theory—characterized by the FTC as a “tax” on OEMs transacting with Qualcomm’s rivals—directly contrary to the Supreme Court’s holding in linkLine. Third, the court erroneously concluded that Qualcomm’s exclusive dealing arrangements with Apple violate the Sherman Act, despite a glaring failure by the FTC to prove substantial foreclosure, contrary to modern antitrust precedent and economic theory, both of which make crystal clear that proof of substantial foreclosure is necessary to showing an anticompetitive effect from exclusive dealing.

The district court’s inappropriate extension of antitrust liability in three separate areas of well-settled antitrust doctrine is remarkable and threatens to upend important precedent that has successfully guided business conduct for years. Further, the remedy—aside from putting the nation’s security at risk and potentially undermining U.S. leadership in 5G technology and standard-setting—transforms the role of antitrust courts from adjudicators to central planners, a role for which the Trinko Court expressly stated they are ill suited. The decision invites plaintiffs to use the Sherman Act to reach conduct that has been generally shielded from antitrust liability. That invitation is ill advised and should be rejected by the Ninth Circuit, and if necessary, the Supreme Court.

Keywords: Qualcomm, monopolization, FTC, antitrust, intellectual property, refusal to deal, Trinko, Linkline, exclusive dealing, Sherman Act, Apple

JEL Classification: K21, L4

Suggested Citation

Ginsburg, Douglas H. and Wright, Joshua D. and Edwards, Lindsey, Section 2 Mangled: FTC v. Qualcomm on the Duty to Deal, Price Squeezes, and Exclusive Dealing (August 7, 2019). George Mason Law & Economics Research Paper No. 19-21. Available at SSRN: https://ssrn.com/abstract=3433564 or http://dx.doi.org/10.2139/ssrn.3433564

Douglas H. Ginsburg

U.S. Court of Appeals for the District of Columbia Circuit ( email )

333 Constitution Ave NW
Room 5523
Washington, DC 20001
United States

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

Joshua D. Wright (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

Lindsey Edwards

Wilson Sonsini Goodrich & Rosati ( email )

650 Page Mill Rd
Palo Alto, CA 94304-1050
United States

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