On May 21, 2019, the U.S. District Court for the Northern District of California ruled in Federal Trade Commission v. Qualcomm that Qualcomm’s licensing business model of its 4G transmission technologies in mobile devices violates U.S. antitrust laws. The district court issued a sweeping remedy, including a worldwide injunction that Qualcomm abandon its current patent licensing business model and renegotiate all existing licenses, and submit to ongoing regulatory oversight by the FTC for the next seven years.
Qualcomm has announced it will appeal this decision to the Ninth Circuit. In the interim, Qualcomm requested and won a stay of the district court’s injunction pending appeal. Several amici briefs have been filed in support of Qualcomm, including a strongly-worded brief by the Department of Justice, which included statements of interest from the Departments of Defense and Energy, disagreeing with the court's findings and with the FTC's enforcement action. Our speakers will weigh in on this subject, explore the history, arguments, and potential paths forward for the FTC and Qualcomm in this dispute.
- Mr. John Shu, Attorney and Legal Commentator
- Prof. F. Scott Kieff, Fred C. Stevenson Research Professor of Law, The George Washington Law School
Operator: Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Intellectual Property Practice Group, was recorded on Friday, September 27, 2019, during a live teleforum conference call held exclusively for Federalist Society members.
Wesley Hodges: Welcome to The Federalist Society’s teleforum conference call. This afternoon’s topic is a “Litigation Update on FTC v. Qualcomm”. My name is Wesley Hodges, and I’m the Associate Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the experts on today’s call.
Today, we are very fortunate to have with us Mr. John Shu, who’s an attorney and legal commentator, as well as Professor F. Scott Kieff, who is the Fred C. Stevenson Research Professor of Law at the George Washington Law School. After our speakers give their remarks, we will have time for an audience Q&A, so please keep in mind what questions you have for this case or for one of our speakers or both. Thank you both so much for sharing today. Scott, I believe the floor is yours to begin.
F. Scott Kieff: Well, that’s very kind. I appreciate you for organizing the call and appreciate my friend and colleague, John Shu, for offering his comments as well and hope that we can encourage the audience to participate in a few moments with some Q&A. I understand that the folks on the call are here to talk about the IP antitrust interface and the context of this case and to try to get some sense as to where we’ve been, where we are, and where we’re going and how this case can inform our thinking. There are few things to keep in mind that at least I find interesting for me and seem to resonant a lot with folks I find myself speaking with in the private sector, as well as in the academic and policy spaces.
One thing that a lot of people seem to notice about this case is that it is one of a string of cases that have been pretty high profile at the patent antitrust interface. And so I thought it might help for those who are really interested in deep dives into the substance of these areas of law and how they interact with each other -- I thought it might help to provide some written materials. You never know who’s having trouble going to sleep at night. This stuff will definitely zonk anyone out. But for those who really want to crisply understand what’s going on, I might summarize a lot of those materials by just saying the following.
These cases, cases like this, give us a chance to remember that it is probably not necessary to frame debates about either IP or antitrust simply through the lens of too much or too little because those kinds of abstract too much/too little concepts, they play really well in a talking head debate for 30 seconds on TV. They are great for a shouting match or great for rallying the troops on one side or the other. But they’re otherwise really vulnerable to becoming pretty unpredictable and untethered from shared ideas, shared frameworks, and a predictable decision making.
For example, when patentees talk about just how powerful their patents are or an alleged infringer talks about how powerful the patent being asserted against them is, it’s very easy to just talk about more and then more. But of course, when patent infringement is not the only topic being discussed but in addition patent validity, let alone antitrust and powerful remedies, pretty soon everybody can be forced to keep in mind that there are reasons to selfishly be more moderate or modest in the discussion. That kind of self-modulating or self-restraining incentive is provided because, if I’m facing a patent and I want to argue that that patent has anticompetitive effect, I have a selfish incentive in that moment to say the patent covers the world. It covers everything. But if, at the same time, I want to argue that the patent doesn’t cover me, then, in fact, I want to narrow the view about the patent.
