17-04-03 Qualcomm Motion To Dismiss FTC Case

Case 5:17-cv-00220-LHK Document 69 Filed 04/03/17 Page 1 of 30

1 CRAVATH, SWAINE & MOORE LLP MORGAN, LEWIS & BOCKIUS LLP
Gary A. Bornstein (pro hac vice) Willard K. Tom (pro hac vice)
2 [email protected] [email protected]
Yonatan Even (pro hac vice) 1111 Pennsylvania Avenue NW
3 [email protected] Washington, DC 20004-2541
825 Eighth Avenue Telephone: (202) 739-3000
4 New York, New York 10019-7475 Facsimile: (202) 739 3001
Telephone: (212) 474-1000
5 Facsimile: (212) 474-3700 MORGAN, LEWIS & BOCKIUS LLP
Donn P. Pickett (SBN 72257)
6 MORGAN, LEWIS & BOCKIUS LLP [email protected]
Richard S. Taffet (pro hac vice) Geoffrey T. Holtz (SBN 191370)
101 Park Avenue One Market, Spear Street Tower
8 New York, NY 10178-0060 San Francisco, CA 94105-1126
Telephone: (212) 309-6000 Telephone: (415) 442-1000
9 Facsimile: (212) 309-6001 Facsimile: (415) 442-1001

10 Attorneys for Defendant

QUALCOMM INCORPORATED
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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17 FEDERAL TRADE COMMISSION, Case No. 5:17-cv-00220-LHK
18 DEFENDANT QUALCOMM
Plaintiff, INCORPORATEDS MOTION TO
19 DISMISS AND MEMORANDUM OF
20 vs. POINTS AND AUTHORITIES IN
SUPPORT
21
QUALCOMM INCORPORATED, a Delaware REDACTED VERSION OF DOCUMENT
22 SOUGHT TO BE SEALED
corporation,
23 Date: June 15, 2017
24 Defendant. Time: 1:30 p.m.
Courtroom: 8, 4th Floor
25 Judge: Hon. Lucy H. Koh
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MORGAN, LEWIS &
BOCKIUS LLP Motion to DismissCase No. 5:17-CV-00220-LHK
ATTORNEYS AT LAW
SAN FRANCISCO
1
NOTICE OF MOTION AND MOTION
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TO THE HONORABLE COURT, ALL PARTIES, AND THEIR ATTORNEYS OF RECORD:
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PLEASE TAKE NOTICE that on June 15, 2017, at 1:30 p.m., or as soon thereafter as the
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matter may be heard, in Courtroom 8, United States Courthouse, 280 South 1st Street, San Jose,
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California 95113, Defendant Qualcomm Incorporated will and hereby does move the Court for an
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order dismissing Plaintiff Federal Trade Commissions (FTC) Complaint for Equitable Relief
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(ECF No. 1; the Complaint).
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This motion is made pursuant to Federal Rule of Civil Procedure 12(b)(6) and is based on
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the following ground: the Complaint fails to state a claim for relief under Section 5(a) of the FTC
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Act, 15 U.S.C. 45(a).
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This motion is based on this Notice of Motion and the Memorandum of Points and
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Authorities in Support filed concurrently herewith, the pleadings and documents on file in this
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case, and other such argument as may be presented by counsel at the hearing on this motion.
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ISSUE TO BE DECIDED
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Whether the Complaint should be dismissed under Fed. R. Civ. P. 12(b)(6) because, even
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if the allegations in the Complaint are taken as true, it fails to state a claim under Section 5(a) of
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the FTC Act, 15 U.S.C. 45(a).
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MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
Motion to DismissCase No. 5:17-CV-00220-LHK
SAN FRANCISCO i
2
TABLE OF CONTENTS
3
Page
4
TABLE OF AUTHORITIES ......................................................................................................... iii
5
Preliminary Statement ..................................................................................................................... 1
6
Factual Background ........................................................................................................................ 4
7
Legal Standard ................................................................................................................................ 6
8
Argument ........................................................................................................................................ 7
9
I. THE FTC FAILS TO STATE A CLAIM OF UNLAWFUL
10 MONOPOLIZATION. ........................................................................................................ 7
11 A. The FTCs Tax Theory Does Not State a Claim of Unlawful

Monopolization. ...................................................................................................... 8
12
1. Qualcomms Practice of Not Selling Chips to Infringers Does Not
13 Exclude Competing Chip Suppliers. ........................................................... 8
14 a. The FTC has not pled facts showing that Qualcomms

licensing terms are elevated. ........................................................ 9
15
b. The FTC has not pled facts supporting a claim that
16 Qualcomms royalties have foreclosed other modem chip
suppliers. ....................................................................................... 11
17
2. Qualcomms strategic funds and other similar incentive payments
18 do not exclude competing chip suppliers. ................................................. 13
19 3. Qualcomms practice of licensing its patents only at the handset

level is not exclusionary. ........................................................................... 14
20
B. The FTCs Exclusive Dealing Theory Does Not State a Claim of
21 Unlawful Monopolization. .................................................................................... 17
22 II. THE FTC FAILS TO STATE A CLAIM OF UNREASONABLE RESTRAINT

OF TRADE. ...................................................................................................................... 21
23
III. THE FTC FAILS TO STATE A CLAIM OF UNFAIR METHODS OF
24 COMPETITION UNDER SECTION 5(a) OF THE FTC ACT. .................................... 22
25 Conclusion .................................................................................................................................... 25
26
27
28
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO ii
2 TABLE OF AUTHORITIES
3 Page(s)
4 Cases
5 Abbyy USA Software House, Inc. v. Nuance Commcns Inc., No. 08-01035, 2008
WL 4830740 (N.D. Cal. Nov. 6, 2008) .....................................................................................18
6
Allied Orthopedic Appliances, Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991
7
(9th Cir. 2010) ................................................................................................................... passim
8
Apple Inc. v. Samsung Elecs. Co., 920 F. Supp. 2d 1116 (N.D. Cal. 2013) ...................................15
9
Ashcroft v. Iqbal, 556 U.S. 662 (2009) .....................................................................................4, 6, 7
10
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ...............................................................4, 6, 7, 10
11
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) ....................2, 13
12
Cascade Health Sols. v. PeaceHealth, 515 F.3d 883 (9th Cir. 2007) .............................................14
13
14 E.I. du Pont de Nemours & Co. v. FTC, 729 F.2d 128 (2d Cir. 1984) .....................................23, 24
15 Eastman v. Quest Diagnostics Inc., 108 F. Supp. 3d 827 (N.D. Cal. 2015) ...................................19
16 Emrich v. Touche Ross & Co., 846 F.2d 1190 (9th Cir. 1988) .........................................................7
17 Feitelson v. Google Inc., 80 F.Supp. 3d 1019 (N.D. Cal. 2015) .........................................14, 19, 22
18 In re Beltone Elecs. Corp., 100 F.T.C. 68 (1982) ...........................................................................19

19 In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322 (Fed. Cir. 2000) ......................................15
20 JM Computer Servs., Inc. v. Schlumberger Technologier, Inc., No. C 95-20349
21 JW, 1996 WL 241607 (N.D. Cal. May 3, 1996) .......................................................................22
22 John Doe 1 v. Abbott Labs., 571 F.3d 930 (9th Cir. 2009) .............................................................13
23 Kolon Indus. Inc. v. E.I. DuPont de Nemours & Co., 748 F.3d 160 (4th Cir. 2014) ......................19
24 Leegin Creative Leather Prod., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) .......................................21
25 Matter of Gen. Foods Corp., 103 F.T.C. 204 (1984) ................................................................23, 24
26 Name.Space, Inc. v. Internet Corp. for Assigned Names & Numbers, 795 F.3d
1124 (9th Cir. 2015) ..............................................................................................................7, 21
27
28 Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997) .............................................18
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO iii
1 Pacific Bell Telephone Co. v. linkLine Commcns, Inc., 555 U.S. 438 (2009) ....................... passim
2 Phillips v. Bureau of Prisons, 591 F.2d 966 (D.C. Cir. 1979) ..........................................................7
3 Rambus v. FTC, 522 F.3d 456 (D.C. Cir. 2008) ...................................................................3, 11, 15
4
Rheumatology Diagnostics Lab., Inc. v. Aetna, Inc., No. 12-CV-05847-WHO,
5 2013 WL 5694452 (N.D. Cal. Oct. 18, 2013) ...........................................................................19
6 Rheumatology Diagnostics Lab., Inc. v. Aetna, Inc., No. 12-CV-05847-WHO,

2014 WL 524076 (N.D. Cal. Feb. 6, 2014).........................................................................14, 20
7
Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215 (8th Cir. 1987) ........................................................18
8
Somers v. Apple, 729 F.3d 953 (9th Cir. 2013) .....................................................................6, 10, 16
9
Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961) ..................................................19, 20
10
11 United States v. Colgate & Co., 250 U.S. 300 (1919) ....................................................................15
12 United States v. Grinnell Corp., 384 U.S. 563 (1966) ......................................................................7
13 United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ......................................................7
14 Verizon Commcns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398
(2004) ................................................................................................................................ passim
15
Statutes & Rules
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15 U.S.C. 1 ...................................................................................................................................21
17
18 15 U.S.C. 2 .....................................................................................................................................7
19 15 U.S.C. 45 .............................................................................................................................7, 22
20 Other Authorities
21 2 Areeda & Hovenkamp, Antitrust Law (3d ed. 2007) ...................................................................22

