The Federal Trade Commission’s (FTC) regrettable January 17 filing of a federal court injunctive action against Qualcomm, in the waning days of the Obama Administration, is a blow to its institutional integrity and well-earned reputation as a top notch competition agency.
Stripping away the semantic gloss, the heart of the FTC’s complaint is that Qualcomm is charging smartphone makers “too much” for licenses needed to practice standardized cellular communications technologies – technologies that Qualcomm developed. This complaint flies in the face of the Supreme Court’s teaching in Verizon v. Trinko that a monopolist has every right to charge monopoly prices and thereby enjoy the full fruits of its legitimately obtained monopoly. But Qualcomm is more than one exceptionally ill-advised example of prosecutorial overreach, that (hopefully) will fail and end up on the scrapheap of unsound federal antitrust initiatives. The Qualcomm complaint undoubtedly will be cited by aggressive foreign competition authorities as showing that American antitrust enforcement now recognizes mere “excessive pricing” as a form of “monopoly abuse” – therefore justifying “excessive pricing” cases that are growing like topsy abroad, especially in East Asia.
Particularly unfortunate is the fact that the Commission chose to authorize the filing by a 2-1 vote, which ignored Commissioner Maureen Ohlhausen’s pithy dissent – a rarity in cases involving the filing of federal lawsuits. Commissioner Ohlhausen’s analysis skewers the legal and economic basis for the FTC’s complaint, and her summary, which includes an outstanding statement of basic antitrust enforcement principles, is well worth noting (footnote omitted):
My practice is not to write dissenting statements when the Commission, against my vote, authorizes litigation. That policy reflects several principles. It preserves the integrity of the agency’s mission, recognizes that reasonable minds can differ, and supports the FTC’s staff, who litigate demanding cases for consumers’ benefit. On the rare occasion when I do write, it has been to avoid implying that I disagree with the complaint’s theory of liability.
I do not depart from that policy lightly. Yet, in the Commission’s 2-1 decision to sue Qualcomm, I face an extraordinary situation: an enforcement action based on a flawed legal theory (including a standalone Section 5 count) that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide. These extreme circumstances compel me to voice my objections.
Let us hope that President Trump makes it an early and high priority to name Commissioner Ohlhausen Acting Chairman of the FTC. The FTC simply cannot afford any more embarrassing and ill-reasoned antitrust initiatives that undermine basic principles of American antitrust enforcement and may be used by foreign competition authorities to justify unwarranted actions against American firms. Maureen Ohlhausen can be counted upon to provide needed leadership in moving the Commission in a sounder direction.
P.S. I have previously published a commentary at this site regarding an unwarranted competition law Statement of Objections directed at Google by the European Commission, a matter which did not involve patent licensing. And for a more general critique of European competition policy along these lines, see here.
Even reading just the beginning of the FTC complaint makes it clear that at least a major aspect of the complaint (if not the entirety of it) is predicated on Qualcomm’s voluntary commitment to FRAND licensing — something Qualcomm did and does to encourage standards bodies to adopt its proprietary technologies as part of standards, and something those standards bodies reasonably rely upon to ensure that those implementing their standards will not be subject to the unlimited whims of essential IP holders — and then failure to actually offer licensing terms that are FRAND.
You are nothing if not consistent in arguing that FRAND licensing commitments should effectively mean nothing, and create no actually enforceable obligations. But it is that view which is extreme, not the view that FRAND commitments should limit the degree to which the monopolist may exploit the “full fruits” of its monopoly.
It’s not clear to me how Verizon v. Trinko is relevant, given that case doesn’t appear to involve FRAND licensing commitments.
It is certainly ugly to have something like this pushed through at last moment, on the even of a new administration. But at this point I’m much less sympathetic to the actual merits of the argument you are making.
And on a related note, some of the allegations in Apple’s suit filed today — including the allegation that Qualcomm retaliated against Apple for cooperating with a regulatory inquiry — seem pretty egregious and damning, if true.