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Qualcomm Wins Reprieve in F.T.C. Antitrust Case With Appeals Court Ruling

SAN FRANCISCO — The chip maker Qualcomm does not have to modify key business practices while a federal appeals court reviews an antitrust ruling against it, the court ruled on Friday, a win for the company and a blow to the Federal Trade Commission in a closely watched legal battle.

The ruling, by the United States Court of Appeals for the Ninth Circuit, stayed the effects of an injunction issued in May by Judge Lucy Koh of Federal District Court.

The injunction was a victory for the trade commission, which accused Qualcomm in 2017 of using its monopoly status as the supplier of two kinds of wireless chips to compel handset makers to pay “onerous” fees for the use of its patents.

In her ruling, Judge Koh agreed with the trade commission’s contention that Qualcomm’s practices stifled competition. She ruled that the company must abandon its practice of not selling chips to phone makers unless they agree to license Qualcomm’s patents. She also ordered Qualcomm to renegotiate all of its existing patent-licensing deals.

The ruling was attacked by the Justice Department — a rare disagreement between two federal antitrust regulators — and the Department of Defense and Department of Energy criticized the injunction as potentially crippling a supplier of crucial wireless technology to the federal government.

Qualcomm asked that the appeals court stay Judge Koh’s ruling, arguing that what she had ordered would permanently harm its operations. The appeals court sided with Qualcomm on that point.

“The fundamental business changes that the injunction imposes cannot be easily undone should Qualcomm prevail on appeal,” the court said.

Some analysts had expected the appeals court to side with Qualcomm on that basis. But the court’s ruling also contained surprising elements that could indicate sympathy toward Qualcomm’s underlying objections to Judge Koh’s ruling and a possible willingness to overturn it.

For example, the appeals court questioned what it deemed to be a core issue in the case: that Qualcomm has a duty under antitrust law to issue patent licenses to other chip makers.

“I find that characterization of the case surprising,” said David Reichenberg, a partner in the antitrust practice at the law firm Cozen O’Connor who is not involved in the case. “That is a shot in the arm for Qualcomm.”

The trade commission argued that Qualcomm was obligated to issue licenses to rivals because of its commitments to industry groups that set technology standards. The Justice Department disagreed, filing a brief in support of the company with the appeals court.

The appeals court also questioned whether Qualcomm’s practice of basing patent royalties on the price of handsets was illegal, another key issue in the case.

Trade commission representatives did not immediately reply to a request for comment.

“We are pleased that the Ninth Circuit granted our request and believe the district court decision will be overturned once the merits of our appeal have been considered,” said Don Rosenberg, Qualcomm’s executive vice president and general counsel.

The appeals court is not expected to issue a final ruling in the case until next year. The court said a hearing would be scheduled for January.

Qualcomm, the biggest maker of chips that manage wireless communications in mobile phones, has reaped the benefits of the smartphone boom through product sales and patent royalties.

But the company has run into challenges in several countries, including a broader slowdown in smartphone sales and trade tensions with China, its biggest market.

Qualcomm reached a settlement of a fierce legal battle with Apple this year, which boosted its revenue by $4.7 billion in the quarter that ended in June. Excluding that one-time gain, however, the company’s profit fell 34 percent in the quarter on a 13 percent decline in revenue.


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