22 3 Areeda & Hovenkamp, Antitrust Law (2d ed. Supp. 2006).........................................................14
23 1 ABA Section of Antitrust Law, Antitrust Law Developments (6th ed. 2007) ...............................7
24
Federal Trade Commission, Statement of Enforcement Principles Regarding
25 Unfair Methods of Competition Under Section 5 of the Federal Trade
Commission Act, 80 Fed. Reg. 57056-01 (Sept. 21, 2015) ......................................................23
26
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MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO iv
1 Preliminary Statement
2 After investigating Qualcomm for over two years, reviewing millions of documents and
3 taking testimony from Qualcomm and third parties, the FTC filed a Complaint that does not plead
4 facts supporting the basic elements of an antitrust claim and does not allege a plausible antitrust
5 theory. Most strikingly, the Complaint does not contain any factual allegations of anticompetitive
6 harm to Qualcomms rivals in the supply of modem chips. Moreover, the Complaints theories of
7 harm to competition are foreclosed by governing law and are implausible on their face. Each of
8 these fundamental flaws is independently sufficient to warrant dismissal.
9 The FTC asserts two theories under which Qualcomms conduct allegedly harms
10 competition: (1) a tax theory; and (2) an exclusive dealing theory. The FTCs tax theory is
11 predicated primarily on Qualcomms unwillingness to sell its modem chips to firms that infringe
12 its patents. The FTC contends that this practice allows Qualcomm to use its purportedly
13 dominant position in the sale of certain types of modem chips to force its customers (cellular
14 handset makers) to pay allegedly elevated royalties for the use of Qualcomms patented
15 technologies. Although the FTC concedes that the same royalties are payable on all handsets,
16 regardless of whether the handset uses a modem chip from Qualcomm or from a competitor, the
17 FTC contends that the elevated royalties are a so-called tax specifically and only on the
18 purchase of modem chips from Qualcomms rivals. The alleged effects of this purported tax
19 are to diminish demand for competitors chips and reduce competitors margins.1 But the chip-
20 neutral nature of Qualcomms royaltiesthe fact that the royalties do not change based on the
21 source of the modem chipmeans that they do not and cannot create any incentive or
22 disincentive for the handset maker to purchase any particular firms modem chip. From a
23 customers perspective, the playing field between Qualcomm and its rivals is level for each
24 modem chip sale. Whether the royalties are elevated or not, customers face no discriminatory
25 penalty (or tax) for the purchase of competitors modem chips.
26 The absence of any allegation of a discriminatory penalty on the purchase of rivals chips
27
1
Federal Trade Commissions Complaint for Equitable Relief, ECF No. 1 (the Complaint)
28 87-95. Citations in the form of __ refer to the Complaint.
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 1
1 means that the FTCs so-called tax theory boils down to a claim that Qualcomm charges too
2 much for royalties and too little for chips, thereby squeezing the margin that Qualcomms
3 chip-making rivals can make on their own chip sales. This is a price squeeze claim of the type
4 squarely rejected by the Supreme Court in Pacific Bell Telephone Co. v. linkLine
5 Communications, Inc., 555 U.S. 438 (2009). As the Court made clear in linkLine, a vertically
6 integrated firm such as Qualcomm has no independent duty under the Sherman Act to ensure that
7 the price it charges for upstream inputs (here, royalties) is low enough, and the price it charges for
8 downstream products (here, modem chips) is high enough, so as to leave a fair or adequate
9 profit margin for its downstream competitors (here, other chip suppliers). A plaintiff complaining
10 of squeezed margins must identify some other recognized violation of the antitrust laws, such as
11 predatory pricing or the breach of an antitrust duty to deal with competitors. The FTC does not
12 attempt to plead either type of violation, let alone plead facts sufficient to meet the high bars set
13 for such claims by the Supreme Court in Brooke Group Ltd. v. Brown & Williamson Tobacco
14 Corp., 509 U.S. 209 (1993) (predatory pricing) and Verizon Communications Inc. v. Law Offices
15 of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) (duty to deal). Re-labeling a squeeze claim as a
16 tax cannot transform it into a viable basis for antitrust liability. linkLine, 555 U.S. at 457.
17 The Complaint therefore fails to allege plausibly that Qualcomms royalties cause any
18 exclusion of rival suppliers. Indeed, the Complaint does not allege a single instance in which a
19 competing chip supplier failed to make a sale, changed its pricing, or suffered any other
20 consequence because of Qualcomms patent royalties. Rather than point to such facts, the FTCs
21 challenge to Qualcomms practice of not selling to infringers rests entirely on its speculative
22 tax theory of harm; and the theory itself is foreclosed by black-letter law.
23 In an attempt to support its so-called tax theory, the FTC points to two additional
24 business practices. Neither supports a claim of anticompetitive harm:
25 The Complaint alleges that Qualcomm makes incentive payments to certain customers
26 to maintain higher royalties that exacerbate the effect of the so-called tax.2 But
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28 2
102-06.
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 2
1 the Complaint does not allege that these payments result in predatory pricing or have
2 conditions that substantially foreclose competitors from making sales.
6 The Complaint also alleges that Qualcomms practice of licensing the manufacture
7 and sale of handsets, rather than the manufacture and sale of handset components such
8 as modem chips, violates Qualcomms commitments to cellular standard-setting
9 organizations (SSOs) that Qualcomm would license its standard-essential patents on
10 fair, reasonable, and non-discriminatory (FRAND) terms. But even if licensing only
11 at the handset level were a FRAND violation (which it is not), a FRAND violation is
12 not itself an antitrust violation. See Rambus v. FTC, 522 F.3d 456, 463-64 (D.C. Cir.
13 2008). As the court held in Rambus, the challenged conduct must still cause
14 exclusion, and the Complaint here alleges no facts plausibly indicating such harm. Id.
15 Specifically, the Complaint does not allege that Qualcomm has ever sought to interfere
16 with a competitors business by asserting its standard-essential (or any other) patents
17 against a competitor; that rival chip suppliers are unable to compete without a license
18 from Qualcomm; or that the lack of a license has actually excluded any competitor
19 from making sales in any relevant market. Instead, the Complaint alleges only that a
20 license from Qualcomm would provide substantial benefits to chip makers.3 But
21 Qualcomm has no duty under the antitrust laws to assist its competitors. Trinko, 540
22 U.S. 398.
23 The FTCs second theorythat Qualcomms now-expired agreements with Apple
24 constituted unlawful exclusive dealing4also fails to state a cognizable claim. To state a claim
25 based on exclusive dealing, the FTC must allege foreclosure of rivals that is sufficient in
26
27 3
113.
28 4
116-30.
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 3
1 magnitude and scope to deprive them of the opportunity to compete for efficient scale. But the
2 Complaint does not allege facts indicating that the Apple agreements foreclosed a substantial
3 portion of competition in any market; in fact, the Complaint does not allege anything at all about
4 what portion of a purported market was allegedly foreclosed. Nor does it identify any competitor
5 that was excluded. To the contrary, the Complaint concedes that Intel was able to garner a
6 significant share of Apples modem chip business during the term of the challenged agreements.
7 The FTCs failure to allege any anticompetitive effect from this supposedly exclusive dealing
8 arrangement with just one customer is fatal to the FTCs second theory.
9 With no facts supporting a plausible theory of harm to competition, the FTCs Complaint
10 fails to meet the pleading standards of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and
11 Ashcroft v. Iqbal, 556 U.S. 662 (2009), and must be dismissed.
12 Factual Background5
13 Qualcomm has invented multiple technologies that are fundamental to todays cellular
14 communications. ( 17; 54-56.) Rather than keep these fundamental inventions exclusively for
15 its own use, Qualcomm has contributed the inventions to cellular and other SSOs, and continues
16 to be a significant contributor of fundamental technology enabling the development of cellular
17 standards. ( 54-56.) SSOs have chosen to incorporate thousands of patented Qualcomm
18 inventions into their standards, including second-generation CDMA standards, third-generation
19 standards (both UMTS and CDMA2000) and fourth-generation LTE standards. ( 54-56.)
20 These patented technologies are practiced by all cellular phones and other mobile consumer
21 products (collectively, handsets) that comply with those standards. ( 2, 21, 54-57.) The
22 patents protecting such standardized technologies are therefore known as standard-essential
23 patents (SEPs); SEPs are distinct from patents covering the thousands of Qualcomm
24 technologies that are not part of any standard, and are therefore known as non-standard-essential
25 patents (non-SEPs). Many of Qualcomms non-SEPs are also practiced by cellular handsets.
26 For its SEPs (but not its other patents), Qualcomm has committed to the relevant SSOs that it will
27
5
Qualcomm strongly disagrees with many allegations in the Complaint but accepts the factual
28 allegations as true solely for purposes of this Motion.
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 4
1 make licenses available for the manufacture and sale of handsets on fair, reasonable and non-
2 discriminatory (FRAND) terms. ( 57.)
3 Qualcomm has two primary business units: Qualcomm Technology Licensing (QTL)
4 and Qualcomm CDMA Technologies (QCT). ( 17.) The QTL business unit licenses the
5 makers of cellular handsets (referred to in the Complaint as original equipment manufacturers
6 (OEMs)) to make and sell handsets that practice Qualcomms patented technologies, in return
7 for the payment of royalties and other consideration. ( 58, 143.) Qualcomm grants exhaustive
8 licenses to its patented technologiesincluding SEPs and non-SEPsat the handset level; and
9 Qualcomm neither asserts its patents against, nor seeks royalties from, the makers of any handset
10 components. ( 59, 113, 114.)
11 Qualcomms other main business unit, QCT, designs and sells to OEMs certain handset
12 components, including modem chips.6 ( 17, 20, 21.) Modem chips perform a subset of the
13 functions necessary to allow a handset to communicate with a cellular network. ( 20.) The
14 Complaint alleges that Qualcomm is dominant in the supply of modem chips for handsets that
15 comply with CDMA standards and in the supply of premium modem chips for handsets that
16 comply with LTE standards. ( 31.) It does not allege that Qualcomm is or has been dominant
17 in the supply of other modem chips, such as modem chips for handsets that comply with UMTS
18 standards or non-premium modem chips for handsets that comply with LTE standards.
19 The royalties that the QTL business unit receives are separate from the price of any
20 modem chip or other component an OEM chooses to purchase from QCT. ( 88.) The royalties
21 are compensation for the use of Qualcomms broader patented technologies, rather than
22 compensation for merely the use of QCTs modem chips or other singular components in the
23 handset. ( 88, 143.) OEMs need a license to Qualcomms technologies because all handsets
24 practice Qualcomms SEPs, as well as many of its non-SEPs, regardless of whether the handsets
25 include any components from Qualcomm. ( 2, 57-58, 94.) Notably, the Complaint does not
26
6
The Complaint generally refers to these products as baseband processors but notes that they
27 may also be referred to as chips, chipsets or modems. ( 20.) While these terms are not in
fact interchangeable, for purposes of this Motion Qualcomm will, for simplicity, use the term
28 modem chips.
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 5
1 allege that Qualcomm charges a higher royalty for handsets that incorporate its competitors
2 components than it does for handsets that incorporate Qualcomm components. (See 63, 94.)
3 QCT does not sell modem chips to OEMs that do not have a license to Qualcomms SEPs.
4 ( 68.) By definition, unlicensed OEMs making standard-compliant handsets infringe
5 Qualcomms SEPs. ( 21-24, 70.) If QCT did not have this practice, it would be facilitating
6 infringement of Qualcomms patents, and Qualcomm would risk claims that its knowing sale of
7 chips to an unlicensed OEM had exhausted its patent rights or provided the purchaser with an
8 implied license to Qualcomms patents. ( 66.) Because Qualcomm receives compensation for
9 its patents exclusively through royalties rather than through the price of its chips ( 88), a finding
10 of exhaustion or implied license would enable an unlicensed OEM to practice at least some of
11 Qualcomms SEPs and non-SEPs for free, and thereby harm Qualcomms ability to earn a return
12 on its R&D investments in developing cellular technologies ( 143).
13 Legal Standard
14 To survive a motion to dismiss, a complaint must contain sufficient factual material,
15 accepted as true, to state a claim to relief that is plausible on its face. Iqbal, 556 U.S. at 678
16 (quoting Twombly, 550 U.S. at 570). A complaint may be dismissed if it either (1) lacks a
17 cognizable legal theory or (2) fails to allege sufficient facts to support a cognizable legal theory.
18 Somers v. Apple, 729 F.3d 953, 959 (9th Cir. 2013). [A] plaintiffs obligation to provide the
19 grounds of his entitle[ment] to relief requires more than labels and conclusions, as courts are
20 not bound to accept as true a legal conclusion couched as a factual allegation and [f]actual
21 allegations must be enough to raise a right to relief above the speculative level. Twombly,
22 550 U.S. at 555 (internal quotation marks and citation omitted). In abrogat[ing] the usual notice
23 pleading rule, Somers, 729 F.3d at 959, the Supreme Court recognized that antitrust cases
24 involve particularly complex discovery, Twombly, 550 U.S. at 558-59. Thus, insistence on
25 specificity of facts is warranted before permitting a case to proceed into costly and protracted
26 discovery in an antitrust case. Somers, 729 F.3d at 966.
27 Moreover, when considering a motion to dismiss an antitrust case, a court must determine
28 whether a claim is plausible under basic economic principles. Id. at 964. A complaint that
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 6
1 pleads facts that are merely consistent with a defendants liability . . . stops short of the line
2 between possibility and plausibility of entitlement to relief. Iqbal, 556 U.S. at 678 (internal
3 quotation marks omitted) (quoting Twombly, 555 U.S. at 557). The Complaint here offers at most
4 a possibility theory, and thus fails to meet the Twombly standard.7
5 Argument
6 The Complaint challenges practices that are fundamental to the structure of Qualcomms
7 business, but fails to plead facts demonstrating that any of these practices, alone or in
8 combination, violates the antitrust laws by causing harm to competition in the supply of modem
9 chips. This failure, after more than two years of pre-Complaint investigation, reflects the fact that
10 the FTC not only has not, but cannot, plead facts stating a plausible claim of competitive harm.
11 I. THE FTC FAILS TO STATE A CLAIM OF UNLAWFUL MONOPOLIZATION.
12 To sustain a claim of monopolization under Section 2 of the Sherman Act,8 the FTC must
13 plausibly plead (1) the possession of monopoly power in the relevant market, and (2) the willful
14 acquisition or maintenance of that power as distinguished from growth or development as a
15 consequence of superior product, business acumen, or historic accident. United States v.
16 Grinnell Corp., 384 U.S. 563, 570-71 (1966); see also Name.Space, Inc. v. Internet Corp. for
17 Assigned Names & Numbers, 795 F.3d 1124, 1131 (9th Cir. 2015). The second prong requires
18 that conduct be exclusionary, and to be condemned as exclusionary, a monopolists act must
19 have anticompetitive effect. That is, it must harm the competitive process . . . . United States
20 v. Microsoft Corp., 253 F.3d 34, 58 (D.C. Cir. 2001) (emphasis in original). The Complaint
21
7
See also Federal Trade Commission, Dissenting Statement of Commissioner Maureen K.
22 Ohlhausen, In the Matter of Qualcomm, Inc., https://www.ftc.gov/system/files/documents/cases/
170117qualcomm_mko_dissenting_statement_17-1-17a.pdf (the Ohlhausen Dissent). Acting
23 Chairman Ohlhausens dissenting statement is appropriately considered on a motion to dismiss.
See Emrich v. Touche Ross & Co., 846 F.2d 1190, 1198 (9th Cir. 1988) (the court may properly
24 look . . . to matters of general public record on a motion to dismiss (internal quotation marks
omitted) (quoting Phillips v. Bureau of Prisons, 591 F.2d 966, 969 (D.C. Cir. 1979))).
25
8
Although the FTC has brought this action pursuant to its authority under Section 5 of the FTC
26 Act, 15 U.S.C. 45, the substantive standards applicable to the FTCs monopolization claim
( 147.a) are governed by Section 2 of the Sherman Act. 15 U.S.C. 2; see also 1 ABA Section
27 of Antitrust Law, Antitrust Law Developments 647 (6th ed. 2007) ([A]lthough the Commission
may not directly enforce the Sherman Act, it may prohibit as an unfair method of competition
28 under Section 5 of the FTC Act conduct that violates the Sherman Act.).
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 7
1 articulates two theories of anticompetitive harm: (1) a so-called tax theory based on certain
2 features of Qualcomms licensing business; and (2) an exclusive dealing theory based on
3 Qualcomms agreements with a single customer, Apple. The FTC has not successfully pled a
4 monopolization claim under either theory because it has not alleged facts that, if proven, would
5 support a finding that Qualcomms conduct excludes other modem chip suppliers from a relevant
6 market.
7 A. The FTCs Tax Theory Does Not State a Claim of Unlawful Monopolization.
8 The Complaints tax theory focuses on three practices: (1) not selling chips to OEMs
9 that infringe Qualcomms patents, (2) , and
10 (3) licensing only at the handset level and not the component level. None of these practices,
11 alone or in combination, causes the anticompetitive exclusion of rival modem chip suppliers.
12
1. Qualcomms Practice of Not Selling Chips to Infringers Does Not Exclude
13 Competing Chip Suppliers.
14 The Complaint recognizes that all cellular handsets necessarily practice Qualcomms
15 cellular SEPs, and that if an OEM is unlicensed, its handsets necessarily infringe those patents.
16 ( 21-24, 54-56, 70.) Such infringers do not pay for their use of technologies that Qualcomm
17 invested considerable resources to develop, and Qualcomm does not assist them in their
18 infringement by selling them modem chips. The Complaint condemns this unwillingness to sell
19 to infringers (which it pejoratively calls a no license no chips policy) as the first step in a means
20 to monopolize certain alleged markets for modem chips. This is so, according to the FTC,
21 because: (1) OEMs need certain Qualcomm modem chips so badly that to get those chips, they
22 agree to pay elevated royalties for Qualcomms patents; and (2) these royalties operate as a
23 tax that diminishes demand for non-Qualcomm chips, and thereby excludes competing chip
24 suppliers.
25 The Complaint fails to plead facts to support either of these assertions, or that
26 Qualcomms practice has caused actual competitive harm in any modem chip market. At most,
27 the FTCs conjecture as to how anticompetitive harm potentially might occur rests on a price
28 squeeze theory that was rejected by the Supreme Court in linkLine, and which is not plausible
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1 under basic economic principles.
2
a. The FTC has not pled facts showing that Qualcomms licensing
3 terms are elevated.
4 The first step of the FTCs theory is that the royalties OEMs pay on handset sales are
5 elevated because they include an added increment that OEMs pay Qualcomm to avoid
6 disruption of processor supply. ( 86.) Put differently, the FTC alleges that the royalties OEMs
7 pay to Qualcomm reflect not only the value of its patents, but also its monopoly power in
8 baseband processors. ( 143.) This is a necessary building block to the FTCs claim; absent
9 elevated royalties, Qualcomms royalties would, by the FTCs own allegations, reflect
10 procompetitive, fair compensation for use of Qualcomms patented inventions rather than an
11 added increment or tax arising from alleged chip market power. (Id.)
12 But the FTC does not plead any facts purporting to show what Qualcomms royalties
13 should be or by how much they are purportedly elevated. Nor does the FTC allege that
14 Qualcomms royalty rates are actually unreasonable or above a FRAND level.9 Instead, the FTC
15 speculates that Qualcomms alleged dominance in chips provides the opportunity for it to
16 increase its royalties because OEMs cannot seek judicial determinations of FRAND royalty
17 rates.10 Absent, however, is any allegation that, in fact, the royalties that OEMs have agreed to
18 pay for Qualcomms SEPs are higher than what would result from a judicial determination. Nor
19 does it plead facts regarding how Qualcomms practice actually affected the royalty rates agreed
20 to by any licensee in the real world. Without such alleged facts, the key premise of the FTCs
21 theorythat royalties are elevatedis without support. In lieu of facts, the Complaint presents
22 the FTCs theoretical view of how patent licensing negotiations should ideally be conducted. The
23 Complaints bare-bones pleading of a hypothetical negotiation process cannot survive a motion to
24 dismiss.
25 Moreover, the FTCs unsupported theory conflicts with the few facts actually alleged. For
26 9
Rather than allege that Qualcomm charges above-FRAND royalties, the complaint dances
27 around that essential element. See Ohlhausen Dissent, at 1.
28 10
4, 78.
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1 example, if Qualcomms royalty rates are elevated because of its purported market power in
2 chips, then one would expect those rates to vary depending on when and whether Qualcomm had
3 such power. But the Complaint acknowledges that Qualcomm has historically offered licenses
