Obama's anti-patent system remains fundamentally unchaned FTC v. Qualcomm: What Really Is Going On
By Rob Enderle Feb 4, 2019 5:00 AM PT I've been watching antitrust cases actively since the 1980s. I had to study historical antitrust cases going back to Standard Oil and RCA, in order to ensure compliance with a related consent decree When I worked at IBM. Each of the other cases had one thing in common: Both of the companies being charged were massively and obviously monopolies.
There were many questions about whether they were behaving badly or really had an adverse impact on competition, but there generally was no doubt they had monopoly power.
The current FTC v. Qualcomm case is vastly different, in that the two companies that apparently have been screaming they were damaged are four times and 10 times larger than Qualcomm, and they have a history of anticompetitive behavior.
During the closing arguments, I had a ton of wtf moments, as the FTC brought forth incredibly stupid arguments. During the close, it felt as though the FTC attorney hadn't really prepared, hadn't organized her evidence into what I would have thought to be an obvious framework, and pretty much just called Qualcomm names with little to back up her claims.
This isn't high school pre-law -- this is federal court. The quality of work was more in line with what you might expect to see from an overworked and under-resourced public defender with too many cases.
The implication that the FTC effectively was working for Apple was particularly disturbing during a time when I, and others, are increasingly concerned that the U.S. government is being run by big companies through lobbyists.
I'll share my thoughts about the troubling FTC vs. Qualcomm litigation and then close with my product of the week: an impressive update to my go-to home security camera solution, Arlo.
The FTC's Murky Case Against Qualcomm
The FTC's position was that Qualcomm, through use of its patent portfolio and licensing, restricted competition by abusing its power as a monopoly. This allegation should have led to a closing argument that clearly delineated three pillars of proof. When I was studying prelaw, I received training from a judge, and I'm still a fan of tight organization regarding how you present your legal arguments and evidence.
In this case, the FTC should have established three pillars of proof to show that Qualcomm was acting as a monopoly. If it wasn't, then it didn't have the power to commit the crime that was alleged. Second, the FTC should have established that Qualcomm was abusing its monopoly power. Without abuse, there was no crime. Third, the FTC should have shown that Qualcomm damaged the industry, because that is what drives the remedy. Any damage would have to be corrected.
There were no obvious pillars of evidence in the FTC's argument. First, if Qualcomm was acting as a monopoly, then it must have dominated its market. However, the three largest players in the smartphone market -- Samsung, Huawei and Apple -- generally have not used Qualcomm modems or processors. Samsung and Huawei mostly have made their own, and Apple has bought them from Intel.
In fact, if you look at Qualcomm vs. either Intel or Apple, it is comparatively tiny, with just one-fourth the value of Intel and one-tenth the value of Apple. Granted, both companies have been having significant issues, but Qualcomm can't be blamed for a massive lack of demand for Apple's products, or for Intel's inability to solidify a management team.
Intel's issues pretty much start with its having a board that, for the most part, wouldn't know the difference between a GPU and a CPU. Intel can't seem to find a new CEO who is both qualified and dumb enough to take the job.
Second, the FTC needed to show not only that Qualcomm was a monopoly, but also that it abused its monopoly power. Given that I don't think it came close to achieving its burden of proof on the question of Qualcomm being a monopoly, the abuse contention immediately became problematic. The FTC argued that Qualcomm illegally tied its patent portfolio to its modem sales, but it presented no evidence that Qualcomm ever cut modem supply to a buyer that didn't have a patent license.
There was a legitimate reason to tie those two things together: Implementing one of Qualcomm's modems did require the use of Qualcomm's patents, and a license would have avoided litigation. I found it particularly troubling that the FTC argued that reducing litigation was an example of abuse of power. I'm guessing that was because the commission believed that normal companies -- as in non-abusive monopolies -- must spend millions on unnecessary litigation in order to operate. Maybe this had something to do with job security, but I sure didn't get the connection.
Virtually all of the witnesses the FTC brought forward who said that Qualcomm forced their companies into signing a contract were countered by witnesses Qualcomm's attorneys called -- employees from the same companies who said those accounts were BS. Each FTC witness was impeached by a coworker, which really made the FTC's case look fabricated.
Third, the issue of damages was telling. During the close, the example the FTC used was that every time Apple requested a concession from Qualcomm, Qualcomm wanted a concession in return. It was as if the FTC existed in some strange parallel universe where only the bigger company can make demands, and the smaller firm can say nothing but "yes sir, can I have another?"
It was obviously bullying behavior by Apple, and the FTC seemed to be saying that any company that could resist Apple's bullying clearly was abusing its power. I seriously thought that the U.S. legal system was starting to look as though it was founded on concepts you'd more likely see in a third-world country, where the laws are whatever the powerful say they are.
The FTC's Impeachable Expert
What I found particularly bizarre was the unique theory offered by the FTC's lead expert, Carl Shapiro, a professor of economics at the University of California, Berkeley. Shapiro concluded that Qualcomm's business model must be illegal, although his view appeared to have no connection to any facts. He offered no research or empirical evidence -- just one guy's ideas about how the world ought to work. More importantly, he made it clear that anyone who disagreed with him -- including judges (and I'll get to this in a moment) -- was an idiot.
I've worked with folks like this in the past and I'm sure you have as well. They are so extremely narcissistic that they don't accept anything from anyone but themselves. Now this legend in his own mind also was a pivotal expert in the AT&T Time Warner trial, and the judge in that trial went off on how poorly founded Shapiro's testimony was, and how far from reality his fanciful theory was. Seriously, the judge went on and on with his observations that Shapiro's comments were so poorly founded as to be less than worthless, before ruling in favor of the merger and against the DoJ.
The FTC attorneys' choice to use this guy must come down to the fact they couldn't find any other qualified expert who agreed with them, and hoped, which was pretty foolish, that Qualcomm's attorneys wouldn't find out about that prior case (Shapiro claimed under oath that he didn't remember it. There is no way that is true, given how he went after the judge when it was brought up.)
Seriously, the guy was a narcissist. Anyone who went after him, like the judge in the AT&T/TM trial did, would be on his immortal mortal enemies list. Even for a normal person, if judge were to tear you or me a new bung hole like that judge did, we'd remember it till the end of days. Shapiro claimed he forgot it in a few months. I doubt any of us are that gullible -- but apparently, the FTC was.
..