So I just want to encourage people on all sides of these proceedings, whether they’re a so-called plaintiff or a so-called defendant in a patent case, or a so-called plaintiff or a so-called defendant in an antitrust case—these cases, of course, can arise through different lenses—to harness the self-restraining effect of patent validity, patent infringement, patent remedy, and anticompetitive effect as four topics that are worth keeping on the table all at the same time as a way to restrain oneself but also one’s opponent and the adjudicators in the middle. The opinion in this case seems to really just focus on kind of broad anticompetitive effect. It doesn’t seem to be so restrained, and I think that’s one of the things that can make the case ultimately vulnerable if the substance of the case can get revisited. And of course, that’s the process of the appeal that it’s going through.
The other thing people really want to understand about this case is how it happened. This is a case filed by an administrative agency, the Federal Trade Commission, at a time when the Executive Branch was changing power. This was after the election but before the inauguration. And it was at a time when not all of the leaders of the agency -- this is a five member commission. Not all of them were in place. You had a reduced set of members. You also had, in effect, an equipoise between those who are participating. So this was really a staff-driven case. And it continues to be staff driven in part because of recusal needs.
And so it’s important to bear in mind this is a strange case simply because it’s kind of like a runaway machine where you can’t quite tell. The public and the parties don’t have the normal transparent and politically accountable access, at least directly, to the parties with inside the agency who are driving the case. And in a case like this, that will be people in staff positions, not in presidentially nominated, Senate confirmed, very visible positions.
I think just bearing in mind these kind of pretty boring things about how patent and antitrust law interact with each other in these subtle ways, as well as how the administration of an agency works in these pretty bureaucratic ways, just bearing in mind some of those complexities can really help people get a lot of leverage about what is happening in this case and then, strategically, whether they’re on one side or the other, how to increase or decrease cases like this as they see fit.
Why don’t I take a pause there? That’s a fairly boring swipe at it all, but it gives folks a chance to get into the nitty gritty and invite John in to comment on some of the other broader implications that flow from those boring but technically interesting aspects of the case.
John Shu: Well, thank you very much, Commissioner. I would add that -- to what Scott was saying, with respect to the FTC and the transition of power, at the time that the FTC decided to file the initial lawsuit against Qualcomm, you have a very unusual situation where the chairman, Joseph Simons, basically got body checked into recusing himself, even though he had no particular direct relationship with Qualcomm. So that’s how you ended up with a 2-2 tie. And you had the Obama administration hold overs then pursuing the suit in the Northern District.
There are some practical applications to the case. First, you have a situation where you have Judge Lucy Koh in the Northern District. She’s very well known amongst IP practitioners, in California in particular. But she’s also very well known for never finding a case where she didn’t support the boys in Cupertino. Obviously, Apple was a major litigant against Qualcomm and has been for quite some time. Ironically, Qualcomm and Apple settled their dispute in April, in the middle of the litigation. And it’s not clear as to whether Judge Koh’s decision is -- if it gets upheld on appeal, if that will require Qualcomm and Apple to renegotiate that settlement.
And then also not very well reported in the press is that Judge Koh also let a private lawsuit go forward with consumers against Qualcomm for allegedly jacking up the price of cellphone handsets. And if they didn’t like what their prices were in 2017, they should take a look at what Apple is currently charging for their iPhone 11 series. It’s a lot.
Another thing that I think is worth discussing at this time is the fact that what is anticompetitive is not anti-competitor. Basically, what that means is the DOJ and the FTC, they’re supposed to protect competition. It’s not to protect a particular competitor, whether it’s Samsung or Apple or anybody else. And I think that’s a major flaw that Judge Koh misunderstood in her application of existing antitrust and existing IP law.
Remember the core of her decision is that Qualcomm has, allegedly, a no chip, no license policy, or at least it did until her decision. That’s not necessarily anticompetitive. In other fields, for example, pharmaceuticals, nobody complains when somebody invents a new drug, whether it’s America or whoever. And then they charge a lot of money for that drug until the generics come out. Well, that’s because they have to recoup R&D cost, etc., etc.
