Qualcomm gets U.S. support to pause FTC antitrust ruling

The Trump administration urged a federal appeals court to put on hold an order that would force Qualcomm Inc. to change how it licenses its patents, saying the case “threatens competition, innovation, and national security.”

The filing Tuesday with the U.S. Court of Appeals in San Francisco puts the administration on the opposite side of the U.S. Federal Trade Commission, an independent government agency that filed the antitrust lawsuit against the chipmaker.

The Justice Department said Qualcomm will probably win its appeal because the judge who found the company’s license practices were anti-competitive ignored established antitrust principles and imposed an overly broad remedy. U.S. District Judge Lucy Koh in San Jose, Calif., refused to put her own May 21 ruling on hold while Qualcomm appeals.

Qualcomm declined to comment on the filing. Its stock rose as much as 5% in after-hours trading.

Koh’s ruling, concluding that the chipmaker’s licensing practices have “strangled” competition and ordering the company to renegotiate its license agreements with phonemakers, has come under fire by FTC Commissioner Christine Wilson, who wrote in the Wall Street Journal that it was both bad law and bad policy. The Trump administration’s antitrust czar, Makan Delrahim, said last month that misuse of antitrust law could harm competition and innovation.

The chipmaker is a key supplier of technology to federal government agencies involved in national security, and it holds classified contracts with the Defense Department, according to the Justice Department. The departments of Defense and Energy also backed a stay on Koh’s ruling.

“A reduction in Qualcomm’s leadership in 5G innovation and standard-setting, ‘even in the short-term,’ could ‘significantly impact U.S. national security’ by enabling foreign-owned firms to expand their influence,” the Justice Department said in the filing.

The Trump administration in May told Koh that if she concluded the company’s licensing model for chips used in mobile phones violates antitrust law, an aggressive remedy could undermine innovation and the company’s central role in commercializing 5G mobile networks.

Tuesday’s filing also included statements from Defense Department and Department of Energy officials.

The Department of Defense called Qualcomm a “supplier of mission-critical telecommunications products” including cybersecurity projects, said it has a “trusted supply chain relationship,” and cited the chipmaker’s leadership position in developing 5G networks over Chinese rivals.

“A hobbled Qualcomm, without the ability to make significant investments in R&D, presents a serious threat to DoD’s extensive networks, advanced telecommunications systems, and ultimately its ability to control the battlespace,” wrote Ellen Lord, under secretary of Defense for acquisition and sustainment.

Likewise, the Department of Energy pointed to Qualcomm’s role in telecommunications for the agency’s programs, including the National Nuclear Security Administration.

“The Department believes that any remedy that causes undue financial strain on Qualcomm may result in undermining Qualcomm’s position in the growing 5G market (among other telecommunications markets) and ceding to foreign entities, in particular China, a dominant position in the development and expansion of 5G technology,” wrote Max Everett, the Energy Department’s chief information officer.

Qualcomm also has gotten the backing of fellow telecommunications company Ericsson AB and Paul Michel, the retired former chief judge of the U.S. Court of Appeals for the Federal Circuit, the court that specializes in U.S. patent law.

The case is FTC v. Qualcomm Inc., 19-16122, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

Decker and Pettersson write for Bloomberg.