4 to OEMs at a base royalty rate of about 5% of the net selling price of a cellular handset ( 58),
5 and it does not allege that this single historically offered rate has varied in any way related to
6 Qualcomms market power. For example, the Complaint does not allege that Qualcomm
7 increased its rate after purportedly acquiring power in any chip market. See Somers, 729 F.3d at
8 964 (overcharge theory was contradicted by the fact that Apple sold songs at the same price
9 before it allegedly gained market power). Nor does the Complaint allege that Qualcomm charges
10 a higher royalty on handsets that contain CDMA and premium LTE modem chips (where it
11 allegedly has market power), and a lower royalty on handsets that contain UMTS and non-
12 premium LTE modem chips (where no market power is alleged). Likewise, the Complaint does
13 not allege that Qualcomm charges a lower royalty to OEMs that do not purchase modem chips
14 from Qualcomm, and therefore are not subject to the dominance Qualcomm allegedly has over
15 the supply of certain chips. Qualcomms historical 5% rate cannot include an added increment
16 reflecting Qualcomms alleged market power if Qualcomm obtained that same rate regardless of
17 whether an OEM used chips over which Qualcomm had such power. These pleading deficiencies
18 defeat a central premise of the FTCs theory. See Twombly, 555 U.S. at 568 (recognizing
19 implausibility of claim where the complaint itself contained allegations inconsistent with the
20 claimed anticompetitive scheme).
21 Even more fundamentally, the FTCs theory of elevated royalties is contradicted by
22 other allegations in the Complaint. As the Complaint acknowledges, Qualcomms royalties for its
23 cellular SEPs are constrained by its FRAND commitments, and potential licensees can resort to
24 remedies available from courts in the event of a disagreement over license terms. ( 51.)
25 According to the Complaint, OEMs are reluctant to challenge Qualcomms proposed royalty rates
26 because of concern regarding loss of access to Qualcomms modem chips. But the Complaint
27 also alleges that some unspecified OEMs do push back against Qualcomms desired royalty
28 terms. ( 102-104.)
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8 This contradiction undermines the FTCs tax theory.
9
b. The FTC has not pled facts supporting a claim that Qualcomms
10 royalties have foreclosed other modem chip suppliers.
11 Even if the FTC had alleged facts sufficient to show that Qualcomms royalties are
12 elevated as compared to some undefined benchmark, such an allegation would not state a
13 violation of the antitrust laws. Elevated royalties are not themselves unlawful. See, e.g.,
14 Rambus, 522 F.3d at 464 (an otherwise lawful monopolists use of deception simply to obtain
15 higher prices normally has no particular tendency to exclude rivals and thus to diminish
16 competition). To survive dismissal, the FTC must allege anticompetitive effectsnamely
17 exclusion of competitors. But the FTC has not pled facts demonstrating such exclusion. At best,
18 the FTC states a price squeeze theory that fails under the Supreme Courts decision in linkLine.
19 The FTC contends that Qualcomms royalties operate as a tax that increases the all-in
20 cost to an OEM of using a competitors baseband processor ( 89), and thereby diminishes
21 OEMs demand for those processors ( 90). But the only way the alleged increase in all-in
22 cost can have an exclusionary effect on competitors is if it increases the all-in cost of using
23 competitors modem chips by more than it increases the all-in cost of using Qualcomms
24 modem chips, thereby creating a disincentive for OEMs to buy from Qualcomms competitors.
25 The FTC does not allege any such disparity. To the contrary, it affirmatively acknowledges that
26 OEMs pay the same royalties when they buy Qualcomm chips as when they buy non-Qualcomm
27 chips. ( 63 (alleging that Qualcomms practices raise the all-in prices that OEMs must pay on
28 both Qualcomm baseband processors and those supplied by Qualcomms competitors (emphasis
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1 added)), 94 (OEMs must pay [the royalty] regardless of whether they use baseband processors
2 supplied by Qualcomm or a Qualcomm competitor).) Thus, the Complaint alleges facts that
3 contradict the FTCs theory. The Complaint does not allege facts indicating how Qualcomms
4 royalties could cause OEMs to prefer Qualcomms modem chips over a competitors modem
5 chips. There is therefore no basis to infer that Qualcomms conduct created any disadvantage for
6 rival chip suppliers in their efforts to win business from OEMs. Put simply, because there is no
7 difference in royalty rates, there is no tax on competitors products, and there is no foreclosure
8 of competition.11
9 Having failed to allege any disparity caused by Qualcomms licensing rates in the
10 incentives faced by OEMs when selecting modem chips, the FTCs tax claim is, at best, a
11 price squeeze claim of the sort the Supreme Court squarely rejected as an independent basis of
12 antitrust liability in linkLine. The Complaint asserts that a reduction in Qualcomms royalties
13 would have a substantial impact on competitors margins and abilities and incentives to invest
14 and innovate. ( 92.) In other words, the FTC asserts that if Qualcomms royalties were lower,
15 competitors would be able to raise their chip prices, earn more money, and use that money to
16 invest and innovate. ( 87, 93.)
17 linkLine forecloses such a claim. In linkLine, 555 U.S. 438, the plaintiff purchased digital
18 subscriber line (DSL) network access from AT&T and also competed with AT&T in the
19 downstream market for retail DSL internet services. The plaintiff alleged that AT&T was
20 increasing the price of DSL network access for the plaintiff in the upstream input market, and
21 then charging lower prices for retail DSL subscriptions to consumers downstream. This led the
22 plaintiff to charge lower retail prices to stay competitive, meaning that the plaintiff earned
23 slimmer margins. The Supreme Court declined to recognize this price squeeze theory as an
24 independent basis for liability, holding that a vertically integrated monopolist is certainly not
25 required to price . . . in a manner that preserves its rivals profit margins. Id. at 452. Thus,
26
11
The FTC appears to consider the chip-neutral nature of Qualcomms royalties to be
27 anticompetitive, but a chip-neutral licensing practice is self-evidently procompetitive in that it
creates a level playing field for competing chip makers. Were Qualcomm to charge higher
28 royalties on handsets that use its competitors chips, competitors would surely complain.
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1 under linkLine, Qualcomm has no obligation to ensure that the royalty rates charged to OEMs
2 leave room to preserve chip suppliers margins. An allegation of price squeeze does not
3 support an antitrust claim in the absence of pleading some other independent antitrust violation
4 either a predatory pricing claim that meets the requirements set forth in Brooke Group, 509 U.S.
5 209, or a claim of breach of an antitrust duty to deal that meets the requirements set forth in
6 Trinko, 540 U.S. 398. See linkLine, 555 U.S. at 457. Because the FTC does not attempt to plead
7 either violation, and does not provide facts that would support either violation, it does not state a
8 monopolization claim. Id.; see also John Doe 1 v. Abbott Labs., 571 F.3d 930, 935 (9th Cir.
9 2009) (no monopolization claim for a monopolist drug manufacturer raising the price on an input
10 used by competitors).
11 In sum, merely invoking the word tax does not alter the substantive antitrust analysis
12 required to evaluate whether the FTC has stated a plausible claim. Even if a tax effect is
13 claimed, the FTC must still plead facts that, if proven, would show that Qualcomms conduct
14 substantially foreclosed competition. The FTC has not done so. It has not pled facts
15 supporting its claim that Qualcomms practice of not selling modem chips to infringing OEMs
16 resulted in exclusion. And its theory of how such exclusion could potentially occur is both
17 logically and legally flawed.
18
2. Qualcomms strategic funds and other similar incentive payments do not
19 exclude competing chip suppliers.
20 The FTC also alleges that Qualcomm has exacerbated the exclusionary effect of its tax
21 by making incentive payments that reduce the all-in cost of purchasing
22 Qualcomms modem chips. ( 102-03; see also 89.) This allegation fails because, as noted
23 above, the FTC has not properly pled any exclusionary effect caused by the so-called tax, and
24 thus there is nothing to exacerbate. The allegation also fails on its own terms. Specifically, the
25 FTC does not allege
26
27 See Brooke Group, 509 U.S. at 223 (As
28 a general rule, the exclusionary effect of prices above a relevant measure of cost either reflects the
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1 lower cost structure of the alleged predator, and so represents competition on the merits, or is
2 beyond the practical ability of a judicial tribunal to control without courting intolerable risks of
3 chilling legitimate price-cutting.); Cascade Health Sols. v. PeaceHealth, 515 F.3d 883, 895
4 (9th Cir. 2007) ([t]he great majority of discounting practices are procompetitive and reflect
5 hard bargaining (quoting 3 Areeda & Hovenkamp, Antitrust Law 749b, at 324 (2d ed. Supp.
6 2006))).
7 Putting aside this shortcoming, the challenge also fails because the
8 Complaint does not allege what portion of
9 the alleged relevant markets is affected thereby. Absent such factual allegations as to the degree
10 of purported foreclosure, there is no basis on which to infer competitive harm. Cf. Feitelson v.
11 Google Inc., 80 F.Supp. 3d 1019, 1031-32 (N.D. Cal. 2015) (dismissing claim due to failure to
12 allege facts that quantified the extent to which the relevant market was foreclosed); Rheumatology
13 Diagnostics Lab., Inc. v. Aetna, Inc., No. 12-CV-05847-WHO, 2014 WL 524076 at *11 (N.D.
14 Cal. Feb. 6, 2014) (dismissing claim because [w]ithout showing any changes in shares as a
15 result of the challenged conduct, the court could not determine whether any market foreclosure
16 had occurred).
17 In addition, as discussed above, Qualcomm either has the power to compel OEMs to
18 accept elevated license terms, or it does not have that power and thus must offer incentives to
19 achieve those terms. Both conditions cannot be true at the same time. For this reason as well, the
20 alleged incentive payments cannot exacerbate the tax. (See supra Part I.A.1.a.) As the
21 FTCs strategic fund allegations are entirely inconsistent with the core premise of the tax
22 theory, they do not support the FTCs claim.
23
3. Qualcomms practice of licensing its patents only at the handset level is not
24 exclusionary.
25 The Complaint further alleges that Qualcomms practice of licensing the manufacture and
26 sale of handsets and not the manufacture and sale of components such as modem chips ( 58, 59)
27 bolsters the so-called tax on competitors sales. ( 6, 115). Again, these allegations fail
28 both because the tax theory fails, leaving nothing to bolster, as well as on their own terms.
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1 The accused conduct is a refusal to grant certain types of licenses. But as a general
2 matter, the Sherman Act does not restrict the long recognized right of [a] trader or manufacturer
3 engaged in an entirely private business, freely to exercise his own independent discretion as to
4 parties with whom he will deal. Trinko, 540 U.S. at 408 (quoting United States v. Colgate &
5 Co., 250 U.S. 300, 307 (1919)). This principle holds true with respect to the licensing of patents.
6 See In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322, 1328 (Fed. Cir. 2000) (patentee is
7 under no obligation to sell or license its patented parts and d[oes] not violate the antitrust laws
8 by refusing to do so). The FTC does not allege any exception to that principle.12
9 Rather than allege an antitrust duty to deal, the FTC contends that Qualcomms practice
10 violates its FRAND commitments to SSOs ( 112). Even if that were true (which it is not),
11 alleging a FRAND violation is not enough to make out an antitrust claim without also alleging
12 that the purported violation caused actual harm to competition. Rambus v. FTC, 522 F.3d 456,
13 466 (D.C. Cir. 2008) (an otherwise lawful monopolists end-run around price constraints, even
14 when deceptive or fraudulent, does not alone present a harm to competition in the monopolized
15 market); see also Apple Inc. v. Samsung Elecs. Co., 920 F. Supp. 2d 1116, 1142 (N.D. Cal.
16 2013) (Regarding FRAND obligations, [defendants] licensing behavior could only give rise to
17 Sherman Act liability if it constituted anticompetitive behavior.). The Complaint does not
18 satisfy this requirement because it does not allege facts from which it can plausibly be inferred
19 that Qualcomms conduct caused any harm to competition in the allegedly affected markets. For
20 example, the Complaint does not allege that Qualcomm has ever sought to interfere with a
21 competitors CDMA or premium LTE business by asserting its cellular SEPs (or any other
22 patents) against the competitor. The Complaint does not allege that rival chip suppliers are
23 unable to compete in these alleged markets without a license to Qualcomms cellular SEPs. The
24 Complaint also does not allege that the lack of a license to Qualcomms cellular SEPs has ever
25
26 12
The duty to deal must arise under the antitrust laws rather than under some other body of law.
See linkLine, 555 U.S. at 445-46. In linkLine, AT&T had an obligation under Federal
27 Communications Commission regulations to sell DSL network access to its competitors. Because
that obligation was not an antitrust duty to deal, however, the Supreme Court found that it was
28 not sufficient to support the plaintiffs claim. Id. (emphasis added).
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1 actually prevented any competitor from making chip sales. To the contrary, the Complaint
2 acknowledges that Intel, MediaTek and Samsung continue to compete against Qualcomm in the
3 sale of modem chips without having a license. ( 34, 35, 45, 112, 139.)
4 Instead, all the FTC alleges is that [a] license to Qualcomms cellular SEPs would
5 provide substantial benefits to other baseband processor suppliers and their customers by
6 enabling rival chip suppliers to offer OEMs baseband processors that convey the rights to
7 Qualcomms cellular SEPs. ( 113.) In other words, the Complaint merely alleges that
8 Qualcomm does not assist its rivals by affirmatively granting them a license that would provide
9 them with substantial benefits. (Id.) But, as noted, Qualcomm has no antitrust duty to assist
10 competitors, and withholding undefined and unquantified benefits from competitors is not
11 unlawful exclusion. See Trinko, 540 U.S. at 408; Allied Orthopedic Appliances, Inc. v. Tyco
12 Health Care Grp. LP, 592 F.3d 991, 1002 (9th Cir. 2010) (a monopolist has no duty to help its
13 competitors survive or expand when introducing an improved product design).
14 Moreover, the Complaint alleges additional facts that affirmatively negate any inference
15 that Qualcomms supposed breach of FRAND commitments caused any anticompetitive effect.
16 Specifically, the Complaint asserts that chip suppliers are ideally situated to enforce Qualcomms
17 FRAND commitments, and could easily do so if they believed Qualcomm was violating its
18 FRAND commitments in a way that harmed their competitiveness. It alleges (incorrectly) that
19 Qualcomms FRAND commitments require it to license its patents to chip makers ( 108), and
20 that any potential licensee can resort to remedies available from courts to enforce those
21 commitments ( 51). It also alleges that Qualcomm does not have any leverage over competing
22 chip suppliers that would prevent them from seeking such enforcement against Qualcomm
23 ( 114). Assuming for present purposes the truth of these allegations, nothing would prevent
24 competitors from bringing an action against Qualcomm for a FRAND license, if one was truly
25 required. Yet there is no allegation in the Complaint that any component supplier has ever
26 pursued such an action. The natural inference from these allegations is that competing chip
27 suppliers do not believe they need a license from Qualcomm, or do not believe that Qualcomm
28 has any obligation to grant them such a license (or both). Either way, the Complaint does not
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1 allege facts indicating a FRAND violation resulting in exclusion. Somers, 729 F.3d at 965
2 (holding that a theory must rise beyond mere conceivability or possibility when an alternative,
3 more likely explanation is available).13
4 Finally, the FTCs allegation that Qualcomms unwillingness to license the manufacture
5 and sale of modem chips bolsters its ability to maintain elevated royalties ( 6) is internally
6 inconsistent for yet another reason. The FTC apparently assumes that (i) OEMs that purchased
7 chips from licensed chip suppliers would need to license fewer patents directly from Qualcomm,
8 and (ii) that by licensing fewer patents directly from Qualcomm, such OEMs would be less
9 susceptible to paying elevated royalties.14 But under the FTCs primary theory, the allegedly
10 elevated royalties charged by Qualcomm reflect Qualcomms purported dominance in certain
11 chip markets, and have nothing to do with the size or scope of Qualcomms patent portfolio.
12 Thus, under the FTCs own theory, a reduction in the number of patents licensed at the handset
13 level would have no effect on Qualcomms purported power to obtain elevated royalties.
14
B. The FTCs Exclusive Dealing Theory Does Not State a Claim of Unlawful
15 Monopolization.
16 The Complaints exclusive dealing theory, which is based on a set of now-expired
17 agreements with a single customer, Apple, also fails, because here too the FTC does not allege the
18 requisite anticompetitive effects to support a claim under the antitrust laws. In fact, the
19 Complaint fails to identify any competitor foreclosed by the agreements and concedes that at least
20 one competitor gained substantial business with Apple during the term of the agreements.
21 The Complaints allegations are particularly thin here. In one instance Qualcomm
22 allegedly gave a rebate to Apple with a condition that has nothing to do with the purchase of
23
13
In contrast to the Complaints emphasis on the allegedly anomalous nature of Qualcomms
24 unwillingness to sell chips to infringers, the Complaint does not allege that Qualcomm is alone in
licensing its cellular SEPs only at the handset level. Indeed, the FTC does not allege that any
25 other cellular SEP holder grants the kind of licenses it contends Qualcomm is obligated to grant.
This further undercuts the plausibility of the contention that chip-level licenses are necessary for
26 modem chip suppliers to compete effectively or that they are required by commitments to SSOs.
14
27 The Complaint does not allege that OEMs purchasing licensed chips from Qualcomms
competitors would not need a license from Qualcomm at all, i.e., that the sale of a licensed chip
28 would exhaust all of Qualcomms patent rights.
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1 modem chips.15 In two other agreements Qualcomm allegedly gave Apple conditional rebates
2 on chip purchases. ( 121-24.) Based solely on these allegations, the Complaint asserts that
3 these agreements amounted to de facto exclusive deals. ( 125.) These allegations are
4 woefully deficient to establish exclusivity. Conditional pricing arrangements do not
5 automatically constitute de facto exclusive dealing. See Allied Orthopedic Appliances, 592 F.3d
6 at 996-97 (plaintiff failed to show why customers could not forego the discount and purchase
7 from a competitor). But even if the agreements were a sufficient basis to allege exclusivity
8 (which they are not), the Complaint fails to allege facts essential to make exclusivity unlawful: it
9 does not indicate what portion of the purported market was allegedly foreclosed by the Apple
10 agreements, or which competitors were purportedly excluded from that market. Thus, the FTC
11 has not sufficiently pled anticompetitive effects resulting from the Apple agreements.
12 Under the antitrust laws, there are well-recognized economic benefits to exclusive
13 dealing arrangements.16 Id. at 996 (internal quotation marks omitted) (quoting Omega Envtl.,
14 Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 1997)). Thus, an allegation of de facto
15 exclusive dealing is not enough to sustain a monopolization claim. See Abbyy USA Software
16 House, Inc. v. Nuance Commcns Inc., No. 08-01035, 2008 WL 4830740, at *2 (N.D. Cal.
17 Nov. 6, 2008) (Virtually every contract forecloses the market or excludes other sellers from
18 some portion of the market.). Rather, an exclusive dealing arrangement leads to unlawful
19 monopolization only if its effect is to foreclose competition in a substantial share of the line of
20 commerce affected. Allied Orthopedic Appliances, 592 F.3d at 996 (quoting Omega Envtl.,
21 127 F.3d at 1162). Establishing that a substantial share of the relevant market is foreclosed is
22 necessary because, for the monopolists conduct to adversely affect competition, the
23
15
The FTC does not allege that payments under the 2007 agreement described in 120 were
24 conditioned on Apple not purchasing chips from Qualcomms competitors (or were in any way
related to chip sales) or that the 2007 agreement excluded any rival from making sales to Apple.
25
16
Exclusive deals, for example, can offer some measure of protection to incentivize companies
26 like Qualcomm to undertake relationship-specific investments that would otherwise have been too
risky. See, e.g., Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215, 1234 n.17 (8th Cir. 1987) (where a
27 supplier has made significant marketing investments for the benefit of a customer, terms to
protect the investment such as an exclusive dealing provision can help prevent rivals from free-
28 riding on the suppliers investment into promoting the customers products).
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1 opportunities for other traders to enter into or remain in that market must be significantly
2 limited. Eastman v. Quest Diagnostics Inc., 108 F. Supp. 3d 827, 834 (N.D. Cal. 2015)
3 (quoting Kolon Indus. Inc. v. E.I. DuPont de Nemours & Co., 748 F.3d 160, 175 (4th Cir. 2014)).
4 While there is no precise substantiality test, the Supreme Court has explained with respect to
5 exclusive dealing:
6 To determine substantiality in a given case, it is necessary to weigh