Some terminology that will be important: FRAND, F-R-A-N-D, and that stands for a fair, reasonable, and non-discriminatory licensing. Judge Koh had found that Qualcomm had violated that. The problem is there’s at least six or seven ways to calculate whether something is fair, reasonable, and non-discriminatory. And it’s pretty clear that she didn’t go through any of them. And she only took at face value that because the entire unit, the entire handset was at a high price that meant that Qualcomm obviously was overcharging for everything. And that’s a problem because that’s not the way that you calculate damages or how you calculate what is fair, reasonable, and non-discriminatory.
And then last but not least is the national security issues behind this. Many of you may be aware that not too long ago CFIUS, our Committee on Foreign Investment in the U.S., put the kibosh on Broadcom, a Singaporean/Chinese company, with respect to the field of 5G. That is a very exciting field, but it’s also a very important field. When we talk about things, about being able to communicate with cars, the internet of things, and so on and so forth, 5G is going to be very important in the future. The lone company in the United States that’s by far and away the leader in 5G is Qualcomm. And of course, they have their patent, some of which are going to be affected by Judge Koh’s decision if it’s upheld. And the major beneficiary of ripping Qualcomm to pieces is Huawei.
So again, I’m so grateful that Scott mentioned the conflict between the FTC and the DOJ with respect to the antitrust and, to a lesser extent, the IP issues. But there’s also the question of the national security issue where, on the one hand, the United States government seems to be sympathetic to Qualcomm because of the 5G and the security issues surrounding 5G. The last thing we want is our intelligence agencies using cellular devices that use Huawei chips and Huawei technologies. We might as well just not encrypt anything at all.
So you have the United States government that is, from the national security side, obviously dependent on Qualcomm and very grateful to Qualcomm. But then, on the other hand, you have the FTC basically not giving a crap about the national security issues and asking for a global remedy, which they got. Judge Koh issued a global remedy that affects Qualcomm not only here in the United States but also its licensing, practices, sales, etc., etc., overseas and particularly in important markets like South Korea, Japan, Singapore, and, of course, the People’s Republic of China, which Qualcomm is already at a severe disadvantage in China because it’s Huawei’s home turf.
So I think it’s important to consider all these issues. It is easy to get into the weeds. We can talk about FRAND. We can talk about small scalable units, SEPs, non-SEPS, but I think the major issue is that it seems pretty clear that the district court misunderstands that the job of antitrust legislation is to protect competition and not any particular competitor.
Wesley Hodges: Thank you, John, and thank you, Scott. Scott, before we jump to audience questions, did you want to reply to anything that John said?
F. Scott Kieff: I just think John has -- no surprise. He’s done an excellent job laying out a great set of issues. And I think the only few things I might add here is that cases like this raise a number of really, really hard very, very practical questions for what you would do if you are the team adjudicating this case in the middle, if you’re sitting as a set of circuit judges or you’re sitting at an agency where a case like this is brought before you, or what you would do to litigate this case if you were on one side or the other. On the patent side, this is a very, very hard case to litigate because it basically looks like a very weird form of power kind of run amok.
It’s not a case stimulated by a part of the government that you have easy access to. It’s a level below the commissioners at an agency. And of course, people outside the government don’t really have great access to staff inside of an agency. That’s not the way agencies are set up. They’re set up -- agencies like multimember commissions such as the Federal Trade Commission are set up to give most of the access through politically responsive commissioners of both parties. So it’s hard to access the commission that started the case.
It was also hard to access the adjudicator adjudicating the case because this particular district judge used a fairly expedited process. This was not a full ordinary set of commercial parties involved in full commercial litigation in front of the jury or even a full bench trial. So the strategic question that is really hard for patentees in cases like this is how hard do you fight? Is it better to fight at the agency that started the case or fight at the trial court? Or is it better to hope that one or both of those overplays its hand and then go up on appeal with a kind of procedurally odd and substantively odd but painful adjudication against yourself and then hope to win later on those oddities while sustaining the pain?
That’s a tough strategic choice. Or do you go in the other direction and try to convince these actors who appear, based on how they approach the case, to have an approach to the case that didn’t seem to be changeable through ordinary argument? In which case, presenting ordinary argument is kind of like showing your hand and just giving those adjudicators and litigators the opportunity to smack down or bat down the cards in your hand, the cards you would play. And then once they smack them down, those smack downs enjoy, because of the way all humans make decisions -- we all use heuristics.
