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Qualcomm Scores Enforcement Delay in FTC Case

By Evan Niu, CFA - Aug 23, 2019 at 3:24PM

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The mobile-chip giant won't have to immediately restructure its business.

Just over three months after losing the landmark case brought by the U.S. Federal Trade Commission, which alleged a wide range of anticompetitive business practices that harmed the baseband modem market and consumers, Qualcomm (QCOM 3.65%) has scored a delay in having federal Judge Lucy Koh's decision enforced.

Koh's ruling was tantamount to requiring the mobile chip giant to restructure broad swaths of its business. The three core provisions: grant licenses for standards-essential patents (SEPs) to rivals, renegotiate existing licensing agreements, and abolish Qualcomm's long-standing "no license, no chips" policy.

Here's the latest in Qualcomm's ongoing legal saga.

Gavel made out of 1s and 0s

Image source: Getty Images.

The "government itself is divided"

Immediately after Koh issued her ruling, Qualcomm filed an appeal with the U.S. Court of Appeals for the 9th Circuit seeking a stay of the judgment and an expedited appeal. "We strongly disagree with the judge's conclusions, her interpretation of the facts and her application of the law," Qualcomm General Counsel Dan Rosenberg said at the time.

In July, the Department of Justice filed an amicus brief similarly asking the court to delay the ruling, citing national security concerns that could impact the Department of Defense and the Department of Energy. The DOJ disagreed with Koh's ruling, arguing that Koh had "misapplied Supreme Court precedent" and that the decision could impede U.S. competitiveness in emerging areas including 5G and the Internet of Things (IoT).

In a new filing, the 9th Circuit has granted Qualcomm's request for a partial stay. Qualcomm demonstrated "serious questions on the merits" of the lower court's decision, as well as a "probability of irreparable harm." The appeals court notes, "The fundamental business changes that the injunction imposes cannot be easily undone should Qualcomm prevail on appeal."

The public interest is also an important factor. Referring to the DOJ, DOD, and DOE concerns, the court adds that "this case is unique, as the government itself is divided about the propriety of the judgment and its impact on the public interest." The amicus brief clearly helped sway the 9th Circuit's decision to grant a stay. Two of the three main parts of the injunction have now been paused: the requirement to license SEPs to competing modem suppliers and getting rid of the "no license, no chips" policy.

More companies offer perspective

Other interested parties had also filed amicus briefs last month, weighing in on the proceedings. Wireless network equipment supplier Ericsson argued that the wireless industry and public interest would be hurt if the order was not stayed, as requiring Qualcomm to ink new licenses and renegotiate existing licenses would create "an unacceptable level of uncertainty in the industry."

Rival Chinese modem vendor MediaTek took the other side, arguing that "immediate enforcement of the District Court's Order will accelerate rather than hinder the cellular industry's transition to 5G technologies." If MediaTek were able to secure a license to Qualcomm's technology, it would bolster the availability of 5G devices, the company argued.

Qualcomm's legal woes are far from over, but it has successfully kicked the can down the road.

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