WEBVTT - Judge Rules Qualcomm Violated Antitrust Law

0:00:00.080 --> 0:00:06.360
<v Speaker 1>M Welcome to the Bloomberg Law Podcast. I'm June Grosso.

0:00:06.760 --> 0:00:09.440
<v Speaker 1>Every day we bring you insight and analysis into the

0:00:09.480 --> 0:00:12.000
<v Speaker 1>most important legal news of the day. You can find

0:00:12.039 --> 0:00:15.320
<v Speaker 1>more episodes of the Bloomberg Law Podcast on Apple podcast,

0:00:15.520 --> 0:00:19.360
<v Speaker 1>SoundCloud and on Bloomberg dot com slash podcasts. It may

0:00:19.400 --> 0:00:22.439
<v Speaker 1>have looked like Qualcom was in for smooth sailing after

0:00:22.520 --> 0:00:25.639
<v Speaker 1>it's settled an antitrust lawsuit brought by Apple last month,

0:00:25.720 --> 0:00:28.680
<v Speaker 1>But not so fast. Now our federal judge has ruled

0:00:28.680 --> 0:00:32.479
<v Speaker 1>that Qualcom violated anti trust law by abusing its dominant

0:00:32.479 --> 0:00:35.199
<v Speaker 1>position in the market for cell phone chips to exact

0:00:35.400 --> 0:00:39.479
<v Speaker 1>excessive licensing fees, giving the FTC the win. Joining me

0:00:39.520 --> 0:00:42.159
<v Speaker 1>as Harry first professor of anti trust law at n

0:00:42.360 --> 0:00:46.920
<v Speaker 1>y U Law School. So Professor Judge Lucy co ruled

0:00:47.000 --> 0:00:50.479
<v Speaker 1>against Qualcom on virtually every point and said that it's

0:00:50.600 --> 0:00:55.600
<v Speaker 1>licensing practices have strangled competition in certain modem chip markets.

0:00:56.160 --> 0:01:00.480
<v Speaker 1>Is that exactly what Apple had accused it of? Well, um,

0:01:00.520 --> 0:01:07.960
<v Speaker 1>Apple accused it of exacting excessive royalty rates UM and

0:01:08.360 --> 0:01:13.080
<v Speaker 1>forbidding it from using through its exclusivity agreements, from using

0:01:13.160 --> 0:01:17.600
<v Speaker 1>other chips, particularly chips by Intel. The two cases are

0:01:17.720 --> 0:01:21.280
<v Speaker 1>similar in the sense that the Federal Trade Commission had

0:01:21.319 --> 0:01:27.920
<v Speaker 1>included Apple's exclusivity agreements in its case, but um the

0:01:28.200 --> 0:01:32.640
<v Speaker 1>two parties are really seeking different things. So Apple was

0:01:32.680 --> 0:01:37.000
<v Speaker 1>seeking lower royalty rates in the end, the Federal Trade

0:01:37.000 --> 0:01:42.600
<v Speaker 1>Commission is really attacking um uh Qualcomm's business model. UM,

0:01:42.680 --> 0:01:46.479
<v Speaker 1>but it too was very worried about the high prices

0:01:46.520 --> 0:01:50.880
<v Speaker 1>that um qualcomm has been able to exact on its

0:01:50.960 --> 0:01:55.800
<v Speaker 1>patent licensing. As far as the judge's opinion was, with

0:01:55.840 --> 0:02:01.200
<v Speaker 1>her language very strong, I think very is a is

0:02:01.240 --> 0:02:07.280
<v Speaker 1>a weak adjective. Uh. Very yes, very strong, although in

0:02:07.320 --> 0:02:12.639
<v Speaker 1>some ways not surprising. She had been ruling in preliminary rulings,

0:02:13.160 --> 0:02:18.240
<v Speaker 1>particularly at a fairly recent stage in the proceedings that

0:02:18.320 --> 0:02:21.799
<v Speaker 1>it looked pretty much like the Federal Trade Commission UM

0:02:22.040 --> 0:02:26.320
<v Speaker 1>case was pretty strong, So I actually wasn't surprised at

0:02:26.360 --> 0:02:29.640
<v Speaker 1>how she came out. But when you read through her opinion,

0:02:29.840 --> 0:02:35.920
<v Speaker 1>it's really a litany of um uh qual comes licensing practices,

0:02:36.800 --> 0:02:40.000
<v Speaker 1>what their intent was, and what the effect has been

0:02:41.080 --> 0:02:46.799
<v Speaker 1>on innovation and pricing UH in in cell phone technology

0:02:47.360 --> 0:02:51.880
<v Speaker 1>and handsets more generally. So UM It's it is quite strong.