We all sacrifice our lives to the shortness of time and say to ourselves, “Hey, some other group of professionals have already gotten involved in this case. The Federal Trade Commission is a presumptively ordinary operating part of the government. If it’s bringing the case, there must be something to it. Hey, this district judge, even if using expedited procedures, has basically looked at the case. So I, an appellate tribunal or a sister agency, I might give some kind of gut level deference.”
And then there are formal forms of deference, like the rules of appellate practice or the Administrative Procedures Act, all of which have the effect of basically strengthening the hand of the first government actors in this case, the Federal Trade Commission staff and the district court judge, simply because they’re government actors who have done something. In which case, the decision to have played the hand of the patentee early runs the risk of setting up the situation where these powerful government actors have rejected arguments or rejected facts, even if the patentee thinks wrongly so.
So patentees in cases like this face a tough strategic choice. Implementers face another tough strategic choice, which is how happy are they when government actors are going their way. The Broadcom/Qualcomm/CFIUS example brought up earlier is kind of classic on this front because you had the CEO of Broadcom, in what most corporate CEOs would describe as a very favorable government relations position in the fall before the CFIUS decision. That CEO was in the Oval Office with the President of the United States in a very high profile bond. And then by the following spring, that same otherwise high profile political bond didn’t seem to be sufficient to resist that CFIUS order directly against that same CEO.
So the political strategy for implementers on that side is complicated as well. So I’ll just leave those things there because I recognize they’re all somewhat provocative. And I think the point here is to just recognize that everybody’s scratching their heads on cases like this. Sure, there’s a winner, at least for a moment. But it’s also through a fairly odd process.
Wesley Hodges: Thank you, Scott. John, do you have anything that you’d like to follow up on?
John Shu: Yeah. I think Scott hits all those issues very, very well. I think one could reasonably say that this case actually happened January 20, 2008, because Apple and Google were amongst the first people to donate to the Obama campaign and the Obama administration. Qualcomm was behind the curve, and that’s how so many Apple and Google people ended up in the Obama administration. So all that bore fruit in 2016 when they were considering the process. Qualcomm was behind the curve, so they got hit during the transition. Perhaps the real take home issue is start donating. That’s a joke.
Wesley Hodges: Thank you, John. And Scott, do you have anything you’d like to add before we go to audience questions?
F. Scott Kieff: Well, just John and I obviously can find lots of sardonic humor in all aspects of the case. What’s hard with all of this is what really to tell people in the business community how do businesspeople make decisions. And politics and political access are one way. Litigation is another way. Focusing back on the facts and the law can be yet another way. But in cases like this, it’s hard to figure out to whom you go with your bag of facts and law. Who’s going to let you play with those tools when these other tools seem to be so powerful at the moment?
Wesley Hodges: Well, very good. Well, maybe now is a good opportunity to change the system and allow people to contribute questions. It looks like we do have two questions out of the gate. First caller, you’re up.
Mike Daugherty: Hey, this is Mike Daugherty. I’m the CEO of LabMD, so I’ve had just about 11 years of dancing with the Federal Trade Commission and climbing what I call the long slug of Justice Mountain. And one, quote/unquote, if you can call it, is you can consider having your company completely destroyed and then someone telling you you’re right winning. So I chuckle and I listen. And you’re right. There’s all this sardonic humor because you better laugh or cry.
To me, having experienced all this at the granular level is that the commissioners have really zero true information of what goes on in these cases and basically sign off. And this creates this really incredible concentration of power. And I have had a lot of high profile in my case now in the media. Yet, I will tell you it’s also been a real experience that the business community doesn’t want to know.
People are afraid. They just play the lottery. It’s Vegas via the few getting ensnared are small. You don’t want to go up against your general counsel. Your general counsel doesn’t know about administrative law. It is what I often speak about: the gargantuan mess when lawyers and agencies get into medicine and technology. People will get hurt, and they do get hurt.
