United States District Court Findings of Fact and Conclusions Of
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Case 5:17-cv-00220-LHK Document 1490 Filed 05/21/19 Page 1 of 233 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 SAN JOSE DIVISION 11 12 FEDERAL TRADE COMMISSION, Case No. 17-CV-00220-LHK 13 Plaintiff, FINDINGS OF FACT AND CONCLUSIONS OF LAW 14 v. 15 QUALCOMM INCORPORATED, 16 Defendant. 17 United States District Court District United States Northern District of California District Northern 18 Plaintiff Federal Trade Commission (“FTC”) brings suit against Defendant Qualcomm 19 Incorporated (“Qualcomm”) for allegedly violating Section 5(a) of the FTC Act, 15 U.S.C. § 20 45(a), and seeks permanent injunctive relief. Specifically, the FTC claims that Qualcomm has 21 harmed competition in two markets for baseband processors, also called modem chips, through a 22 set of interrelated Qualcomm practices. The FTC Act prohibits “[u]nfair methods of competition,” 23 which include violations of the Sherman Act. The FTC asserts that Qualcomm’s conduct violates 24 (1) Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) Section 2 of the Sherman Act, 15 U.S.C. § 2; 25 and (3) Section 5 of the FTC Act, 15 U.S.C. § 45(a). ECF No. 966. 26 On April 3, 2017, Qualcomm moved to dismiss the FTC’s Complaint. ECF No. 69. On 27 June 26, 2017, the Court denied Qualcomm’s motion to dismiss. ECF No. 134. 28 1 Case No. 17-CV-00220-LHK FINDINGS OF FACT AND CONCLUSIONS OF LAW Case 5:17-cv-00220-LHK Document 1490 Filed 05/21/19 Page 2 of 233 1 On August 30, 2018, the FTC moved for partial summary judgment on the question of 2 whether Qualcomm’s commitments to two standard setting organizations (“SSOs”), the Alliance 3 for Telecommunications Industry Solutions (“ATIS”) and the Telecommunications Industry 4 Association (“TIA”), require Qualcomm to license to other modem chip suppliers on fair, 5 reasonable, and nondiscriminatory terms Qualcomm’s patents that are essential to practicing the 6 ATIS and TIA standards. ECF No. 792. On November 6, 2018, the Court granted the FTC’s 7 motion for partial summary judgment. ECF No. 931. 8 The Court held a 10-day bench trial in this matter beginning on January 4, 2019. The 9 parties gave closing arguments on January 29, 2019. Having considered the evidence and 10 arguments of counsel, the relevant law, and the record in this case, the Court hereby enters the 11 following findings of fact and conclusions of law. 12 I. STIPULATED FACTS 13 The parties stipulated to the following facts: 14 1. Qualcomm is headquartered in San Diego, California. ECF No. 1326 at 1. 15 2. Since at least 1989, Qualcomm has been, and is now, a corporation. Id. 16 3. Since at least 1989, Qualcomm has been, and is now, engaged in interstate and 17 international commerce. Id. United States District Court District United States Northern District of California District Northern 18 4. Qualcomm’s operating segment relating to its chip and software business is called 19 Qualcomm CDMA Technologies (“QCT”). Qualcomm’s operating segment relating to the 20 licensing of its patents is called Qualcomm Technology Licensing (“QTL”). Id. 21 5. In 2012, Qualcomm created Qualcomm Technologies, Inc. (“QTI”), a wholly 22 owned subsidiary of Qualcomm. QTI operates substantially all of Qualcomm’s products and 23 services business, including QCT, as well as substantially all of Qualcomm’s engineering, 24 research, and development functions. Qualcomm continues to operate QTL. Id. 25 6. Qualcomm CDMA Technologies Asia-Pacific Pte. Ltd. (“QCTAP”), a Singapore 26 company, is a wholly owned indirect subsidiary of Qualcomm. Id. 27 7. Cellular communications depend on widely distributed networks that implement 28 2 Case No. 17-CV-00220-LHK FINDINGS OF FACT AND CONCLUSIONS OF LAW Case 5:17-cv-00220-LHK Document 1490 Filed 05/21/19 Page 3 of 233 1 cellular communications standards. Id. 2 8. Some original equipment manufacturers (“OEMs”) have purchased multimode 3 modem chips for use in Cellular Handsets intended for operation on the major U.S. wireless 4 networks. Id. at 2. 5 9. Cellular Handsets are designed, marketed, and sold by OEMs such as Samsung, 6 Huawei, Apple, Xiaomi, OPPO, VIVO, Google, Lenovo/Motorola Mobility, and LGE. Id. 7 10. Consumers purchase Cellular Handsets for a variety of reasons, including for (a) 8 their ability to transmit and receive data at high speeds over cellular networks, such as those 9 implementing Long Term Evolution (“LTE”), the highest-speed cellular standard which has 10 widely commercialized to date, and (b) their ability to perform voice calls. Id. 11 11. The Third Generation Partnership Project (“3GPP”) and the Third Generation 12 Partnership Project 2 (“3GPP2”) are global collaborative partnerships of standards 13 development/standards-setting organizations (“SDOs” or “SSOs”)1 and other industry participants 14 that develop technical specifications for cellular standards. Id. 15 12. The current “organizational partners” of 3GPP are seven regional SSOs, 16 specifically: the European Telecommunications Standards Institute (“ETSI”), the Alliance for 17 Telecommunications Industry Solutions (“ATIS”), the Association of Radio Industries and United States District Court District United States Northern District of California District Northern 18 Businesses, Japan (“ARIB”), the Telecommunication Technology Committee, Japan (“TTC”), the 19 China Communications Standards Association (“CCSA”), the Telecommunications Standards 20 Development Society, India (“TSDSI”), and the Telecommunications Technology Association, 21 Korea (“TTA”). Id. 22 13. The current organizational partners of 3GPP2 are five regional SSOs, specifically: 23 the Telecommunications Industry Association (“TIA”), ARIB, TTC, CCSA, and TTA. Id. 24 14. Cellular communications standards have evolved over “generations,” including 25 second-generation (“2G”), third-generation (“3G”), and fourth-generation (“4G”) standards. Id. 26 27 1 Consistent with the Court’s prior orders, see ECF No. 931 at 3 n.2, the Court refers to these standards organizations as SSOs. 28 3 Case No. 17-CV-00220-LHK FINDINGS OF FACT AND CONCLUSIONS OF LAW Case 5:17-cv-00220-LHK Document 1490 Filed 05/21/19 Page 4 of 233 1 15. 2G cellular standards include the Global System for Mobile (“GSM”) and 2 cdmaOne (also sometimes called “TIA/EIA/IS-95” or “IS-95”). Id. 3 16. ETSI adopted GSM as a cellular standard. ETSI also adopted General Packet 4 Radio Service (“GPRS”) and Enhanced Data Global Evolution (“EDGE”) as improvements to 5 GSM. These are considered 2G standards. Id. at 2–3. 6 17. GSM uses time division multiple access (“TDMA”) technology. Id. at 3. 7 18. TIA adopted cdmaOne as a cellular standard. TIA also adopted IS-95A and IS-95B 8 as improvements to cdmaOne. These are considered 2G standards. Id. 9 19. cdmaOne uses code division multiple access (“CDMA”) technology. Id. 10 20. 3G cellular standards include the Universal Mobile Telecommunications System 11 (“UMTS”) and CDMA2000. Id. 12 21. UMTS is an umbrella term for three 3G cellular air interfaces standardized within 13 3GPP: UTRA-FDD, commonly called Wideband CDMA (“WCDMA”), used worldwide; UTRA- 14 TDD High Chip Rate, having little deployment; and UTRA-TDD Low Chip Rate, commonly 15 called Time Division-Synchronous CDMA (“TD-SCDMA”), used primarily in China. Id. 16 22. Included within the CDMA2000 family of standards are CDMA2000 1x, often 17 called 1xRTT, and High Rate Packet Data, often called 1xEV-DO or EV-DO. Id. United States District Court District United States Northern District of California District Northern 18 23. CDMA2000 was standardized by 3GPP2. Id. 19 24. In the United States, AT&T and T-Mobile have operated WCDMA networks. 20 Verizon and Sprint have operated CDMA2000 networks. Id. 21 25. All four major U.S. carriers (Verizon, AT&T, T-Mobile, and Sprint) have deployed 22 LTE, which also encompasses the LTE Advanced, or “LTE-A” standard, as their 4G standard. Id. 23 26. LTE uses orthogonal frequency division multiple access (“OFDMA”) technology 24 for downlink transmissions and single-carrier frequency division multiple access (“SC-FDMA”) 25 technology for uplink transmissions. Id. 26 27. LTE was standardized by 3GPP. Id. at 4. 27 II. BACKGROUND 28 4 Case No. 17-CV-00220-LHK FINDINGS OF FACT AND CONCLUSIONS OF LAW Case 5:17-cv-00220-LHK Document 1490 Filed 05/21/19 Page 5 of 233 1 The Court discusses cellular standard setting organizations (“SSOs”), Qualcomm’s license 2 agreements, Qualcomm’s modem chip business, antitrust investigations into Qualcomm’s 3 licensing practices, and the credibility of many Qualcomm witnesses. 4 A. SSOs and FRAND 5 Standing setting organizations (“SSOs”) are global collaborations of industry participants 6 that develop technical specifications for cellular standards. ECF No. 1326 at 2. These 7 specifications ensure that cellular industry participants—including modem chip suppliers, handset 8 original equipment manufacturers (“OEMs”), infrastructure companies, and carriers—develop 9 standard-compatible devices that can communicate with each other. CX6786-R at 19:6-22. 10 Cellular standards evolve over time. Therefore, although the first generation of LTE was 11 standardized in 2008, there have been several new LTE releases as standards contributors develop 12 new features. Tr. at 1320:19-1321:2. 13 Cellular standards may incorporate patented technology. Patents that are essential to a 14 standard are called standard essential patents (“SEPs”). Tr. at 1396:3-7. Because a SEP holder 15 could prevent other industry participants from implementing a cellular standard, SSOs require 16 patent holders to commit to license their SEPs on fair, reasonable, and nondiscriminatory 17 (“FRAND”) terms before SSOs will incorporate the patent into the cellular standard. QX2776- United States District Court District United States Northern District of California District Northern 18 001.