By Daniel Medlock

The Courts Will Determine the 5G Arms Race

5G is here, and if one believes the hype, things are never going to be the same.

5G is the 5th generation of wireless communications standards. Economists expect 5G to be a revolutionary force extending beyond cell phones, estimating the global economic impact of 5G in new goods and services will reach $12 trillion by 2035.

With the eight most common phones in the United States being a different version of Apple’s iPhone, one would assume Apple is helping lead the way forward with 5G; however, due to a legal dispute with a telecommunications giant, Apple is lagging behind their competition.

Battle of the Titans

Qualcomm Incorporated dominates the cell phone industry owning 130,000 telecommunications patents.

Acting on a tip from Apple, the Federal Trade Commission filed an antitrust suit against Qualcomm in 2017. The FTC alleged Qualcomm instituted a “no-chips, no licenses” business model where Qualcomm would charge elevated royalties on their patents to companies that did not use Qualcomm as their supplier for baseband processors (also known as “chips” or “modems”). Also, Qualcomm allegedly refused to license their patents to their competitors, meaning if telecommunications technology was to improve, it could only be done through Qualcomm.

Apple filed their own suit against Qualcomm three days later. Qualcomm filed countersuit alleging patent infringement and disclosure of trade secrets after Apple began using Intel modems.

After contentious litigation on three different continents, Apple and Qualcomm settled in April 2019. Apple agreed to a six-year-licensing deal with Qualcomm and paid an undisclosed fee to Qualcomm.

Apple really had no choice but to settle with Qualcomm. The Intel modems Apple was using are inferior technology to Qualcomm’s and Apple cannot improve them without infringing upon Qualcomm’s patents. Each day, Apple did not have access to Qualcomm 5G modems, Apple fell further behind their competitors who already have 5G chips in their phones.

That victory was short-lived for Qualcomm, just a month later, a Federal District Court ruled against the telecommunications giant, determining the company violated the Sherman Antitrust Act.

Qualcomm is appealing the Federal Court decision and recently won an injunction to have the judgment stayed until the appeal, a huge win because it allows Qualcomm to continue to engage in its business model. The appeal is tentatively scheduled for January 2020.

What’s Next?

Apple bought Intel—and most importantly Intel’s intellectual property— for a billion dollars in July. Apple’s plan is to use Qualcomm modems in the interim, while using the Intel intellectual property to develop their own modems to the point where Apple can eventually cut Qualcomm out.

The assets Apple acquired only allows Apple a seat at the 5G table, Apple is still substantially behind the competition. Nonetheless, given the company’s portfolio, should Apple develop out the necessary tech, Qualcomm could be in trouble.

Apple is not the only company Qualcomm is fearing. While this American in-fighting goes on, Chinese company Huawei has an opportunity to take a stranglehold over the 5G market.

Being at the mercy of China for 5G technology is a doomsday scenario for the United States. The Department of Justice recognized that when they filed a motion in opposition to the judgment against Qualcomm. Even Christine Wilson, one of the five commissioners of the FTC, wrote an op-ed in the Wall Street Journal in opposition to her own department’s victory.

Beyond the national security interests working in Qualcomm’s favor, there may be an additional light at the end of the tunnel for Qualcomm on their Ninth Circuit Appeal—the law.

The Federal District Court, in FTC v. Qualcomm, potentially misapplied a case it relied upon, Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). In Aspen Skiing, the Supreme Court found a ski resort operator’s refusal to deal with a competitor he previously had a business relationship made him liable for violating the Sherman Act. The operator had a long-standing agreement to offer a combination lift ticket package with another resort but chose to terminate that relationship, electing to sacrifice profits in the short-term for the purpose of stomping out his competitor in the long-term to the detriment of consumers.

A subsequent case, Verizon v. Trinko LLP, 540 U.S. 398 (2004), narrowed the applicability of Aspen Skiing, to just scenarios like Aspen Skiing where the monopoly’s conduct adversely affects the market and consumers. The district court likely applied this exception too broadly when the court determined Qualcomm had a duty to deal with their competitors.

In Qualcomm’s case, while Apple and other companies looking to license the technology were paying hefty fees, there is no evidence that Qualcomm not licensing their product to competitors hurt consumers. Quite clearly, the cell phone industry is doing just fine.

It is generally more likely than not that an appellate court will affirm a district judge’s opinion, but with so much at stake and the law plausibly on Qualcomm’s side, there is a significant chance of a reversal.

 

Student Bio: Daniel Medlock is a second-year law student at Suffolk University School of Law and a staff member of the Journal of High Technology Law. He graduated from Ohio University with a degree in Journalism.

Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.

 

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