And when you talk about national security and I talk about cancer and sections that are getting wiped out, I think the only way out of this -- and I’d like to hear suggestions in the greater education of the business community and the legal community, by the way, because most people out there don’t have experience with this. How do you get people to finally understand that this horror story of Company B that doesn’t directly affect them actually does? It’s not going to be easy. I don’t expect a snap answer.
John Shu: Thank you very much for your question. I think there are -- if you look at the amicus briefs that have been filed, I think there are a good number of people in the community that are concerned about Judge Koh’s position. Nokia filed an amicus brief in support of Qualcomm. I think, as I remember, Dolby, the sound system company, filed a brief in favor of neither party but --
Mike Daugherty: I was speaking more before the fact than after, in generality. But that’s true. Once the tree falls on them directly, they’re writing briefs. But outside of that, it’s hard for -- to me, when the government knocks on your door, you’re already in the emergency room. Anyway. Go ahead. Sorry.
John Shu: I was just going to say that the community, I think, was aware. But at the same time, Mike, I think you’re right. I think a lot of companies are also afraid because if they speak out who’s to say the FTC won’t come after them for something, especially if you look at the unusual theories that the FTC put forth in suing Qualcomm. If you go all the way back to Humphrey’s Executor during the FDR years, when Scott was talking about administrative law, this really is an unusual situation where you have one agency and another agency completely at odds with each other. There’s no compromise between the DOJ’s and the FTC’s position. To me, if you believe in the unified Executive Branch, that’s a problem. That’s a real problem.
Mike Daugherty: Wasn’t this Edith Ramirez’ final salvo before she was out the door, or am I missing that? Am I wrong on that?
John Shu: Well, I don’t know if it was hers alone. There were a lot of -- Scott was talking about the staff at the FTC doing a lot of work, most of the work, and the FTC commissioners essentially just being signators. And I think that’s unfortunately true. You even had another situation where, after Judge Koh’s opinion, the United States Department of Defense filed an affidavit saying, “Look. You can’t ripe apart Qualcomm. That’s genuine threat to our national security and to the way the DOD conducts operations.” The FTC actually responded to that in a very mean and nasty way. So it wasn’t just a --
Mike Daugherty: Well, there’s a shock. Sorry. Go ahead. That was a joke.
John Shu: It isn’t just the FTC versus the DOJ. You also have the FTC arguably stepping into the field of military operations and national security. And they basically said, “Well, you with the DOD, you don’t know what you’re talking about. Who cares about the harm to security?” I think they said something along the lines of just because Qualcomm is involved with military operations and national security doesn’t exempt them from antitrust enforcement. Which of course DOD affidavit had nothing to do with that at all.
So to me, that’s very disturbing. To me, does the President have the power of the administrative state or not, constitutionally? And when there is a conflict within the administrative state, who gets to resolve that? Is it a judge in Article III, or should it be the President in Article II? That’s a constitutional issue that, whether willingly or not, the FTC and Judge Koh have triggered in this case.
Mike Daugherty: I think it’s an important thing for people to get a knock in the face on, so hopefully they’ll assemble themselves because hubris is pretty unspeakable. But when it comes to people like me, they think I have an ax to grind. So unfortunately, these terror stories, if they get out, are great. Thank you.
Wesley Hodges: Thank you. Here is our second caller of the day.
John Vecchione: Hi, John Vecchione of Cause of Action. We put in one of those amicus briefs, and we used to represent LabMD. But one of the things that Mike just hit upon was that this was done in the last week because we had a client who was hit at the same time by previous commissioners. So you basically have folks from a previous administration driving the bus rather than the current administration on these national security matters. But my question is, and if you’ve answered this already, forgive me, but the stunning thing to me was that Judge Koh did not grant the stay of her opinion after she ordered all these contracts to be negotiated. And she wouldn’t stay that order upon appeal, which strikes me as crazy almost. And you’ve got an opinion from the Ninth then staying it. I found that cheering. But what do you make of her not granting the stay?
F. Scott Kieff: This is Scott. I think it’s important to keep in mind that though this question and the last question are expressing exasperation, understandably expressing exasperation. But I think the more difficult question is what to do about it. And I think sometimes it’s just helpful to go back to something we were talking about earlier, which is when a set of individual human beings with government power have an approach and you are observing their approach through their actions and then they’re talking to you about their approach through their words or their writings, it might be worth noticing that, if what they’re doing matches what they’re saying, it’s probably likely they’re going to continue doing just that.