the probable effect of the contract on the relevant area of effective
7 competition, taking into account the relative strength of the parties,
the proportionate volume of commerce involved in relation to the
8 total volume of commerce in the relevant market area, and the
probable immediate and future effects which pre-emption of that
9 share of the market might have on effective competition therein.
10 Id. at 835 (quoting Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 329 (1961)). The
11 FTCs own exclusive dealing jurisprudence recognizes that a proper analysis of exclusive
12 dealing arrangements should take into account market definition, the amount of foreclosure in the
13 relevant markets, the duration of the contracts, the extent to which entry is deterred, and the
14 reasonable justifications, if any, for the exclusivity. In re Beltone Elecs. Corp., 100 F.T.C. 68,
15 92 (1982). The FTC does not make any factual allegations that, taken as true, would meet these
16 legal standards and support a finding of substantial foreclosure resulting from Qualcomms
17 agreements with Apple.
18 First, the FTC does not allege what portion of the purported market Apple occupies or
19 what portion was foreclosed. Cf. Feitelson, 80 F. Supp. 3d at 1032 (absent allegations indicating
20 the actual portion of general Internet search that consists of handheld search . . . the Court is
21 unable to infer that the [agreements], which cover only a portion of the handheld search market,
22 substantially foreclose competition in the market for general Internet search); Rheumatology
23 Diagnostics Lab., Inc. v. Aetna, Inc., No. 12-CV-05847-WHO, 2013 WL 5694452, at *11 (N.D.
24 Cal. Oct. 18, 2013) (courts typically look (at least initially) to the percentage share of the
25 relevant market foreclosed by the challenged agreement to determine whether the agreement is
26 unreasonable). Instead, the FTC merely asserts that Apple was particularly important ( 3.d,
27 8, 129)without any allegation of its relative size, of how many other important premium LTE
28 chip customers there are and the portion of the alleged market they occupy, or of the ability of
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1 Qualcomms competitors to provide similar benefits to those allegedly provided by Qualcomm to
2 Apple. See, e.g., Rheumatology, 2014 WL 524076, at *10 (dismissal of an exclusive dealing
3 claim was based on the plaintiffs failure to allege what market participants there are; how the
4 agreement affected . . . any . . . market participants share; whether there are other purchasers in
5 the relevant market to which market participants may turn . . .; or how competition has been
6 harmed (internal quotation marks omitted)).17 Nor does the Complaint allege that premium LTE
7 chips are used only in what it calls premium-tier handsets, which further obscures how much of
8 the alleged market for such chips is supposedly foreclosed. In short, the Complaint does not
9 allege sufficient facts to show the probable effect of the contract[s] on the relevant area of
10 effective competition. Tampa Elec., 365 U.S. at 329.
11 Second, the Complaint does not identify any competitor that was purportedly excluded
12 from the alleged market, nor does it allege that any of Qualcomms competitors was even capable
13 of supplying Apples demanding technical requirements ( 129.c) prior to Intels securing the
14 business in September 2016. If no other supplier could serve the demand, then no other supplier
15 was foreclosed. This is a critical point here, given the FTCs focus on a purported market that
16 comprises only modem chips that contain the most advanced features, i.e., features that only
17 one or a small number of chip suppliers could offer at any given time.
18 Third, the Complaint acknowledges that Intel began supplying premium LTE modem
19 chips to Apple while the challenged agreements were in effect. (See 45 (Intel began to supply
20 a portion of Apples baseband processor requirements for the iPhone 7), 126 (Qualcomm was
21 no longer Apples exclusive supplier as of September 2016); see also 8, 122-23 (describing the
22 agreements as extending through 2016).) By itself, this definitively refutes any notion that the
23 agreements foreclosed all competitor sales to Applewhich makes the absence of allegations
24 about what portion of the purported market was foreclosed all the more glaring. When coupled
25 with other allegations in the Complaint, this admission also refutes the notion that any sales to
26
17
The allegation that Apple sells large volumes of premium handsets ( 129.a) adds nothing.
27 The FTC has not attempted to define a market for premium handsets, and the Complaint does
not allege the relative size of Apples premium handset sales compared to other firms premium
28 handset sales.
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1 Apple were foreclosed. Because the challenged condition in the Apple agreements was based on
2 Apples making all of its modem chip purchases from Qualcomm ( 122-23), once Apple began
3 sourcing some of its chips from Intel, any chips that it continued to buy from Qualcomm could
4 not have been because of the alleged exclusivity condition, which would already not have been
5 met.
6 II. THE FTC FAILS TO STATE A CLAIM OF UNREASONABLE RESTRAINT OF