0:02:52.480 --> 0:02:56.959
<v Speaker 1>UH it's based on UM, you know, trial hearing witnesses

0:02:57.880 --> 0:03:01.320
<v Speaker 1>doing the things that trial core judges are supposed to do,

0:03:01.400 --> 0:03:05.880
<v Speaker 1>which is to judge the evidence, assess the credibility of

0:03:05.919 --> 0:03:09.280
<v Speaker 1>the um of the various witnesses on both thoughts, and

0:03:09.360 --> 0:03:12.440
<v Speaker 1>come to a decision. So it's it's a pretty strong case.

0:03:13.160 --> 0:03:16.120
<v Speaker 1>What about the remedies. What kind of remedies did she

0:03:16.440 --> 0:03:22.920
<v Speaker 1>order and will they disrupt Qualcom's business model? Well, UM,

0:03:22.960 --> 0:03:27.040
<v Speaker 1>the remedies that she ordered were targeted pretty much too

0:03:27.800 --> 0:03:31.919
<v Speaker 1>UM the allegations of the Federal Trade Commission's complaint. So

0:03:32.000 --> 0:03:36.640
<v Speaker 1>a primary UM part of the complaint was UM. Well,

0:03:36.680 --> 0:03:43.200
<v Speaker 1>actually two things. The policy of UM no chips, no license, UM,

0:03:43.320 --> 0:03:46.480
<v Speaker 1>you had to if you wanted the chips, you had

0:03:46.520 --> 0:03:51.840
<v Speaker 1>to license the technology, which the Commission said kept prices up.

0:03:51.840 --> 0:03:55.080
<v Speaker 1>So she said you can't do that. UM. They have to.

0:03:55.480 --> 0:03:59.720
<v Speaker 1>They're licensing for the technology can be subject to just

0:04:00.040 --> 0:04:05.480
<v Speaker 1>mute UM and arbitration UM. And they also now in

0:04:05.520 --> 0:04:10.360
<v Speaker 1>addition to licensing handset makers, they have to license competing

0:04:10.480 --> 0:04:14.560
<v Speaker 1>chip makers UM. And that's been a big source of

0:04:15.200 --> 0:04:20.280
<v Speaker 1>UM major contention and a way that Qualcom has been

0:04:20.320 --> 0:04:24.880
<v Speaker 1>able to obtain higher royalty rates by not licensing the

0:04:24.960 --> 0:04:27.880
<v Speaker 1>chip makers, which means that any handset maker, even if

0:04:27.880 --> 0:04:30.680
<v Speaker 1>they buy chips from someone else, still has to take

0:04:30.680 --> 0:04:34.960
<v Speaker 1>a license from qualcom UH and still has to pay royalties,

0:04:35.240 --> 0:04:40.279
<v Speaker 1>and the royalties are high. Will that will her remedies

0:04:40.520 --> 0:04:45.960
<v Speaker 1>possibly lower costs for Apple and other smartphone makers? They well,

0:04:46.000 --> 0:04:50.240
<v Speaker 1>there are a lot of smartphone makers, Um, they the

0:04:50.440 --> 0:04:54.039
<v Speaker 1>UM Commission and her opinion talked about six of them.

0:04:54.640 --> 0:04:58.880
<v Speaker 1>So yes, it should lower costs for them, and it

0:04:59.240 --> 0:05:02.240
<v Speaker 1>it ought to in the end lower prices for consumers.

0:05:03.480 --> 0:05:07.080
<v Speaker 1>A lot of people buy UH smartphones and they've been

0:05:07.120 --> 0:05:11.120
<v Speaker 1>paying UM these rates that are higher than the rates

0:05:11.160 --> 0:05:16.680
<v Speaker 1>really that qualcom UH in a sense had promised UH

0:05:16.760 --> 0:05:21.320
<v Speaker 1>to charge. And when those rates go down, that's a

0:05:21.400 --> 0:05:26.480
<v Speaker 1>major part of the costs of of a handset. So yes,

0:05:26.520 --> 0:05:29.839
<v Speaker 1>it should be should lead to lower prices for the

0:05:29.920 --> 0:05:33.599
<v Speaker 1>makers and for consumers in the end. Now Qualcolm said

0:05:33.680 --> 0:05:38.160
<v Speaker 1>it quotes strongly disagrees with the judges conclusions or interpretation

0:05:38.200 --> 0:05:40.240
<v Speaker 1>of the facts and her application of the law, and

0:05:40.279 --> 0:05:44.920
<v Speaker 1>it will appeal. What are its chances on appeal, Well,

0:05:45.040 --> 0:05:49.919
<v Speaker 1>it's always hard to say exactly. Um. That the it

