A Defeat for Antitrust Adventurism
Terrific news. The Ninth Circuit Court of Appeals on Tuesday, in a 3-0 ruling, smacked down government lawyers who sought to hang Qualcomm for being successful and the federal judge who entertained their antitrust adventurism.
The Federal Trade Commission in the waning days of the Obama Administration sued Qualcomm under the Sherman Act. According to the government, the technology company leveraged its dominance in the modem market to charge smart-phone manufacturers excessive royalties for “standard essential patents” that it had agreed to license on fair, reasonable and nondiscriminatory (FRAND) terms.
But Apple complained to the FTC that the chipmaker’s royalty policy allowed it to profit too much from its phone sales. Federal Judge Lucy Koh, a Barack Obama appointee, ruled for the FTC last year and ordered Qualcomm to license its patent portfolio to rival chipmakers. This would boost Qualcomm’s competitors while reducing its leverage with smartphone makers.
But as appellate Judge Consuelo Callahan writes, “to the extent Qualcomm breached any of its FRAND commitments, the remedy for such a breach was in contract or tort law”—not antitrust law. Further, phone manufacturers “have been somewhat successful in ‘disciplining’ Qualcomm’s pricing through arbitration claims, negotiations, threatening to move to different chip suppliers, and threatened or actual antitrust litigation. These maneuvers generally resulted in settlements.”
Case in point: Apple in 2014 contracted with Intel for modems, but its 5G chips were less advanced than Qualcomm’s. So last year Apple settled its dispute with Qualcomm and bought Intel’s chip business so it could develop its own. Behold market competition at work. Yet the FTC senselessly persevered with its lawsuit.
The panel concluded that the FTC failed to show that Qualcomm’s licensing policies diminished consumer choice or increased price. “Anticompetitive behavior is illegal under federal antitrust law. Hypercompetitive behavior is not,” Judge Callahan writes, “But profit-seeking behavior alone is insufficient to establish antitrust liability.”
Citing the Supreme Court’s Trinko decision (2004), Judge Callahan goes on to explain that “the opportunity to charge monopoly prices ‘is an important element of the free-market system’” and “‘induces risk taking that produces innovation and economic growth.’”
“‘Antitrust economists, and in turn lawyers and judges, tend to treat novel products or business practices as anticompetitive’” and “‘are likely to decide cases wrongly in rapidly changing dynamic markets,’” the judge notes, quoting a Yale economics article. This “can have long-lasting effects particularly in technological markets, where innovation ‘is essential to economic growth and social welfare.’”
These points about competition are especially important as progressives seek to revive long-discredited antitrust theories to diminish companies merely because they’re big and profitable. Yet innovations that make a company more dominant and profitable may also result in more marketplace competition and improve consumer welfare. Government antitrust regulators, take note.