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Japan antitrust case: FTC cancels exclusion order to Qualcomm

Japan FTC decision on Qualcomm

On March 13 2019, Japan’s Fair Trade Commission (FTC) made a decision to cancel the exclusion order against Qualcomm which had been issued on September 28 2009 and appealed by Qualcomm on November 24 of that year. It took almost a decade! It’s too long, but Qualcomm has finally got an expected result.   

The main issue was whether or not the Qualcomm’s license agreement on intellectual properties for CDMA mobile wireless communication, which includes the following provisions, possibly restrains the business activities of Japanese mobile device manufacturers and disrupts fair competition.

  • Royalty free license of IP of the Japanese manufacturers to Qualcomm
  • The manufacturers’ Non-assertion obligation against Qualcomm
  • The manufacturers’ Non-assertion obligation against Qualcomm’s licensees

The FTC issued the exclusion order at first, considering the following points:

  1. The scope of provisions above is broad.
  2. These provisions have the nature as royalty free license.
  3. These provisions are imbalance between Qualcomm and the manufacturers.

However, the FTC appeal board reversed the decision, because they did not see sufficient evidence of the disruption of fair competition in the agreement between Qualcomm and the manufacturers.

Below is a summary of the decisions of the FTC appeal board on the above points.

1. Scope of provisions

(a) Scope of IP

There is no reason to decide that the scope of IP is particularly broad, comparing with other cases. Especially, considering that the Japanese manufacturers obtain the license of Qualcomm’s technically essential patents (TEPs) and commercially essential patents (CEPs) for CDMA mobile wireless communication and also they are not asserted by other Qualcomm’s licensees based on their TEPs, it is not recognized as broad.  

(b) Foreground IP (Improvement Period)

The license agreement covers the foreground TEPs which are obtained after the effective date of the agreement. Some agreements set a certain period of time from the effective date of the agreement (as Improvement Period), but some does not (i.e. indefinite period). The appeal board decided that it is not broad even if it doesn’t set the Improvement Period, because the TEPs are just to implement the standard and not differentiate their products, and also Qualcomm grants to the manufacturers a license of its IP which are obtained after the effective date of the agreement without limitation as long as the agreement is effective.

On the other hand, for the CEPs which could differentiate their products, all of the agreements set the Improvement Period to identify the foreground IP. Also, this period is the same as that of Qualcomm’s TEPs and CEPs which are licensed to the manufacturers.

Therefore, it is not recognized as broad.

(c) Scope of parties against whom not allowed to assert  

The manufacturers are obliged not to assert against Qualcomm as well as Qualcomm’s customers who purchased CDMA parts from Qualcomm. However, they are not prevented from making an assertion against someone who doesn’t incorporate Qualcomm’s parts.

Also, the scope of non-assertion is limited to the Qualcomm’s licensees who agreed the equivalent clause.

Therefore, it is not recognized as broad.

(d) Term of the license agreement

The manufacturers can assert their IP which are obtained after the Improvement Period. Therefore, even if the term of the license agreement is indefinite or long, it is not recognized as broad.

2. Nature as Royalty Free license

(a) Nature as cross-licensing agreement

This license agreement has the nature as a cross-licensing agreement under which the manufacturers obtain the license of Qualcomm’s IP. So, the provisions in question should not be recognized as just royalty free license of the manufacturers’ IP for nothing.

In addition, the royalty free license provision includes the term “fully-paid”. Furthermore, the recital in the agreements for some of the manufacturers states that these provisions including the royalty free license, as a whole, form part of consideration for the license of Qualcomm’s IP.

Therefore, considering such terms in the agreements, these provisions are not recognized as no consideration.

(b) History of negotiations

Even if Qualcomm’s behaviors in the negotiations have some problems (e.g. refused negotiations in royalty rate and other conditions.), it cannot be recognized as substantially no consideration or free. Because this agreement has the nature as a cross-licensing agreement in which both parties have some obligations.

In fact, in the negotiations with some of the manufacturers, Qualcomm made amendments to the agreements, in response to requests from the manufacturers. For example, Qualcomm amended the definition of “parts” in the non-assertion provision, though it didn’t on royalty rate.

(c) Non-assertion against Qualcomm’s licensees

The objective of the non-assertion provision is substantially to enable each licensee to use other licensees’ IP with each other. Therefore, licensees get such consideration, thus it is not recognized that it has the nature as royalty free.  

3. Balance

This agreement has the nature as a cross-licensing agreement. We should consider the benefits of the manufactures and the obligations of Qualcomm, not only the obligations of the manufacturers and the benefits of Qualcomm. Considering such things, it is not recognized that this agreement strengthens Qualcomm’s position at a one-sided advantage beyond the scope of Qualcomm’s IP.

As noted above, this decision looks like total victory of Qualcomm, and makes sense to me.

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