0:05:50.040 --> 0:05:54.040
<v Speaker 1>becomes difficult to appeal cases that have been tried where

0:05:54.080 --> 0:05:58.480
<v Speaker 1>a judge has made uh strong factual findings. Um, i'd

0:05:58.480 --> 0:06:01.320
<v Speaker 1>like in the case, I would uh say, in that way,

0:06:01.320 --> 0:06:03.880
<v Speaker 1>it's similar to the case that was brought in the

0:06:04.000 --> 0:06:08.280
<v Speaker 1>late nineties against Microsoft, where the judge made extensive factual

0:06:08.320 --> 0:06:12.239
<v Speaker 1>findings which very much supported the decision of the Court

0:06:12.240 --> 0:06:15.720
<v Speaker 1>of Appeals to affirm what the judge did. So they

0:06:15.720 --> 0:06:18.279
<v Speaker 1>have a bit of a hard slog to go against

0:06:18.360 --> 0:06:23.680
<v Speaker 1>those findings, the two thirty page opinions, and uh, it's

0:06:23.760 --> 0:06:27.520
<v Speaker 1>it's very hard to overturn factual findings, you know, unless

0:06:27.560 --> 0:06:30.880
<v Speaker 1>they're clearly arbitrary, So so they'll have a problem making

0:06:30.920 --> 0:06:35.080
<v Speaker 1>those change. So. Qualcom currently has the most advanced five

0:06:35.160 --> 0:06:38.640
<v Speaker 1>gen modems in the market, and the Trump administration has

0:06:38.680 --> 0:06:44.240
<v Speaker 1>said it's vital to us competition with China in that technology.

0:06:44.400 --> 0:06:46.640
<v Speaker 1>It went so far as to interfere or try to

0:06:46.720 --> 0:06:50.080
<v Speaker 1>interfere in these proceedings by asking the judge for hearing

0:06:50.240 --> 0:06:54.039
<v Speaker 1>on any remedies. Is there any kind of interference that

0:06:54.120 --> 0:07:00.320
<v Speaker 1>the administration could do at this point? Well, um, I

0:07:00.320 --> 0:07:04.159
<v Speaker 1>I'm not sure. The Trump administration has lots of different

0:07:04.200 --> 0:07:08.120
<v Speaker 1>policies that get expressed in different ways, So uh, in

0:07:08.200 --> 0:07:11.720
<v Speaker 1>any trust cases. It's true the Justice Department did file

0:07:11.800 --> 0:07:16.720
<v Speaker 1>a rather extraordinary petition to get involved at the remedy hearing,

0:07:17.160 --> 0:07:19.640
<v Speaker 1>But in terms of how that works out in an

0:07:20.000 --> 0:07:24.400
<v Speaker 1>an appeal in this case, UM, it's hard for me

0:07:24.480 --> 0:07:28.400
<v Speaker 1>to see it going another way any way other than um,

0:07:28.680 --> 0:07:32.560
<v Speaker 1>was there some mistake in law? Did the judge improperly

0:07:32.600 --> 0:07:36.120
<v Speaker 1>grant the remedy? Whether the Justice Department will file a

0:07:36.160 --> 0:07:40.800
<v Speaker 1>brief in the Ninth Circuit Court of Appeals on qualcom side,

0:07:40.840 --> 0:07:43.240
<v Speaker 1>We'll just have to see. I'm a little be a

0:07:43.280 --> 0:07:48.480
<v Speaker 1>little careful about talking some sort of overall Trump administration

0:07:48.560 --> 0:07:55.080
<v Speaker 1>policy towards qualcom um, because any trust policies tend to

0:07:55.120 --> 0:07:58.640
<v Speaker 1>be a little more targeted and focused and not so

0:07:58.720 --> 0:08:03.720
<v Speaker 1>much focused on UM competition with China or UM. You

0:08:03.760 --> 0:08:06.240
<v Speaker 1>know how all of this will affect that. All right, Well,

0:08:06.240 --> 0:08:08.720
<v Speaker 1>thank you so much for joining us. Professor that's Professor

0:08:08.760 --> 0:08:13.120
<v Speaker 1>Harry First of n y U Law School. Thanks for

0:08:13.200 --> 0:08:16.440
<v Speaker 1>listening to the Bloomberg Law Podcast. You can subscribe and

0:08:16.520 --> 0:08:19.760
<v Speaker 1>listen to the show on Apple Podcasts, SoundCloud, and on

0:08:19.840 --> 0:08:24.560
<v Speaker 1>Bloomberg dot com slash podcast. I'm June Brasso. This is

0:08:24.600 --> 0:08:25.200
<v Speaker 1>Bloomberg