TRADE.
7
8 To establish an unlawful restraint of trade under Section 1 of the Sherman Act, the FTC
9 must demonstrate (1) a contract, combination or conspiracy among two or more persons or
10 distinct business entities; (2) which is intended to restrain or harm trade; [and] (3) which
11 actually injures competition . . . . Name.Space, 795 F.3d at 1129.18 Only unreasonable
12 restraints of trade are unlawful. Leegin Creative Leather Prod., Inc. v. PSKS, Inc., 551 U.S. 877,
13 885 (2007). The FTCs restraint of trade claim is based on substantively similar theories to its
14 monopolization claim, and fails for largely the same reasons.
15 As an initial matter, the majority of the Complaint addresses conduct that does not
16 implicate a contract, combination . . . or conspiracy. 15 U.S.C. 1. Qualcomms
17 unwillingness to sell modem chips to infringers of its cellular SEPs is a unilateral decision not to
18 enter into a contract. Likewise, Qualcomms practice of licensing only at the handset level is a
19 unilateral decision not to enter into certain agreements. As such, only the FTCs allegations
20 regarding Qualcomms strategic funds and agreements with Apple could even arguably implicate
21 the first element of a restraint of trade claim. Those allegations fail because the Complaint does
22 not identify any competitive harm caused by those agreements in any relevant market.
23 For the strategic funds, the Complaint does not plausibly plead harm in any relevant
24 market because the FTC has not pled any potential foreclosure (much less the extent of such
25 foreclosure)
26
27 18
As with its monopolization claim, the FTC has sued pursuant to its authority under Section 5 of
the FTC Act, but the substantive standards governing its restraint of trade claim are governed by
28 the Sherman Act, 15 U.S.C. 1.
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 21
4 (See also supra Part I.A.2.)19
5 The FTCs restraint of trade claim based on Qualcomms agreements with Apple likewise
6 does not allege the requisite anticompetitive effect. Even assuming that the agreements with
7 Apple required exclusivity, a vertical exclusive dealing arrangement violates the Sherman Act
8 only if its effect is to foreclose competition in a substantial share of the line of commerce
9 affected. Allied Orthopedic Appliances, 592 F.3d at 996. As described above, the FTC does not
10 plausibly allege that Qualcomms agreements with Apple resulted in such foreclosure in any well-
11 defined market. Just as the Complaint therefore fails to state a monopolization claim, it fails to
12 state a claim of unreasonable restraint of trade. (See supra Part I.B); see also, e.g., Feitelson,
13 80 F. Supp. 3d at 1030 (with respect to Section 1, [s]ubstantial share has been quantified as
14 foreclosure of 40% to 50% of the relevant market.).20
15
III. THE FTC FAILS TO STATE A CLAIM OF UNFAIR METHODS OF
16 COMPETITION UNDER SECTION 5(A) OF THE FTC ACT.
17 Section 5 of the FTC Act prohibits unfair methods of competition. 15 U.S.C. 45(a).
18 Although the FTC may enforce the Sherman Act by bringing an action under Section 5, the
19 viability of a standalone Section 5 claim to reach conduct not otherwise prohibited by the
20 antitrust laws is subject to substantial debate.21 Cases recognizing such a claim have held that the
21 19
In addition, the FTC has not identified a single specific strategic fund agreement or other
22 incentive payment that it claims violates the statute. This alone necessitates dismissal. Cf. JM
Computer Servs., Inc. v. Schlumberger Technologier, Inc., No. C 95-20349 JW, 1996 WL
23 241607, at *3 (N.D. Cal. May 3, 1996) (failing to identify the other participant(s) in the
agreement . . . is a sufficient basis for dismissing [Sherman Act Section] 1 claims).
24 20
Courts have generally assume[d] that at the pleading stage, the degree of market foreclosure
25 required to make out an exclusive dealing claim does not differ under 1 and 2. See, e.g.,
Feitelson, 80 F. Supp. 3d at 1030 n.8.
26 21
See, e.g., 2 Phillip Areeda & Herbert Hovenkamp, Antitrust Law 302h2 (3d ed. 2007)
27 ([T]here is a fundamental difficulty in distinguishing an antitrust offense under FTC Act 5 from
that under the Sherman Act or the Clayton Act. Apart from possible historical anachronisms in
28 the application of those statutes, the Sherman and Clayton Acts are broad enough to cover any
anticompetitive agreement or monopolistic situation that ought to be attacked whether completely
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 22
1 FTC must show at least some indicia of oppressiveness, such as (1) evidence of
2 anticompetitive intent or purpose on the part of the producer charged, or (2) the absence of an
3 independent legitimate business reason for its conduct. E.I. du Pont de Nemours & Co. v. FTC,
4 729 F.2d 128, 139 (2d Cir. 1984). The FTC itself has acknowledged that conduct does not violate
5 Section 5 unless it cause[s], or [is] likely to cause, harm to competition or the competitive
6 process, taking into account any associated cognizable efficiencies and business justifications.
7 Federal Trade Commission, Statement of Enforcement Principles Regarding Unfair Methods of
8 Competition Under Section 5 of the Federal Trade Commission Act, 80 Fed. Reg. 57,056,
9 57,056 (Sept. 21, 2015). The FTC also cannot use Section 5 to reach conduct that is affirmatively
10 permitted or encouraged by the antitrust laws. See Matter of Gen. Foods Corp., 103 F.T.C. 204
11 (1984) (While Section 5 may empower the Commission to pursue those activities which offend
12 the basic policies of the antitrust laws, we do not believe that power should be used to reshape
13 those policies when they have been clearly expressed and circumscribed.).22 Because the FTC
14 has failed to plead any indicia of oppressiveness or any plausible harm to the competitive
15 process with respect to either the tax theory or the exclusive dealing theory, the FTC has not
16 pled a Section 5 claim.
17 First, for the reasons explained above, the Complaint does not allege any facts supporting
18 its theory that Qualcomms unwillingness to sell modem chips to infringers harms competition.23
19 (See supra Part I.A.1.) Because OEMs do not pay higher royalties when using non-Qualcomm
20 modem chips, the so-called tax theory of harm is just as implausible when cast as a Section 5
21
22 full blown or not. Nothing prevents those statutes from working their own condemnation of
practices violating their basic policies. (citation and internal quotation marks omitted)). For
23 purposes of this Motion only, Qualcomm assumes that the FTC has the authority to bring a
standalone Section 5 claim to reach conduct not expressly prohibited by the Sherman Act.
24 Qualcomm does not concede that the FTC has such authority.
22
25 See also Ohlhausen Dissent, at 2 (It is no answer to an unsupported Sherman Act theory to
bring an amorphous standalone Section 5 claim based on the same conduct.).
26
23
To the contrary, rather than excluding other baseband processor suppliers from sales to OEMs,
27 common sense dictates that the direct effect of Qualcomms practice is to make it easier for
Qualcomms competitors to sell to those OEMs that do not have a patent license from Qualcomm
28 because they will not need to compete with Qualcomm for such sales.
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 23
1 claim as it is under the Sherman Act. The facts alleged in the Complaint, as discussed above,
2 amount at most to a price squeeze claim of the sort rejected by the Supreme Court in linkLine.
3 Conduct that is expressly not prohibited by the Sherman Actamong other reasons, so as not to
4 chill even monopolists incentives to offer discounts and compete on pricecannot violate
5 Section 5. See Matter of Gen. Foods Corp., 103 F.T.C. 204. In any event, there are no indicia
6 of oppressiveness because there is a clear independent legitimate business reason for
7 Qualcomms practice, E.I. du Pont de Nemours, 729 F.2d at 139; Qualcomm does not wish to
8 facilitate infringement of its patents and jeopardize its ability to recover its extensive investments
9 in R&D regarding fundamental cellular communication technologies ( 143).
10 Because the FTCs tax theory is without merit, the FTCs assertion that unspecified
11 strategic funds exacerbate[] the anticompetitive effect of the supposed tax ( 106) likewise
12 fails.
13 (See supra Parts I.A.1, I.A.2.)
14 As with strategic funds, the FTC alleges that the practice of not licensing the manufacture
15 and sale of modem chips is anticompetitive only because it supposedly facilitates the collection of
16 elevated royalties leading to the supposed tax. Because the FTCs tax theory fails, a
17 practice that purportedly bolsters the tax cannot violate Section 5. And even if the FTC were
18 claiming that not licensing the manufacture and sale of modem chips, by itself, causes harm to
19 competition, that theory would fail because there are no factual allegations (i) that Qualcomm
20 ever asserted its patents against any chip maker, (ii) that chip makers need a license from
21 Qualcomm in order to compete, or (iii) that any chip maker was excluded from making a sale by
22 the lack of a license from Qualcomm. (See supra Part I.A.3.)
23 Second, the FTC has not plausibly pled that the Apple agreements substantially foreclose
24 competition in any market. Because of the long recognized legitimate business reasons for
25 entering into an exclusive deal (even assuming arguendo that the agreements are properly
26 characterized as exclusive), the absence of any allegation of substantial foreclosure is fatal to the
27 FTCs claim. See, e.g., Allied Orthopedic Appliances, 592 F.3d at 996. (See supra Part I.B.)
28
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 24
1 Conclusion
2 For the reasons stated above, the Complaint should be dismissed for failure to state a
3 claim upon which relief can be granted.
4 Dated: April 3, 2017

