Wednesday, September 12, 2007

Monopoly Claims for Abuse of Standard-Setting Process Revived

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Court of Appeals in Philadelphia has remanded an antitrust dispute between rivals in the wireless technology market to permit Broadcom Corp. to assert monopolization and attempted monopolization claims against Qualcomm, Inc. for abusing the standard-setting process for mobile wireless telephony.

The appellate court reversed the dismissal of two of Broadcom's antitrust claims brought under Section 2 of the Sherman Act; however, it affirmed dismissal of two other claims that Broadcom lacked standing to assert.

In mobile wireless telephony, standards are determined privately by standards-determining organizations (SDOs). Currently, there are two paths or families of standards under which cellular telephone service providers operate: code division multiple access (CDMA) and global system for mobility (GSM).

The standard used in current-generation GSM-path networks is known as the Universal Mobile Telecommunications System (UMTS) standard. Qualcomm supplies some of the essential technology, Wideband CDMA (WCDMA), included in the UMTS standard and holds patents in this technology. Qualcomm purportedly has a 90 percent share in the market for CDMA-path chipsets.

Broadcom claimed that Qualcomm seeks to obtain a monopoly in the UMTS chipset market because Qualcomm views competition in that market as a long-term threat to its existing monopolies in CDMA technology.

“Patent Holdup”

Broadcom was permitted to proceed with its claim that Qualcomm engaged in a "patent hold-up," the court held. Broadcom alleged that Qualcomm induced the SDO to include its proprietary technology in the UMTS standard by falsely agreeing to abide by the SDO's policy requiring participants to license technology on fair, reasonable, and non-discriminatory terms.

Qualcomm allegedly "held up" SDO participants by intentionally breaching its promise, which was relied on by participants, to license fairly and reasonably essential proprietary technology adopted as part of the new standard after the lengthy standard setting process had been completed.

Rejected was Qualcomm's argument that antitrust liability could not turn on so vague a concept as whether licensing terms were "reasonable." Thus, the district court erred in dismissing the monopolization claim on the ground that abuse of a private standard-setting process did not state a claim under antitrust law.

Broadcom adequately alleged that Qualcomm attempted to obtain a monopoly in the UMTS chipset market by exploiting its monopolies in WCDMA technology and CDMA-path chipsets, according to the court. Qualcomm allegedly engaged in a variety of anticompetitive practices, acted with specific intent to obtain a monopoly in the UMTS chipset market, and had a "dangerous probability" of successful monopolization.

Standing, Antitrust Injury

The court also held that Broadcom lacked standing to sue Qualcomm for its alleged monopolization of the markets for another chipset technology standard—third-generation (3G) CDMA technology and 3G CDMA chipsets. Broadcom's theory of standing was "highly attenuated," in the court's view. Injury to Broadcom was extremely remote, and there was no apparent reason why the Qualcomm's competitors in the CDMA markets could not assert a monopoly maintenance claim.

In addition, Broadcom failed to allege an antitrust injury resulting from Qualcomm's proposed acquisition of a firm that was a leading competitive threat to CDMA technology. The claim was too speculative, the court explained. Any directly harmful effects resulting from the acquisition would be experienced by firms competing in the markets for the development of the new chipset standards, and the Broadcom did not compete in these markets. Dismissal of a claim for injunctive relief blocking the transaction was affirmed.

The September 4 decision in
Broadcom Corp. v. Qualcom Inc. is reported at 2007-2 Trade Cases ¶75,852

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