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12 November 2019
FTC v. Qualcomm
❑ license for the manufacture and sale of certain modem chips (CDMA) –
semiconductors that enable handsets to communicate with each other
across cellular networks
❑ provided only to original equipment manufacturers (OEMs), and not
semiconductor manufacturers
❑ the amount of royalty rates
FTC v. Qualcomm
Judge Koh held that Qualcomm:
❑ had a duty to license competitors
▪ also because it had previously done so: anticompetitive refusal to deal –
termination of a prior, voluntary, and profitable course of dealing
❑ used contracts with critical customers to exclude competitors
▪ offered key customers rebates, discounted royalties and incentives
conditioned on the use of its products, insulating market share
❑ coerced its modem chip customers to take licenses to its patents with
excessive royalty rates
FTC v. Qualcomm
Judge Koh considered that Qualcomm’s royalty rates were excessive as they:
❑ remained constant even as
▪ Qualcomm demanded patent cross-licenses from customers (varied in value)
▪ its proportion of SEPs declined with successive standards
❑ were driven by Qualcomm’s modem chip market power rather than the value
of the SEPs
▪ Qualcomm did not provide patent lists or claim charts
▪ rates did not reflect its contribution to standards
▪ its chips did not drive the value of the end-product against which the royalty
was assessed
Huawei v ZTE
❑ Selective SEP licensing by both vertically integrated entities and NPEs who
are not active in the downstream market might be distorting competition
❑ Such exclusion might restrict R&D at intermediate levels and/or limit the
ability to compete for all customers
▪ if the intermediary is neither licensed itself, nor covered by the “have made”
provisions of a downstream licence, this might chill incentives to innovate
▪ potential customer foreclosure is more likely in multi-tier markets where
intermediate suppliers could be wary of developing new or aftermarket
products not already contracted for by OEMs
Loyalty or exclusivity rebates
❑ The CJEU confirmed in early abuse of dominance cases that when a price
is excessive in relation to the “economic value” of the product, it may be
considered abusive
▪ United Brands
❑ Horizontal Guidelines clarify that:
▪ “in case of a dispute, the assessment of whether fees charged for access to
IPR in the standard-setting context are unfair or unreasonable should be
based on whether the fees bear a reasonable relationship to the economic
value of the IPR”
FRAND Valuation
Judge Koh considered that Qualcomm’s royalty rates were excessive as they:
❑ remained constant even as
▪ Qualcomm demanded patent cross-licenses from customers (varied in value)
▪ its proportion of SEPs declined with successive standards
❑ were driven by Qualcomm’s modem chip market power rather than the value
of the SEPs
▪ Qualcomm did not provide patent lists or claim charts
▪ rates did not reflect its contribution to standards
▪ its chips did not drive the value of the end-product against which the
royalty was assessed
Hypothetical
If:
❑ SEP holder based its royalty rate on the end-product, the value of the
specific technology should be distinguished from that of other
technologies that fall outside the scope of the SEP – unpatented
technologies or technologies that the patent holder did not create
❑ it proved very difficult to distinguish the value of SEP-covered invention
from the value of other inventions integrated into the end-product?
Could that in itself serve as an argument that the royalty rate based on the
end-product by its very nature might lack a “reasonable relationship to the
economic value of the IPR”?
Intellectual Ventures v Vodafone
Regional Court of Düsseldorf held that:
❑ Intellectual Ventures’ refusal to offer a FRAND licence to Vodafone’s suppliers
was discriminatory
▪ Similar to Sisvel v. Haier: the “non-discriminatory” requirement of FRAND does
not require to treat all licensees in exactly the same way – if such
differentiation can be objectively justified
❑ Limiting the scope of licence offer to Vodafone’s B2C DSL business,
excluding its wholesale DSL business, contradicted FRAND commitment
❑ Not seeking SEP license fees from users of the relevant standard who were
SEP holder’s investors or its law firm’s clients was discriminatory
Intellectual Ventures v Vodafone