Respectfully submitted,
5
6 CRAVATH, SWAINE & MOORE LLP,
7
/s/ Gary A. Bornstein ___________
8 Gary A. Bornstein
Yonatan Even
9
Worldwide Plaza
10 825 Eighth Avenue
New York, NY 10019
11 Tel: (212) 474-1000
12 Fax: (212) 474-3700
[email protected]
13 [email protected]
14 Richard S. Taffet
MORGAN, LEWIS & BOCKIUS LLP
15 101 Park Avenue
New York, NY 10178-0060
16 Tel: (212) 309-6000
Fax: (212) 309-6001
18 Willard K. Tom
19 1111 Pennsylvania Ave. NW
20 Washington, DC 20004-2541
Tel: (202) 739-3000
21 Fax: (202) 739 3001
[email protected]
22
Donn P. Pickett
23 Geoffrey T. Holtz
24 One Market, Spear Street Tower
San Francisco, CA 94105-1126
25 Tel: (415) 442-1000
26 Fax: (415) 442-1001
[email protected]
Attorneys for Qualcomm Incorporated
28
MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FRANCISCO 25
Case 5:17-cv-00220-LHK Document 69-1 Filed 04/03/17 Page 1 of 2
1 CRAVATH, SWAINE & MOORE LLP MORGAN, LEWIS & BOCKIUS LLP
Gary A. Bornstein (pro hac vice) Willard K. Tom (pro hac vice)
Yonatan Even (pro hac vice) 1111 Pennsylvania Avenue NW
3 [email protected] Washington, DC 20004-2541
825 Eighth Avenue Telephone: (202) 739-3000
4 New York, New York 10019-7475 Facsimile: (202) 739 3001
Telephone: (212) 474-1000
5 Facsimile: (212) 474-3700 MORGAN, LEWIS & BOCKIUS LLP
Donn P. Pickett (SBN 72257)
6 MORGAN, LEWIS & BOCKIUS LLP [email protected]
Richard S. Taffet (pro hac vice) Geoffrey T. Holtz (SBN 191370)
101 Park Avenue One Market, Spear Street Tower
8 New York, NY 10178-0060 San Francisco, CA 94105-1126
Telephone: (212) 309-6000 Telephone: (415) 442-1000
9 Facsimile: (212) 309-6001 Facsimile: (415) 442-1001
10 Attorneys for Defendant

