Speaker 1: One California federal judge is taking the possibility of another
Speaker 1: government shutdown into account after hearing testimony in a trial
Speaker 1: that pits the FTC against Qualcolm. Judge Lucy co says
Speaker 1: she's unlikely to rule before the government runs out of
Speaker 1: money again next month, but she told the FTC to
Speaker 1: ask her again in writing by February thirteenth if it
Speaker 1: appears another shutdown is likely. Joining me is Jennifer Ree
Speaker 1: Bloomberg Intelligence Senior litigation analyst jen Why did the judge
Speaker 1: even discuss the timing of her decision in such detail? Well,
Speaker 1: you know, it is unusual June for a judge to
Speaker 1: do that, and certainly they have no statutory deadlines on
Speaker 1: issuing these opinions. But in the closing arguments, the FTC
Speaker 1: actually asked, you know, can you just give us some
Speaker 1: general guidance on your timing? And I think it's because
Speaker 1: they are concerned that if they lose and want to appeal,
Speaker 1: they only have a certain amount of time to appeal,
Speaker 1: and if the government's closed, it will affect their timing
Speaker 1: and their ability to appeal. And I think that's why
Speaker 1: she also gave such a detailed response. So, what are
Speaker 1: the FTCs primary allegations in the case, you know, what
Speaker 1: they're primarily alleging here is that through interrelated practices, several
Speaker 1: practices that over the years, Qualcom maintained its market dominance
Speaker 1: in certain chips, mostly chips for three G and four
Speaker 1: G uh C, d M A and lt either called
Speaker 1: by by abusing its market power in those chips to
Speaker 1: force um really abusively high royalties on the techno the
Speaker 1: patents it has for the technology needed for those chips
Speaker 1: to work in the phone and for the phone to
Speaker 1: work wirelessly. So essentially, Qualcom has patents that it's obligated
Speaker 1: to license in what's called a fair, reasonable and non
Speaker 1: discriminatory manner because those patents are necessary by any phone
Speaker 1: maker for that phone to work wirelessly, and it also
Speaker 1: has chips that almost every phone maker needs. And what
Speaker 1: the FTC says Qualcom did was they threatened that if
Speaker 1: the phone maker wouldn't pay these very high royalties that
Speaker 1: were not fair, reasonable and nondiscriminatory, they wouldn't sell them
Speaker 1: their chips. And the O e M couldn't accept that.
Speaker 1: So was there act toual testimony from some of the
Speaker 1: people that had been allegedly threatened in this way. Yeah. Well,
Speaker 1: the interesting thing is there was a lot of testimony,
Speaker 1: you know, one after another O E. M's like Apple, uh,
Speaker 1: and rivals like Intel took the stand and said, yes,
Speaker 1: they did feel that they had no leverage. They had
Speaker 1: no ability to really negotiate reasonably with Qualcolm because they
Speaker 1: couldn't take the risk that they would lose this chip
Speaker 1: supply um. And there were even documents where you could
Speaker 1: see that Qualcom referenced, if you don't accept our royalties
Speaker 1: or lose, you will lose our chips. But on the
Speaker 1: other hand, you had quite a few Qualcom witnesses that
Speaker 1: testified that they never actually ever stopped supplying chips to
Speaker 1: an o EM, even when there were licensing disputes ongoing.
Speaker 1: So that was Qualcolm's defense. That was part of its defense. Yes,
Speaker 1: was there any indication which way the judge was leaning.
Speaker 1: I mean, you could never tell, but sometimes the rulings. Yeah,
Speaker 1: Now in this case, she was really quiet, you know,
Speaker 1: very few questions, She was very focused. You to tell
Speaker 1: that she was watching carefully. She was looking at the
Speaker 1: exhibits and the documents. So I think at least through
Speaker 1: the course of the trial, it's really hard to see
Speaker 1: where she's leaning going into trial. She seemed very much
Speaker 1: to be siding with the FTC. There were some pre
Speaker 1: trial rulings where she took the FTC side, both in
Speaker 1: what kind of evidence she would allow into the trial
Speaker 1: or wouldn't allow into the trial, as well as an
Speaker 1: early judgment that she made regarding Qualcom and what it's
Speaker 1: obligated to do with these standard essential patents. So, if
Speaker 1: the FTC wins the case, what does it want the
Speaker 1: judge to do? What's the remedy in this case? Um,
Speaker 1: the FTC is not seeking any money, So unlike some
Speaker 1: of the actions that have been taken against Qualcom in
Speaker 1: Europe and in China, there won't be any big fines here.
