One California federal judge is taking the possibility of another government shutdown into account after hearing testimony in a trial that pits the FTC against Qualcolm. Judge Lucy co says she's unlikely to rule before the government runs out of money again next month, but she told the FTC to ask her again in writing by February thirteenth if it appears another shutdown is likely. Joining me is Jennifer Ree Bloomberg Intelligence Senior litigation analyst jen Why did the judge
even discuss the timing of her decision in such detail? Well, you know, it is unusual June for a judge to do that, and certainly they have no statutory deadlines on issuing these opinions. But in the closing arguments, the FTC actually asked, you know, can you just give us some
general guidance on your timing? And I think it's because they are concerned that if they lose and want to appeal, they only have a certain amount of time to appeal, and if the government's closed, it will affect their timing and their ability to appeal. And I think that's why
she also gave such a detailed response. So, what are the FTCs primary allegations in the case, you know, what they're primarily alleging here is that through interrelated practices, several practices that over the years, Qualcom maintained its market dominance in certain chips, mostly chips for three G and four G uh C, d M A and lt either called by by abusing its market power in those chips to force um really abusively high royalties on the techno the
patents it has for the technology needed for those chips to work in the phone and for the phone to work wirelessly. So essentially, Qualcom has patents that it's obligated to license in what's called a fair, reasonable and non discriminatory manner because those patents are necessary by any phone maker for that phone to work wirelessly, and it also
has chips that almost every phone maker needs. And what the FTC says Qualcom did was they threatened that if the phone maker wouldn't pay these very high royalties that were not fair, reasonable and nondiscriminatory, they wouldn't sell them their chips. And the O e M couldn't accept that. So was there act toual testimony from some of the
people that had been allegedly threatened in this way. Yeah. Well, the interesting thing is there was a lot of testimony, you know, one after another O E. M's like Apple, uh, and rivals like Intel took the stand and said, yes, they did feel that they had no leverage. They had no ability to really negotiate reasonably with Qualcolm because they couldn't take the risk that they would lose this chip
supply um. And there were even documents where you could see that Qualcom referenced, if you don't accept our royalties or lose, you will lose our chips. But on the other hand, you had quite a few Qualcom witnesses that testified that they never actually ever stopped supplying chips to an o EM, even when there were licensing disputes ongoing. So that was Qualcolm's defense. That was part of its defense. Yes, was there any indication which way the judge was leaning.
I mean, you could never tell, but sometimes the rulings. Yeah, Now in this case, she was really quiet, you know, very few questions, She was very focused. You to tell that she was watching carefully. She was looking at the exhibits and the documents. So I think at least through the course of the trial, it's really hard to see where she's leaning going into trial. She seemed very much
to be siding with the FTC. There were some pre trial rulings where she took the FTC side, both in what kind of evidence she would allow into the trial or wouldn't allow into the trial, as well as an early judgment that she made regarding Qualcom and what it's obligated to do with these standard essential patents. So, if the FTC wins the case, what does it want the
judge to do? What's the remedy in this case? Um, the FTC is not seeking any money, So unlike some of the actions that have been taken against Qualcom in Europe and in China, there won't be any big fines here. All they're looking for is a judge's order that requires Qualcom to do or to refrain from doing certain things.
And one of the biggest ones is what we just talked about, that they cannot use this threat of withholding our chips from an O E M in order to extract the High Royalty that it's extracting that it needs to separate out those negotiations. Would that hurt Qualcom's business model? You know, it's really hard to say that there, there's a bigger piece. I think that that, if implemented, would hurt Qualcom's business model more. And that piece is what
we haven't talked about yet. Um that the that the FTC has wants an order requiring Qualcom to license not just the O E M s the makers of the phone like Samsung and Apple, but also chip rivals like Media Tech and Intel. Up till now, Qualcom hasn't done that. And what they claim is that's an inefficient way of doing things. And it's unclear yet how that might affect their royalty streams if they have to do that, but
it could affect their business model. Sometimes, even after a trial, there is a settlement before the judge, especially before the judges order comes in or before a verdict by a jury. Is that likely here? I don't think it's likely, but I think it could happen. We know that the parties have been discussing settlement. They acknowledged as such before this trial start. Did at one point they even sought to stay in order to talk settlement and the judge refused it.
The issue I think that could hurt settlement talks now is that the FTC. I think believes they have momentum here and believes they did really great job in trial and have to have a possibility of winning. So they've gained a little leverage in these negotiations. But it's it's uh, it could happen. Now. We know that Makon del Rahim, who is the head of the Anti trust division at the d o J, has been vocal about the fact that he doesn't think this type of case should be
brought resolve with the antitrust laws. This is brought by the FTC. So there's sort of a disconnect there. Explain
the positions a little bit. You know, it's an interesting thing and I think there's a lot of debate in the antitrust community about this because in a big picture policy um level, the thought is that when you hamper um, they when a company has I P and they've done the R and D and put the money into the R and D and they've obtained a patent, they have the right to to get the benefit of that patent.
They have the right to charge what they want to in terms of royalties and do what they want to with that patent, and that intern will fund the R and D in innovation and so there's a fear that if you use antitrust to sort of mess up this equilibrium,
that it could hamper innovation. And del Rahim generally believes anti trust should support innovation and not hamper innovation, and and that these patent rights perhaps ought to have some precedence over antitrust, and that you could resolve these matters as a matter of contract law. Jennifer Ree always makes anti trust interesting. That's Bloomberg Intelligent senior litigation analyst Jennifer Ree from more of gent analysis. You can go to b I go on the Bloomberg terminal