That was what happened with parts of the organizational structure within the FTC that stimulated the case and the district court adjudicating the case. If you don’t like that, I don’t think you can do very much to change it, other than to use a careful strategy. And that careful strategy has to balance the concerns we were discussing earlier. On the one hand, do you talk more to these human beings with power about your ideas and your view that they’re wrong? Because sometimes, talking to someone with power about why you think they’re wrong has the unintended consequence of simply further strengthening their hand by showing them your hand and allowing them to, in effect, play cards that beat your hand simply because of the power of their office.
John Vecchione: One thing about that, though, is one thing that has happened -- the FTC had its power taken away once. Perhaps this type of story and this type of outcome -- and I hope the outcome doesn’t stay and you get it reversed, which would be a powerful message in itself -- but someone over at Congress has got to be thinking about these issues. As you said, there’s national security, but there’s also the fact that the government is fighting itself over this, which is also not a great spectacle.
F. Scott Kieff: Well, you’re right. Look. There’s no doubt for those of us on the call -- and there are a lot of us, I’m sure, on the call, including both John and myself, who have worked in different parts of the government. One of the things you start to realize about cases like this is how important it is to socialize ideas around the government and collaborate with people around and across the government, even people who don’t see things the same way you do but at least those who might be open to seeing things the same way you do and trying to coordinate. Because if not, small groups of individuals can punch way above their weight.
John Shu: Scott’s absolutely right, of course. I want to address a practical aspect of it, which is Qualcomm and the FTC were appearing in front of Judge Koh. And sometimes you have to argue the law. You have to argue the facts, blah, blah, blah. Well, you also have to argue the judge. And the fact of the matter is that Judge Koh has a history of, in her eyes, being friendly to the little guy. And so the fact is that, from the beginning before the first deposition or fact finding, boom. Qualcomm charges a lot. Therefore, it must be evil. Therefore, regardless of whatever, they charge a lot for their handsets, and it’s my job as a judge to protect the little guy. That’s unfortunate, but it’s also a fact of life.
Scott was saying where do you start? To whom do you argue? Where do you begin the process of working with the various government entities, including the third branch? You have a case here where Qualcomm was stuck from the beginning because they do charge a lot. The question that they never got across was is that okay. Constitutionally, you’re looking at basically a right to contract.
If it’s read in its totality, if Judge Koh’s decision really does require Apple and Qualcomm to just vacate their settlement from this past April, does that also mean that Intel, which has kind of part of the settlement -- Intel said, “Okay. You know what? We’re going to withdraw. Apple and Qualcomm have settled this case amongst themselves. And we’re going to withdraw from the chip market. We can’t do it. The R&D involved in 5G chips is just too much. It’s not our area of sub-expertise anyway, and there’s no way that we can make chips that objectively are as good. So we’re out. Can’t do it.” But does that mean that because Judge Koh’s opinion is so broad and her ruling is so broad -- does that mean that Intel now has to get back into the business that they didn’t want to in the first place?
So I think from your perspective you’re saying, “I can’t believe she didn’t want to stay her own opinion.” But from my perspective, and for many people who practice in California, well, it was very unlikely that she was going to stay her own opinion. It’s very unlikely that she would stay any of her own opinions. I think another flaw in her process is that it’s not unusual for a district court judge to hold a separate hearing on the remedy, especially a remedy as complex as this. There are a lot of patents involved in this case. It’s not like just one or two or three. We’re talking about tens of thousands, if not more, of patents that are involved in this case. So it’s not unreasonable, and it’s not unusual for a district court judge to hold a ready hearing. Here, Judge Koh didn’t do that, and that’s why her remedy is literally global.
Now, there’s a debate within The Federalist Society about nationwide injunctions and whether a district court, say, in Hawaii can issue a nationwide injunction on something like the wall, even though there’s no wall in Hawaii. But this is even worse. This is a situation where Judge Koh has issued literally a global injunction. I think a few years ago I don’t think anybody would have imagined that a single district court judge could issue that kind of injunction. It would be interesting to me to see what the Chinese government or the Singaporean government or whoever has to say about that, about the global injunction from Judge Koh.
