Analyzing Judge Koh’s Errors in FTC v. Qualcomm: Highlights From Three Amicus Briefs
“Judge Koh clearly took a short cut, because the evidence from the smart phone market is that prices have declined, and functionality has increased. Empirical evidence also demonstrates that there is continuous entry by new firms, another sign of competition.”
On August 30, a number of amicus briefs were filed in the FTC v. Qualcomm appeal in the U.S. Court of Appeals for the Ninth Circuit. The appeal stems from a May 2019 order finding Qualcomm liable for anticompetitive behavior and issuing “sweeping” injunctive relief. Following Judge Koh’s ruling, her opinion has been called “disastrous,” an “utter failure,” and “based on scant evidence,” and further been accused of “mangling” antitrust law. The Ninth Circuit, in granting a partial stay of the injunction, noted there were “serious questions on the merits” of Judge Koh’s decision.
Three of the amicus briefs in particular point out the errors in Judge Koh’s opinions that have given rise to these “serious questions.” Retired Federal Circuit Chief Judge Paul Michel filed an amicus brief focusing primarily on patent law issues, including the smallest salable patent-practicing unit (SSPPU) concept and reasonable royalty calculation. The International Center for Law & Economics (ICLE) and Scholars of Law and Economics filed an amicus brief arguing that Judge Koh’s decision “is disconnected from the underlying economics of the case” and will cause serious harm to antitrust law. Finally, a number of Antitrust and Patent Law Professors, Economists, and Scholars filed an amicus brief highlighting how antitrust overreach, as they allege is present here, will harm innovation and arguing that the district court failed to engage in the level of real-world economic analysis as is required by this case.
Brief of Judge Michel
Judge Michel first argues that the SSPPU concept was improperly applied by the district court. He explains that the concept of SSPPU first appeared in 2009 when then-Federal Circuit Judge Rader was sitting as a district court judge overseeing a jury deciding a patent infringement case. Although the Federal Circuit has clarified that SSPPU is simply an “evidentiary principle,” useful when a jury is requested to choose a royalty base, the district court in the FTC v. Qualcomm case—in a bench trial—instead acted as though SSPPU was mandated. Additionally, Judge Michel points out that SSPPU is not appropriate when attempting to value a large, diverse patent portfolio, nor is SSPPU relevant to cases involving standard essential patents (SEPs) under FRAND commitments. Both of these circumstances are present in the FTC v. Qualcomm case.
Judge Michel also argues that, in addition to inappropriately applying the concept of SSPPU, the district court made other errors with respect to calculating a “reasonable royalty.” Specifically, Judge Koh repeated refers to Qualcomm’s royalty rates as “unreasonably high” without any reference to the law governing reasonable royalties in a patent case. There is extensive Federal Circuit, as well as Supreme Court, case law that notes that an established royalty rate is the best measure of a reasonable royalty rate—yet the district court did not once consider established royalty rates in this case.
In addition to pointing out these errors, Judge Michel expresses concern for the effect the district court’s opinion will have on patent law, antitrust law, and innovation going forward. He notes that contract law and patent law are better avenues to resolve FRAND disputes; bringing this case in antitrust, particularly in the controversial manner in which it was brought, is likely to create bad precedent and have negative impacts on innovation policy. Judge Michel then rounds out his brief explaining the importance of reliable and effective patent rights for advancing both innovation and competition.