Monopoly, Innovation, and Due Process: FTC v. Qualcomm and the Imperative to Destroy

On August 11, 2020, a three-judge panel of the Ninth Circuit unanimously reversed Judge Lucy Koh’s judgment in her bench trial in Federal Trade Commission v. Qualcomm Inc. on every question of law that Qualcomm had appealed. The panel also vacated her permanent, worldwide injunction, which would have destroyed Qualcomm’s business model.

In debates over the wisdom of this case, abstractions typically fly back and forth like a shuttlecock in a game of badminton. My approach in this article is qualitatively different. I conduct in 774 pages a de novo review of the publicly available trial record. That review reveals many serious errors of fact and law, only some of which the Ninth Circuit addressed when reversing Judge Koh. The trial, the findings of fact, and the conclusions of law in FTC v. Qualcomm are alarming because:

1.Judge Koh adjudicated a claim, predicated on Aspen Skiing, that the FTC claims it never argued. Article III judges may not issue advisory opinions. They are not inquisitors.

2.Judge Koh revealed by her courtroom remarks during trial that she inadequately understood how the doctrine of patent exhaustion informed the antitrust questions presented.

3.Judge Koh impugned the integrity of Qualcomm’s founder and executives, its outside counsel, and its expert economic witnesses (as well as executives from Ericsson and Nokia whom Qualcomm called as percipient witnesses to testify in its defense). Yet, she credulously accepted as truthful, reliable, and relevant the self-interested testimony of competitors or customers, who might be expected to benefit from a permanent, worldwide injunction that would destroy a large portion of the value of Qualcomm’s uniquely innovative, successful, and productive business model.

4.Judge Koh suppressed all findings of fact concerning the testimony of the FTC’s expert economic witness, Professor Carl Shapiro. Most notably, she suppressed his admissions that would have materially exculpated Qualcomm under the FTC’s theory of liability positing a royalty “surcharge” and modem “tax” levied by Qualcomm for an exhaustive license to its cellular SEPs. This judicial conduct violated Federal Rule of Civil Procedure 52(a)(1) and the Due Process Clause of the Fifth Amendment as interpreted by the Supreme Court in Mathews v. Eldridge.

5.Judge Koh repeatedly displayed naïveté about economics in the most important government monopolization case since Microsoft.

6.Judge Koh seemed not to comprehend the economic consequences of FTC v. Qualcomm, either for Qualcomm or for other innovative firms. Because Judge Koh appeared not to understand what was at stake, she necessarily appeared not to understand the tradeoff to be made on the margin between the cost of, and the expected benefit from, her allowance of additional increments of procedural safeguards. In various ways documented in detail in this article, Judge Koh denied Qualcomm procedural safeguards whose marginal cost of provision would have been minimal or nil. Two examples were proper adherence to Federal Rule of Civil Procedure 52(a)(1) and to the controlling burden of production and burden of persuasion under American Express. The expected marginal benefit to Qualcomm from Judge Koh’s provision of these (denied) procedural safeguards was enormous.

The Ninth Circuit properly reversed Judge Koh’s judgment, vacated her permanent, worldwide injunction, and vacated her grant to the FTC of partial summary judgment. But the panel might not have recognized, because it did not conduct a de novo review of Judge Koh’s findings of fact, that her decision also was deficient in its respect for those appearing in her courtroom, in its sophistication about the proper application of economic analysis to complex commercial litigation in technologically dynamic industries, and in its fidelity to due process of law.