So I feel like, on the one hand, yes, there are clear points, and that’s why it’s been raised on appeal -- raised on appeal but also raised in the application to stay from the Ninth Circuit, which was successful. But I think there are also larger questions to consider: constitutional issues, the administrative stuff, presidential power, the basic right to contract, and then, of course, the issue of how far does a district court’s power go. Is it retroactive in things that private litigants decided to settle? To me, those are equally as important questions as the antitrust or the IP issues at stake.
And I think we can talk about the damages. We can talk about how damages should be calculated. We can talk about whether these damages even exist in the first place. Do you consider the item in question to be the whole handset, for instance? Or do you consider -- do you have to consider small, scalable, patentable units? Meaning, what is the smallest little, tiniest little patent that’s in consideration, and how do you charge based on that? Do you charge on the whole phone, or do you charge on each little patentable unit?
Those are all very import questions, too. And that’s why I say this case is, beyond the complexity of it, it also raises very important issues beyond the IP, beyond the antitrust. And I think it’s really a great case for so many specialists from so many different fields to come together. The liberals love to talk about intersectionality, but this really is an intersection of very important legal questions.
Wesley Hodges: Well, thank you, caller. We do appreciate your contribution to the conversations. John’s gone for responding.
John Shu: I actually have a question for Scott, if you don’t mind, Wes.
Wesley Hodges: Absolutely, John. Go ahead.
John Shu: Scott, it bothers me -- I was just talking about the small scalable units. It bothers me that it seems that the district court did not quite grasp that there are tens of thousands of patents involved in a single handset, in that, generally, when a court -- let me rephrase that. When the Federal Circuit uses SSP units, you’re talking about a unit that maybe has three or four patents at most, not a handset where there’s thousands of patents. And I’m wondering, from your perspective, do you think it’s something that the district court just refused to consider as irrelevant? Or is this something where the district court was like, “Well, I think the Federal Circuit got it wrong”? To me, in this case, it doesn’t matter how many patents there are at issue. We need to calculate the damages based on these units. I’d love to get your perspective on that.
F. Scott Kieff: I think what’s hard here is these are all really smart people. So I think that they’re smart people, and they all think they’re doing good and they all want to do good. I think the differences are they have very, very different views about what it means to do good. So I think there’s a lot of ideas that kind of stack up together and are consistent with each other. And some of the staff inside the commission and this particular district judge, at least on this and some other cases in these areas, are acting in ways that are kind of pretty consistent with their portfolio of ideas. But I think it’s incorrect to suggest that those ideas aren’t the product of a good heart and a good head. They’re just different.
And then the question is what do other actors want to do about those differences. Do they want to explain why they’re wrong, or do they want to, in effect, say, “Not your turn at the wheel. Now it’s someone else’s”? Look. I write books and articles on patent law and antitrust and administrative law and governance. I’m happy to talk details about all of those, let’s call it, substantive areas of law. But sometimes, it’s worth noticing, if you’re the short kid on the playground and all the other kids are there playing basketball, I think it may be to your strategic advantage to call the next game soccer, not challenge everybody to a $5 a point game of basketball because you’ll loose your wallet doing that. I think it’s important to understand what the rules of the game really are, that the other players really are playing, and then figure out pretty quickly, when you do the math on that, you’re not going to win and then try to figure out whether you can encourage a different and legitimate set of other rules to be applied.
I think you have to, in effect, shift the frame. And shifting of frame requires a lot of coordination, a lot of effort, and a lot of cooperation. Other people have to share that frame, and that requires socializing those ideas. I think in a power dynamic that was playing out, whether it’s debates over patent remedies or anticompetitive effect, I think we all can observe that in settings like that one side’s simply arguing “We deserve more money” is almost always a loosing argument. I think arguments have to be about what’s good for the system and getting everyone in the system to buy into a different set of metrics, a different set of frameworks.
