`
`Writer’s Direct Contact
`(202) 220-1101
`(213) 683-4007 FAX
`Donald.Verrilli@mto.com
`
`The Honorable Lisa R. Barton
`Secretary
`U.S. International Trade Commission
`500 E Street, SW, Room 112-A
`Washington, DC 20436
`
`Re:
`
`In the Matter of Certain Mobile Electronic Devices and Radio Frequency and
`Processing Components Thereof, Docket No. 3235
`
`Dear Secretary Barton:
`
`On behalf of Intel Corporation in the above-referenced proceeding, enclosed
`please find our client’s Public Interest Statement.
`
`If you have any questions, please do not hesitate to give me a call.
`
`Respectfully submitted,
`
`/s/ Donald B. Verrilli, Jr.
`
`Donald B. Verrilli, Jr.
`
`Enclosure
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`
`
`UNITED STATES INTERNATIONAL TRADE COMMISSION
`WASHINGTON, D.C.
`
`In the Matter of
`
`CERTAIN MOBILE ELECTRONIC
`DEVICES AND RADIO FREQUENCY
`AND PROCESSING COMPONENTS
`THEREOF
`
`
`
`Docket No. 3235
`
`INTEL CORPORATION’S STATEMENT ON THE PUBLIC INTEREST
`
`Donald B. Verrilli, Jr.
`Chad I. Golder
`Sarah G. Boyce
`MUNGER, TOLLES & OLSON LLP
`1155 F Street N.W.
`Washington, D.C. 20004
`Telephone: (202) 220-1100
`
`Benjamin J. Horwich
`MUNGER, TOLLES & OLSON LLP
`560 Mission Street
`San Francisco, CA 94105
`Telephone: (415) 512-4000
`
`Kimberly Schmitt
`INTEL CORPORATION
`2200 Mission College Blvd.
`Santa Clara, CA 95054
`Telephone: (408) 653-9574
`
`Counsel for Intel Corporation
`
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`
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` Intel Corporation (“Intel”) respectfully responds to the Commission’s solicitation of
`comments on any public-interest issues raised by the Complaint and the Section 210.8(b)
`Statement filed by Qualcomm Inc. (“Qualcomm”). See 82 Fed. Reg. 32,199 (July 12, 2017).
`Intel is Qualcomm’s only remaining competitor in the merchant market for premium LTE
`baseband processor modems (“modems”). Intel has invested billions of dollars to develop next-
`generation advanced modems and technologies to improve the performance and functionality of
`modern smartphones and cellular communications. Qualcomm now seeks exclusion of allegedly
`infringing Apple mobile electronic products that include a modem made by Intel, so that they can
`be “replace[d]” by allegedly infringing Apple products that “use a Qualcomm brand baseband
`processor modem,” Complainant’s Initial Statement on the Public Interest at 4. Thus, Qualcomm
`did not initiate this investigation to stop the alleged infringement of its patent rights; rather, its
`complaint is a transparent effort to stave off lawful competition from Qualcomm’s only
`remaining rival. This twisted use of the Commission’s process is just the latest in a long line of
`anticompetitive strategies that Qualcomm has used to quash incipient and potential competitors
`and avoid competition on the merits. And although those strategies have sometimes been subtle
`or complex, Qualcomm’s latest complaint could not be more blatant in its anticompetitive aims.
`Like Qualcomm’s other anticompetitive conduct, an exclusion order would cause
`significant harm to the public interest—and, specifically, to the interests identified in the
`statutory public-interest factors in Section 337(d)(1) of the Tariff Act. See 19 U.S.C.
`§ 1337(d)(1). The vital public interest in restraining Qualcomm from shutting Intel out of the
`market for premium LTE modems led the Federal Trade Commission (“FTC”), after an extended
`investigation, to bring an action in district court to stop Qualcomm’s anticompetitive conduct.
