Northern District of California Dodges Ninth Circuit Precedent, Allows Putative Consumer Class Action To Proceed With Some California State Law Antitrust Claims
02/03/2023In 2020, the Ninth Circuit issued a landmark decision rejecting the Federal Trade Commission’s antitrust claims challenging a chipmaker’s (the “Company”) sale-and-licensing practices for its modem chips. FTC v. Qualcomm, 969 F.3d 974 (9th Cir.). In doing so, the Ninth Circuit left open the possibility that a claim under California state law (rather than federal law) could survive. This is that the case: various consumers brought a putative consumer class action challenging essentially the same conduct under California law. In re Qualcomm Antitrust Litig., No. 17-md-02773 (N.D. Cal.). On January 6, 2023, the United States District Court for the Northern District of California partially denied and partially granted the Company’s motion to dismiss, ruling that the Ninth Circuit’s decision only partially foreclosed Plaintiffs’ claims.
The Company manufactures different types of modem chips, which allow electronic devices to connect to cellular networks. In re Qualcomm Antitrust Litig., No. 17-md-02773, 2023 WL 121983, at *7 (N.D. Cal. Jan. 6, 2023). For the chips relevant to this case, Plaintiffs allege that the Company is essentially the only game in town, holding a 99% market share. Id. at *4. The Company also holds certain allegedly “standard essential” patents on the technology used by modem chips to connect to cellular networks (“Patented Technology”), which the Company then licenses to original-equipment manufacturers like Apple. Id. at *7.
Plaintiffs allege that the Company refused to sell modem chips unless electronics manufacturers also bought licenses for the Company’s Patented Technology at inflated rates and agreed not to challenge either the rates or the Company’s patents. Id. They also allege that the Company refused to license its Patented Technology to other chip manufacturers, like Intel (as opposed to original-equipment manufacturers). Plaintiffs finally allege that the Company entered certain exclusive dealing arrangements with Apple and other original-equipment manufacturers to maintain its modem chip monopoly. Plaintiffs challenge this conduct under California’s Cartwright Act and its Unfair Competition Law, claiming that it caused billions of dollars in harm to consumers. Id. at *8.
The Company moved to dismiss, primarily arguing that, even though these claims were brought under state law, the Ninth Circuit’s holding in FTC v. Qualcomm still precluded Plaintiffs’ claims and, in any event, they failed as a matter of law. The district court agreed in part and disagreed in part. Notably, the district court considered each of Plaintiffs’ theories separately (determining, for example, whether their tying claim succeeded under the framework for tying), rejecting Plaintiffs’ request to “alchemize” their claims and consider only the aggregate effect of the conduct.
First, as to Plaintiffs’ tying claim, the court held that a tying “transaction cannot restrain trade when no competitor exists from whom to purchase the tied product.” Id. at *18 (citing Morrison v. Viacom, Inc., 66 Cal. App. 4th 534, 543 (1998)). Because the tied product (the patent licenses) was sold only by the Company, the tying claim failed. Second, the court concluded that Plaintiffs’ exclusive dealing claim could proceed. Although the Ninth Circuit had rejected an essentially identical claim in Qualcomm, the court concluded that it had done so because the FTC had failed to demonstrate that the conduct resulted in a significant foreclosure of the market to competitors. See id. at *19 (citing Fisherman’s Wharf Bay Cruise Corp. v. Superior Ct. of San Francisco, 114 Cal. App. 4th 309, 335 (2003)). So, the Court reasoned that Plaintiffs may be able to satisfy the evidentiary burden where the FTC did not, in part because Plaintiffs alleged that the Company had exclusive deals with Apple and other manufacturers. Third, the Court considered Plaintiffs’ claim that the Company’s conduct was unlawful, unfair, or fraudulent under California’s Unfair Competition Law. It concluded that the exclusive-dealing conduct could proceed for the reasons discussed above. But the Court held that the refusal-to-license and tying claims were foreclosed by the Ninth Circuit’s decision and by the fact that Plaintiffs had failed to allege sufficient reliance to demonstrate that the Company’s conduct was “fraudulent.”
This decision demonstrates that, although the FTC’s lawsuit failed at the Ninth Circuit, and one might think these class claims would too, state antitrust laws—particularly California’s Cartwright Act and UCL—have overlapping but distinct coverage with federal antitrust law. Indeed, “the Cartwright Act is ‘broader and deeper’ than the Sherman Act.” Id. at *15. Companies should thus be aware not only of how their practices square with federal law but also of the antitrust laws of the states where they operate.CATEGORY: Federal Trade Commission