I’m always nervous when patentees kind of say “Look how much I invested in this. You need to give me my just reward.” I think that if you have a skeptical adjudicator or a skeptical enforcer and that’s your argument, I think it’s just almost always going to lose. That’s what it means when you recognize all the other things about the adjudicator and the regulator. They’ve already decided to be in this space. They’ve already decided -- they’ve already baked all of that into their thinking and telling them it hurts you they’ll feel badly for you.
But that’s not going to change their lens. If you want to change their lens, I think you have to get that adjudicator and that regulator to see how harmful it is to the parts of the economy that they have told you they care about. Or you need to get other more powerful parts of the government to intervene to make sure that these regulators or adjudicators are not allowed to simply pay attention to the things they are paying attention to. But I think it’s a mistake to think they’re just making a mistake.
John Shu: Obviously, Qualcomm’s argument -- initial argument of the other OEMs have the right to contract and we deserve our just reward -- obviously, it didn’t work at any stage of the process, whether it was within the FTC or at the trial level. So your explanation there, I think, was spot on. They got crushed, with respect to that particular sub-argument. We worked hard on our R&D, and clearly, Judge Koh just didn’t give a damn.
F. Scott Kieff: The thing I’m trying to emphasis in the materials that I provided for the call are to kind of help policy makers and help regulators and help adjudicators see that there is a politically and socially diverse group of intellectuals who have embraced an approach to patents and antitrust, as well as the patent antitrust interface, that is quite different than the approach taken in this case and not because of an analysis that is a too much or too little argument, but rather a much more structural argument about how you coordinate contracts in the marketplace and how you allow folks to design around and how you signal and transact. Some of that stuff is a little boring. It’s a little less pithy. It doesn’t lend itself to a tweet.
It doesn’t lend itself to a zinger on TV but gives a pathway for a much more property rights, market oriented approach to patents and antitrust and the patent antitrust interface. And it does so in a way that members of both political parties can subscribe to. And my two cents, what I focused on in my work, is building coalitions of ideas around those coalitions of people because it seems to me then you have a big, broad support network for common ideas and common values. And then you’re not the only one arguing that, golly gee, you just deserve more from an adjudicator who’s kind of, from your perspective, told you before that they think about you with a lot of skepticism and then acted in a way that shows you a lot of skepticism.
John Shu: Yeah. That’s right. I do agree with Scott that this is a situation where we have certain adjudicators at all levels paying more attention to the arguments within the salons of Atherton and Cupertino, as opposed to the actual law. That’s problematic. And also, what I mentioned before about the constitutional issues of the basic right to contract, how far does that go, and how far can legislation, whether it’s IP or antitrust legislation, can go ahead and curtail some of that right to contract? So anyway. But that’s a good wrap up to the whole discussion.
Wesley Hodges: Absolutely. John, Scott, thank you so much for those thorough remarks. Do you have anything you’d like to say before we sign off today?
F. Scott Kieff: Just that I appreciate the callers for their interest and their questions and John for his great comments and you, Wes, and the others at the office for organizing the call. I think these are really important issues. And I’m delighted to work with anyone who would like to explore them further, either in the policy space, the academic space, or in the private sector space. These are tough problems. But the good news is none of this is new.
We could be talking about a ton of other examples in other industries and other decades, let alone other centuries, and see that these fights in the patent antitrust space are not new. And that means we don’t have to be rocket scientists to figure out totally different approaches, nor do we have to be dragon slayers. We can find a broad group of people who can support a broad historic set of ideas that have worked well for Americans of broad political perspectives and shift the patent antitrust system to be far more productive.
John Shu: I echo all of that and thanks to you, Wes, and to Dean and to The Federalist Society and thanks especially to Scott. This was a great call. I enjoyed being on the call with him very much. And thanks to all our listeners and callers for your interest in what is, admittedly, a very complex issue or set of issues but also, I think, a very important one for the law, as well as the country.
Wesley Hodges: Well, we look forward to monitoring this case as it moves forward. And on behalf of The Federalist Society, I’d like to thank you both for the benefit of your valuable time and expertise today. We welcome all listener feedback by email at firstname.lastname@example.org. Thank you all for joining us for the call. We are now adjourned.
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