American Bar Association’s “Monopoly Matters”: FTC v. Qualcomm and the Potential Implications for Section 2

November 23, 2020

O’Melveny Antitrust Practice co-chair Ian Simmons, counsel Scott Schaeffer, and associate Brian Quinn co-authored this article outlining three significant errors in the Ninth Circuit’s decision that Qualcomm’s actions in FTC v. Qualcomm are not anticompetitive as a matter of law.

This particular antitrust case has provoked an unusual amount of academic debate, interagency division, and doctrinal disagreement. In October, Simmons led the filing of an amicus brief submitted to the Ninth Circuit on behalf of dozens of law and economics professors in support of the FTC’s petition for rehearing en banc.

“First, the most natural reading of the court’s ruling is as a declaration that all harms to customers occur outside relevant antitrust markets and therefore are never cognizable under Section 2. That turns antitrust law on its head,” the authors write. “A market consists of sellers and buyers, and since OEMs are buyers of chips, they are key participants in the relevant markets in which Qualcomm and its chipmaker rivals compete.”

“Second,” they continue, “perhaps the court’s decision can be read more narrowly, as holding that Qualcomm’s customer-facing patent licensing occurs outside the markets for modem chip sales, and therefore does not cause a direct and cognizable harm in the relevant chip markets.” The authors note that on this reading, the court did not categorically exclude harm to customers in monopolization cases, but instead adopted a constrained view of the effect on victims.

In discussing what they see as the decision’s third error, the authors point out that it is well established that a monopolist may violate Section 2 if it uses out-of-market third parties as the support for its exclusion of competitors in the applicable market. “The Ninth Circuit ruling would be wrong even if injured OEM customers are properly considered outside the relevant chip market,” they write“[T]he effect of Qualcomm’s NLNC policy was to harm competitors and competition in the relevant markets.”

The authors conclude that the “Ninth Circuit’s ‘reframing’ of antitrust law— focusing exclusively on ‘direct’ competitor harm and holding that injuries inflicted on customers are not cognizable anticompetitive harms—contradicts well-established antitrust principles.”