`See Complaint, FTC v. Qualcomm Inc., No. 5:17-cv-220 (N.D. Cal. Jan. 17, 2017). The
`allegations of the FTC’s Complaint are striking and unmistakable—and fully consistent with
`Intel’s experience as a target of Qualcomm’s anticompetitive conduct.
`If the Commission entertains Qualcomm’s complaint, it should do so with full awareness
`of Qualcomm’s abusive practices and the risks to the public interest from the exclusion order
`Qualcomm seeks. Accordingly, if the Commission elects to institute an investigation, Intel
`respectfully requests that the Commission delegate the public-interest question to an ALJ for
`development of an evidentiary record that takes the full measure of Qualcomm’s long history of
`anticompetitive conduct and the strong public interest in refusing an exclusion order here.
`I.
`Background
`As the Commission is aware, for at least the last twenty years, Qualcomm has been the
`dominant supplier of baseband processor modems. Between 2012 and September 2015,
`Qualcomm’s annual share of the worldwide premium LTE modem market exceeded 80 percent.
`Order Denying Motion To Dismiss (“Koh Order”) at 7, FTC v. Qualcomm Inc., No. 5:17-cv-220
`(N.D. Cal. June 26, 2017).
`Whatever the source of Qualcomm’s past success, in recent years Qualcomm has
`maintained its modem monopoly through a host of anticompetitive practices—not through the
`merits of its products or the strength of its innovation. See Koh Order 8–15 (describing these
`anticompetitive practices in detail); Brief of Amicus Curiae Intel Corporation in Support of
`Plaintiff’s Opposition to Defendant’s Motion To Dismiss (“Intel Br.”) at 3–6, FTC v. Qualcomm
`Inc., No. No. 5:17-cv-220 (N.D. Cal. May 12, 2017) (same).
`
`1
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`First, the heart of Qualcomm’s anticompetitive scheme is its “no-license-no-chips”
`policy. Qualcomm holds and licenses patents that it claims are essential to practice certain
`cellular industry standards. Unlike any of the hundreds of other firms that supply components to
`cellular handset or tablet manufacturers (also known as “original equipment manufacturers” or
`“OEMs”), Qualcomm refuses to sell its components (modems) to an OEM unless the OEM
`agrees to “take out a separate [patent] licensing agreement with Qualcomm on Qualcomm’s
`preferred terms.” Koh Order 9. One such term is a requirement that an OEM pay Qualcomm
`exorbitant royalty rates for every cellular handset and tablet it sells, regardless of whether the
`product contains a Qualcomm modem. Id.
`The success of this policy turns on Qualcomm’s powerful leverage as an incumbent
`chipset monopolist. Ordinarily, a prospective patent licensee that disagrees with a licensor’s
`demands could resort to the courts or another neutral arbiter on questions of infringement,
`validity, and technical merit justifying a royalty rate—or negotiate a reasonable royalty by
`credibly threatening such litigation. But Qualcomm’s customers have no such recourse because
`Qualcomm answers any opposition with threats to disrupt the OEM’s supply of Qualcomm
`modems. Intel Br. 4–5. Because technical and supply constraints prevent OEMs from
`completely abandoning Qualcomm, they must acquiesce in Qualcomm’s license terms, lest they
`find themselves unable to make their products. Qualcomm exploits this leverage to impose
`elevated costs on OEMs that purchase modems from anyone other than Qualcomm, Koh Order
`10–11, 20–24, 31–33, ultimately reinforcing Qualcomm’s dominance in modems, Intel Br. 7–13.
`Second, Qualcomm refuses to license its declared standard-essential patents to its
`competitors. Koh Order 20; Intel Br. 13. This refusal breaches the licensing commitments that
`Qualcomm made to standard-setting organizations as a condition of standardizing the technology
`that Qualcomm claims is covered by its patents. Qualcomm declared that it would license those
`patents on fair, reasonable, and non-discriminatory terms. But Qualcomm has failed to keep that
`promise, making it impossible for its competitors (such as Intel) to offer OEMs fully licensed
`competing devices (such as the modems Intel sells). Koh Order 20–21. This, in turn, leaves
`OEMs with no way to avoid the predations of Qualcomm’s no-license-no-chips policy.
