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Re: The lawsuit

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By oroughy
October 28, 2005

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For what it's worth, this kind of thing is pretty much smack dab in the middle of what I do for a living, so here are a few initial thoughts about it:

1. There isn't a lawsuit yet. Some of the headlines are wrong in that respect. The antitrust process is different in Europe from what it is in America. Whereas companies commonly bring private antitrust cases in the U.S., these cases are typically brought only by the European Commission in Europe. So all that these complaining companies have done so far is to lodge a complaint with the EC, but the EC isn't a court; it's an investigating/prosecuting agency. After it thinks things over, the EC will then decide whether it will pursue some kind of adverse decision against QCOM.

2. The EC, like most antitrust agencies, tends to think things over for quite a while. As competition law cases go, this would be a relatively complex one. That will draw things out even longer. So we're probably looking at years, not months, before an EC decision. That decision would then be appeal-able to two layers of European appellate courts. That would mean several more years before a final resolution.

3. Concerning EC policy on unilateral conduct cases (which this would be if it gets that far), there has been some movement in Europe toward the more defendant-friendly U.S. model in recent years, and there have also been indications that further reforms are on the way in the near future. Specifically, the EC has announced that it has been undertaking a thorough review of its Article 82 (which is the statute that the complainants are relying on) policy, and when that review is completed, the new policy is probably going to improve the landscape for defendants while making things tougher for complainants.

4. Nevertheless, for the moment, the climate in Europe is still much friendlier toward antitrust plaintiffs in unilateral conduct cases than it is in the U.S., and that troubles me. Notice that these companies (except the apparently desperate Broadcom) have not filed a lawsuit in the U.S.; but they are willing to complain in Europe. This is likely because they know they wouldn't get anywhere with this kind of a case in the U.S., but they at least have a shot in Europe. For example, the right to unilaterally refuse to license a patent is pretty well secured under U.S. antitrust law; not so under current European law. This is dangerous for QCOM unless and until that policy changes. (The excessive royalty charge is probably a throwaway, though. Although technically still on the books, that part of the law is rarely enforced in Europe.)

5. Overall, I agree with the poster who said this could be a buying opportunity. Looks like the market is already beating Q up about this today, but any real negatives that flow from it would probably take several years to show up on Q's balance sheet. Without seeing the evidence, it's pretty hard to comment on a likely outcome. I can only say that the complainants' odds are much better in Europe right now than they would be in the U.S.

oroughy


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