QUALCOMM INCORPORATED
11
12
UNITED STATES DISTRICT COURT
13
NORTHERN DISTRICT OF CALIFORNIA
14
SAN JOSE DIVISION
15
16
FEDERAL TRADE COMMISSION, Case No. 5:17-cv-00220-LHK
17
Plaintiff, [PROPOSED] ORDER GRANTING
18 QUALCOMMS MOTION TO DISMISS
vs.
19
QUALCOMM INCORPORATED, a Delaware
20 corporation,
21 Defendant.
22
23
24
25
26
27
28
MORGAN, LEWIS &
BOCKIUS LLP [Proposed] Order re Motion to Dismiss
ATTORNEYS AT LAW Case No. 5:17-cv-00220-LHK
SAN FRANCISCO
Case 5:17-cv-00220-LHK Document 69-1 Filed 04/03/17 Page 2 of 2
1 Pending before the Court is Defendant Qualcomm Incorporateds (Qualcomm) Motion
2 to Dismiss the Plaintiff Federal Trade Commissions (FTC) Complaint. After full
3 consideration of the moving and opposing papers of each party, the arguments of counsel, and all
4 other matters presented to the Court, IT IS HEREBY ORDERED that Qualcomms Motion to
5 Dismiss is GRANTED. The FTCs Complaint is dismissed under Federal Rule of Civil
6 Procedure 12(b)(6) for failure to state a claim.
7 IT IS SO ORDERED.
9 Dated: _______________, 2017
10 Honorable Lucy H. Koh