`Third, Qualcomm has entered exclusive supply arrangements with Apple, whereby
`Qualcomm offers Apple relief from Qualcomm’s exorbitant royalty rates in exchange for
`promises that Apple will use Qualcomm modems exclusively. Koh Order 13–15. From 2011 to
`2016, these arrangements foreclosed rivals like Intel from competing for Apple’s vital business.
`Id. at 15; see also Intel Br. 6, 19–21 (explaining that, because of Qualcomm’s exclusive supply
`arrangements, Intel “(i) lost sales and margin, (ii) missed out on critical opportunities to
`collaborate with Apple and cellular providers and thus to obtain development feedback, and (iii)
`lacked the marketplace credibility that a supply contract with Apple would have bestowed”).
`Intel only recently gained a foothold, when Apple declined to agree to another exclusive supply
`arrangement with Qualcomm and instead signed a contract with Intel for supply of a portion of
`Apple’s modem needs for the iPhone 7.
`Apple’s decision to resist Qualcomm’s anticompetitive behavior is the leading edge of a
`growing resistance to Qualcomm and its interlocking web of abusive practices—as reflected in
`the significant public and private legal scrutiny that those practices are drawing. In the United
`States, Qualcomm is currently fighting a multi-billion-dollar lawsuit brought by Apple and the
`extraordinary enforcement action brought by the FTC, both of which rightly accuse Qualcomm
`
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`of antitrust violations. Not coincidentally, Qualcomm has targeted Apple here in retribution for
`daring to contract with Qualcomm’s only remaining competitor and for bringing a lawsuit to
`challenge Qualcomm’s anticompetitive conduct. Additionally, Qualcomm “has faced or is
`facing investigations, and in some instances fines, from the Korea Fair Trade Commission, Japan
`Fair Trade Commission, China’s National Development and Reform Commission, and the
`European Commission, in addition to the Taiwan Fair Trade Commission.” Koh Order 50 n.8.
`II.
`Qualcomm’s Complaint
`Against this backdrop, Qualcomm asks the Commission for an exclusion order that
`would, in practical effect, bar Intel premium LTE modems from entering the United States, once
`again reinforcing Qualcomm’s dominance in the premium LTE modem merchant market for
`reasons having nothing to do with the merits of its product offering.
`The Commission should make no mistake: Qualcomm’s Complaint attempts to
`accomplish something quite different from the ordinary vindication of patent rights.
`Qualcomm’s goal is not to exclude supposedly infringing products from the United States.
`Instead, its primary goal is to exclude Intel modems from the United States, while giving free
`passage to allegedly infringing Apple products that incorporate a Qualcomm modem. This
`strategy is especially evident in Qualcomm’s assertion of some patents that have nothing to do
`with Intel’s modems—for example, one on graphics processing that would be infringed (or not
`infringed) regardless of whether Apple uses an Intel or Qualcomm modem. See, e.g., Complaint
`Ex. 15 (charting the ’936 patent against Apple’s A10 GPU). Apple simply happens to be the
`only OEM purchasing premium LTE modems in quantity from someone other than Qualcomm.
`In other words, Qualcomm now seeks to use the Commission’s process to maintain its
`modem monopoly and perpetuate its broader anticompetitive scheme. Its complaint is a brazen
`attempt to outflank the earlier-filed judicial and regulatory proceedings brought by the FTC,
`foreign regulators, and Qualcomm’s customers—all aimed at putting a stop to that scheme.
`Apple’s decision to break free of exclusive supply agreements with Qualcomm is likewise no aid
`to competition if Qualcomm can stymie Apple (and cow other OEMs) with an exclusion order.
