Antitrust Exposure for Failure to License Standardized Technology on FRAND Terms

In Broadcomm Corp. v. Qualcomm Inc. (Sept. 4, 2007), The U.S. Court of Appeals for the Third circuit held "that (1) in a consensus-oriented private standardsetting environment, (2) a patent holder’s intentionally false promise to license essential proprietary technology on fair, reasonable, and non-discriminatory (“FRAND”) terms, (3) coupled with a standards-determining organization's ("SDO's") reliance on that promise when including the technology in a standard, and (4) the patent holder’s subsequent breach of that promise, is actionable anticompetitive conduct."

According to the opinion by Circuit Judge Barry,

The Complaint alleged that Qualcomm induced the European Telecommunications Standardization Institute ("ETSI") and other SDOs to include its proprietary technology in the UMTS standard by falsely agreeing to abide by the SDOs’ policies on IPRs, but then breached those agreements by licensing its technology on non-FRAND terms. The intentional acquisition of monopoly power through deception of an SDO, Broadcom posits, violates antitrust law.

The Complaint also alleged that Qualcomm ignored its FRAND commitment to the ETSI and other SDOs by demanding discriminatorily higher (i.e., non-FRAND) royalties from competitors and customers using chipsets not manufactured by
Qualcomm. Qualcomm, the Complaint continued, has a 90% share in the market for CDMA-path chipsets, and by withholding favorable pricing in that market, coerced cellular telephone manufacturers to purchase only Qualcomm-manufactured UMTS-path chipsets. These actions are alleged to be part of Qualcomm’s effort to obtain a monopoly in the UMTS chipset market because it views competition in that market as a longterm threat to its existing monopolies in CDMA technology.

. . . we must determine whether Broadcom has stated actionable anticompetitive conduct with allegations that Qualcomm deceived relevant SDOs into adopting the UMTS standard by committing to license its WCDMA technology on FRAND terms and, later, after lock-inoccurred, demanding non-FRAND royalties. As Qualcomm is at pains to point out, no court nor agency has decided this precise question and, in that sense, our decision will break new ground. The authorities we have cited in our lengthy discussion that has preceded this point, however, decidedly favor a finding that Broadcom’s allegations, if accepted as true, describe actionable anticompetitive conduct.