United States District Judge
11 Northern District of California
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MORGAN, LEWIS &
BOCKIUS LLP 1 [Proposed] Order re Motion to Dismiss
ATTORNEYS AT LAW Case No. 5:17-cv-00220-LHK
SAN FRANCISCO

17-04-03 Qualcomm Motion To Dismiss FTC Case

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Case 5:17-cv-00220-LHK Document 69 Filed 04/03/17 Page 1 of 30

10 Attorneys for Defendant

17 FEDERAL TRADE COMMISSION, Case No. 5:17-cv-00220-LHK

11 A. The FTCs Tax Theory Does Not State a Claim of Unlawful

14 a. The FTC has not pled facts showing that Qualcomms

19 3. Qualcomms practice of licensing its patents only at the handset

22 II. THE FTC FAILS TO STATE A CLAIM OF UNREASONABLE RESTRAINT

18 In re Beltone Elecs. Corp., 100 F.T.C. 68 (1982) ...........................................................................19

6 Rheumatology Diagnostics Lab., Inc. v. Aetna, Inc., No. 12-CV-05847-WHO,

12 United States v. Grinnell Corp., 384 U.S. 563 (1966) ......................................................................7

21 2 Areeda & Hovenkamp, Antitrust Law (3d ed. 2007) ...................................................................22

8 these fundamental flaws is independently sufficient to warrant dismissal.

25 penalty (or tax) for the purchase of competitors modem chips.

24 business practices. Neither supports a claim of anticompetitive harm:

2 conditions that substantially foreclose competitors from making sales.

8 as modem chips, violates Qualcomms commitments to cellular standard-setting

9 organizations (SSOs) that Qualcomm would license its standard-essential patents on

23 The FTCs second theorythat Qualcomms now-expired agreements with Apple

11 Ashcroft v. Iqbal, 556 U.S. 662 (2009), and must be dismissed.

16 to be a significant contributor of fundamental technology enabling the development of cellular

17 standards. ( 54-56.) SSOs have chosen to incorporate thousands of patented Qualcomm

18 inventions into their standards, including second-generation CDMA standards, third-generation

22 patents protecting such standardized technologies are therefore known as standard-essential

2 discriminatory (FRAND) terms. ( 57.)

5 makers of cellular handsets (referred to in the Complaint as original equipment manufacturers

10 components. ( 59, 113, 114.)

4 ( 68.) By definition, unlicensed OEMs making standard-compliant handsets infringe

12 on its R&D investments in developing cellular technologies ( 143).

14 To survive a motion to dismiss, a complaint must contain sufficient factual material,

26 discovery in an antitrust case. Somers, 729 F.3d at 966.

4 a possibility theory, and thus fails to meet the Twombly standard.7

11 I. THE FTC FAILS TO STATE A CLAIM OF UNLAWFUL MONOPOLIZATION.

14 acquisition or maintenance of that power as distinguished from growth or development as a

15 consequence of superior product, business acumen, or historic accident. United States v.

18 that conduct be exclusionary, and to be condemned as exclusionary, a monopolists act must

9 that infringe Qualcomms patents, (2) , and

1 under basic economic principles.

23 Complaints bare-bones pleading of a hypothetical negotiation process cannot survive a motion to

20 claimed anticompetitive scheme).

21 Even more fundamentally, the FTCs theory of elevated royalties is contradicted by

8 This contradiction undermines the FTCs tax theory.

16 competition). To survive dismissal, the FTC must allege anticompetitive effectsnamely

16 invest and innovate. ( 87, 93.)

17 logically and legally flawed.

21 by making incentive payments that reduce the all-in cost of purchasing

25 FTC does not allege

8 Complaint does not allege what portion of

22 theory, they do not support the FTCs claim.

13 competitors survive or expand when introducing an improved product design).

3 more likely explanation is available).13

10 elevated royalties charged by Qualcomm reflect Qualcomms purported dominance in certain

16 The Complaints exclusive dealing theory, which is based on a set of now-expired

4 woefully deficient to establish exclusivity. Conditional pricing arrangements do not

6 To determine substantiality in a given case, it is necessary to weigh

17 agreements with Apple.

1 Qualcomms competitors to provide similar benefits to those allegedly provided by Qualcomm to

10 effective competition. Tampa Elec., 365 U.S. at 329.

6 II. THE FTC FAILS TO STATE A CLAIM OF UNREASONABLE RESTRAINT OF

11 actually injures competition . . . . Name.Space, 795 F.3d at 1129.18 Only unreasonable