Tantra Analyst

FTC vs. Qualcomm – The meaning and relevance of FRAND commitment

As promised in my previous article, here is a detailed discussion on FTC’s FRAND (Fair Reasonable And Non-Discriminatory) argument in its antitrust case against Qualcomm. FTC argues that Qualcomm agreeing to the FRAND (Fair and Reasonable Anti Discriminatory) requirements of Standards Setting Organizations (SSO) binds them to license patents to all applicants; Qualcomm declining to license its Standard Essential Patents (SEPs) to rival chipset vendors amounts to an antitrust violation. The FRAND requirements are more nuanced than what they appear to an untrained eye. I will dig deeper and try to decipher the arguments as well as examine the industry’s practices for more than two decades.

<<Side Note: If you would like to know the full history of this case, please refer to my article series. >>

What does FRAND commitment to SSOs mean?

The SSOs in question here are TIA (Telecommunications Industry Association), which developed CDMA standards, and ATIS (The Alliance for Telecommunications Industry Solutions), which developed LTE standards. Both organizations require their members to mandatorily sign the IPR policy document, which includes the FRAND requirements. 

 TIA has a 24-page IPR Policy document. The most relevant portions to this case are on pages 8 and 9:

(2) (b) A license under any Essential Patent(s), the license rights which are held by the undersigned Patent Holder, will be made available to all applicants under terms and conditions that are reasonable and non-discriminatory, which may include monetary compensation, and only to the extent necessary for the practice of any or all of the Normative portions for the field of use of practice of the Standard

The first part of this section is pretty straight forward. But the part marked in red is what is at issue here. In layman’s terms, this means the patent holder agrees to give a license for the practice of the standard. In other words, licenses to the applicants whose products practice the standard. Qualcomm argues that devices—and not chipsets—practice the standards. They point to the actual language/text of the standards as evidence. It is customary for the patents to state, “UE (User Equipment, aka device) shall do this,” or “Base station shall do that,” etc. And the standards never state, “Chipset shall do this or that.” Considering that, Qualcomm argues, they are not required to license SEPs to chipset vendors, but only to device vendors. To that effect, they also point out that they have never sued any chipset vendors for patent infringement.

Now, let’s look at the ATIS IPR policy, which is governed by the “Patent Policy as adopted by ATIS and as set forth in the “Operating Procedures for ATIS Forums and Committees,” a 26-page document. The most relevant portions are on page 10 and 11:

“…Statement from patent holder

Prior to approval of such a proposed ANS, ATIS shall receive from the identified party or a party authorized to make assurances on its behalf, in written or electronic form (b) assurance that a license to such essential patent claim(s)will be made available to applicants desiring to utilize the license for the purpose of implementing the standard. (i) under reasonable terms and conditions that are demonstrably free of any unfair discrimination…”

Again, looking at the highlighted part, Qualcomm argues, as stated in the standard, chipsets don’t implement the standard, but the devices do. So, there is no need for them to license to chipset vendors!

Is a violation of SSO commitment violation of US antitrust law?

Even if you consider that SSO IPR policies are violated, then the question becomes, “does that amount to a violation of US antitrust law?” One argument is that the alleged FRAND violation is a commercial matter and can easily be dealt with through contract and patent law, instead of policy tools such as antitrust law. In his Amicus Brief in support of Qualcomm, Hon Judge Paul R. Michel (Ret.) of US circuit court gave a compelling simile: “as a general proposition, the hammer of antitrust law is not needed to resolve FRAND disputes when more precise scalpels of contract and patent law are effective.”

Even the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) panel, while granting Qualcomm’s request for a stay, ridiculed the lower court’s ruling as “… a trailblazing application of the antitrust laws or …an improper excursion beyond the outer limits of the Sherman Act..”

Precedence and other considerations

3GPP (3rd Generation Partnership Project), the cellular specifications group, prefers all the SSOs across the world to have consistent IPR policies. ETSI (European Telecommunications Standards Institute) is one of the major players among the eight SSOs that are the organizational partners of 3GPP. There has been much discussion at ETSI regarding the issue of component-level licensing, such as licensing to chipset vendors. But ETSI has never stated that it supports or requires its members to offer component-level licensing. So, the lower court decision creates inconsistency between ATIS, ETSI, and other SSOs, whose impacts go far beyond this case.

<<Side Note: If you would like to learn more about 3GPP’s organizational structure and operational procedures, please refer to this article series.>>

More than two decades of cellular patent licensing history proves that the device-level licensing works smoothly and efficiently. Although the discussions related to this case are mostly about modem chipsets, typical devices have hundreds of different components. If licensing is brought to the component-level, it would be a logistical and legal nightmare for OEMs to understand, and negotiate separate licenses with all those vendors, as I explained in this article. Also, probably every existing cellular IPR contract will have to be rewritten.  

Final thoughts

So far, there have been only a few minor cases in the telecom industry regarding the violation of FRAND commitments. FTC’s case against Qualcomm is the first major case where its relevance to antitrust law is being tested. The decision of this trial will be a defining moment in the “component vs. device-level” licensing debate. Qualcomm seems to have strong arguments, and the earlier Ninth Circuit panel agreed with most of them. But now the appeals hearing has a new panel of judges, which brings a new set of uncertainties to the case. As promised before, I will be there in person to witness the appeals hearing of this historic case. Be sure to follow my Twitter feed @MyTechMusings for the latest. 

Meanwhile, If you want to read more articles like this and get an up-to-date analysis of the latest mobile and tech industry news, sign-up for our monthly newsletter at TantraAnalyst.com/Newsletter, or listen to our Tantra’s Mantra podcast.