Speaker 1: All they're looking for is a judge's order that requires
Speaker 1: Qualcom to do or to refrain from doing certain things.
Speaker 1: And one of the biggest ones is what we just
Speaker 1: talked about, that they cannot use this threat of withholding
Speaker 1: our chips from an O E M in order to
Speaker 1: extract the High Royalty that it's extracting that it needs
Speaker 1: to separate out those negotiations. Would that hurt Qualcom's business model?
Speaker 1: You know, it's really hard to say that there, there's
Speaker 1: a bigger piece. I think that that, if implemented, would
Speaker 1: hurt Qualcom's business model more. And that piece is what
Speaker 1: we haven't talked about yet. Um that the that the
Speaker 1: FTC has wants an order requiring Qualcom to license not
Speaker 1: just the O E M s the makers of the
Speaker 1: phone like Samsung and Apple, but also chip rivals like
Speaker 1: Media Tech and Intel. Up till now, Qualcom hasn't done that.
Speaker 1: And what they claim is that's an inefficient way of
Speaker 1: doing things. And it's unclear yet how that might affect
Speaker 1: their royalty streams if they have to do that, but
Speaker 1: it could affect their business model. Sometimes, even after a trial,
Speaker 1: there is a settlement before the judge, especially before the
Speaker 1: judges order comes in or before a verdict by a jury.
Speaker 1: Is that likely here? I don't think it's likely, but
Speaker 1: I think it could happen. We know that the parties
Speaker 1: have been discussing settlement. They acknowledged as such before this
Speaker 1: trial start. Did at one point they even sought to
Speaker 1: stay in order to talk settlement and the judge refused it.
Speaker 1: The issue I think that could hurt settlement talks now
Speaker 1: is that the FTC. I think believes they have momentum
Speaker 1: here and believes they did really great job in trial
Speaker 1: and have to have a possibility of winning. So they've
Speaker 1: gained a little leverage in these negotiations. But it's it's uh,
Speaker 1: it could happen. Now. We know that Makon del Rahim,
Speaker 1: who is the head of the Anti trust division at
Speaker 1: the d o J, has been vocal about the fact
Speaker 1: that he doesn't think this type of case should be
Speaker 1: brought resolve with the antitrust laws. This is brought by
Speaker 1: the FTC. So there's sort of a disconnect there. Explain
Speaker 1: the positions a little bit. You know, it's an interesting
Speaker 1: thing and I think there's a lot of debate in
Speaker 1: the antitrust community about this because in a big picture
Speaker 1: policy um level, the thought is that when you hamper um,
Speaker 1: they when a company has I P and they've done
Speaker 1: the R and D and put the money into the
Speaker 1: R and D and they've obtained a patent, they have
Speaker 1: the right to to get the benefit of that patent.
Speaker 1: They have the right to charge what they want to
Speaker 1: in terms of royalties and do what they want to
Speaker 1: with that patent, and that intern will fund the R
Speaker 1: and D in innovation and so there's a fear that
Speaker 1: if you use antitrust to sort of mess up this equilibrium,
Speaker 1: that it could hamper innovation. And del Rahim generally believes
Speaker 1: anti trust should support innovation and not hamper innovation, and
Speaker 1: and that these patent rights perhaps ought to have some
Speaker 1: precedence over antitrust, and that you could resolve these matters
Speaker 1: as a matter of contract law. Jennifer Ree always makes
Speaker 1: anti trust interesting. That's Bloomberg Intelligent senior litigation analyst Jennifer
Speaker 1: Ree from more of gent analysis. You can go to
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