A U.S. appeals court on Tuesday reversed a lower court ruling against chip supplier Qualcomm Inc in an antitrust lawsuit brought by the Federal Trade Commission.
The U.S. Ninth Circuit Court of Appeals also vacated an injunction that would have required Qualcomm to change its intellectual property licensing practices.
The decision was a major vindication for the San Diego, California-based company, the largest supplier of chips for mobile phones and also a key generator of wireless communications technology.
Qualcomm was fighting a May 2019 decision by U.S. District Judge Lucy Koh in San Jose, California. That judge sided with the FTC, writing that Qualcomm’s practice of requiring phone makers to sign a patent license agreement before selling them chips “strangled competition” and harmed consumers.
The case divided antitrust regulators in the U.S. government, with the Justice Department intervening to file a brief in support of Qualcomm.
Qualcomm shares rose about 4% on the news. They were already up since March lows as the company continued to show growth despite a sluggish smart phone market.
“The court’s ruling is disappointing and we will be considering our options,” FTC Bureau of Competition Director Ian Conner said in a statement.
Qualcomm and the Justice Department did not immediately respond to requests for comment.
The antitrust case was the culmination of years of conflict between Qualcomm and smart phone makers, most notably Apple Inc , which supported the FTC’s case and mounted a separate antitrust lawsuit against Qualcomm.
The phone makers said Qualcomm was imposing what amounted to a tax on all phones by insisting that manufacturers license its broad patent portfolio regardless of whose chips they chose.
Apple settled its case against Qualcomm in 2018 and signed a license deal and chip supply agreement. Other major phone makers such as Huawei Technologies Co Ltd [HWT.UL] have also settled disputes with the chip supplier and signed license deals.
Qualcomm argued that the FTC decision, if allowed to stand, would upend its business model and require those deals to be reworked.
In a 3-0 ruling written by Circuit Judge Consuelo Callahan, the appeals court ruled Qualcomm had no duty to license its patents to rival chip suppliers and that it was not anticompetitive to require phone makers to sign a license agreement.
“Instead, these aspects of Qualcomm’s business model are ‘chip-supplier neutral’ and do not undermine competition in the relevant antitrust markets,” Callahan wrote.
The appeals court also ruled that chip supply agreements with Apple in 2011 and 2013 did not foreclose competition in the market for certain types of modems that connect phones to mobile data networks.
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