`Qualcomm’s complaint shows that the means matter not, so long as the end is the same: a
`premium LTE modem merchant market in which Qualcomm is the sole supplier.
`III.
`An Exclusion Order Would Be Antithetical to the Public Interest
`Because an exclusion order’s impact would extend beyond Apple handsets and tablets,
`the Commission should consider the effect that excluding Intel premium LTE modems from the
`United States would have on the public interest. Because other parties are likely to address the
`effect on the public interest of excluding Apple handsets, this statement focuses primarily on the
`effect of excluding Intel modems—the only device that competes with Qualcomm’s modems in
`the United States merchant market for premium LTE modems. An exclusion order barring Intel
`modems from the United States would threaten deep and lasting harm to the public interest. See
`19 U.S.C. § 1337(d)(1); see also Intel Br. 4–6 (describing the harm Qualcomm’s unlawful
`practices cause OEMs, other modem manufacturers, and consumers).
`Competitive Conditions in the U.S. Economy. An exclusion order would severely
`damage competitive conditions in the United States economy by reinforcing Qualcomm’s hold
`on the premium LTE modem merchant market. Such an order would have anticompetitive
`consequences that mirror those of Qualcomm’s unlawful sales and licensing policies.
`
`3
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`Most obviously, an exclusion order would fence Intel, Qualcomm’s only remaining
`competitor, out of the premium LTE market for reasons unrelated to the merits of its products.
`Such an order would cause harm to competitive conditions because it would outright eliminate
`competition. Certainly, the Commission’s orders inherently affect competitive conditions when
`they exclude products from the United States market; such is the price of protecting a patentee
`from infringement. But Qualcomm’s request is of a different order because it proposes to
`substitute one infringing product (an Apple product with an Intel modem) with another (a
`functionally equivalent Apple product with a Qualcomm modem).* In short, the exclusion order
`that Qualcomm seeks is far more likely to injure competitive conditions than it is to reduce the
`supposed infringement Qualcomm complains of.
`Moreover, if Qualcomm can successfully exclude Apple products that use non-
`Qualcomm modems, it would send a strong signal to other OEMs about the risks of defying
`Qualcomm. These OEMs would predictably refrain from looking to competing vendors like
`Intel because they cannot afford the business disruption and costs associated with Qualcomm
`retribution. And a return to a premium LTE merchant market with only one modem vendor
`(Qualcomm) would, in turn, lead to the very supply-stream dependence that is Qualcomm’s
`lifeblood: The more dependent OEMs are on Qualcomm’s modems, the more power Qualcomm
`has to hold OEMs hostage to its demands around patent licensing, exclusivity, and other
`commercial terms. Qualcomm can, for example, continue to skew licensing negotiations for its
`declared standard-essential patents and charge exorbitant royalty rates, and OEMs may have no
`choice but to yield to Qualcomm’s demands.
`An exclusion order also would have a powerful deterrent effect on cellular carriers,
`whose support and cooperation is key to successful competition against Qualcomm. Intel
`optimizes its modems to work with certain carrier networks, a benefit that requires significant
`coordination with those carriers (and with Apple as the OEM). If the carriers have reason to
`suspect that Intel’s modems will not succeed, they have less incentive to offer that vital
`cooperation. With an exclusion order, then, Qualcomm can manipulate both its OEM customers
`and cellular carriers into undermining competitive conditions and bolstering its unlawful
`monopoly—achieving the very result that the FTC’s suit seeks to remedy.
`Production of Like or Directly Competitive Articles in the United States. The dearth of
`“like or directly competitive articles in the United States,” 19 U.S.C. § 1337(d)(1), also counsels
`against an exclusion order. As discussed above, Qualcomm is the only company currently
`producing an alternative to the Intel modems that would be excluded under the order it seeks.
`Thus, although OEMs purportedly could “ramp up production” and replace any excluded Apple
`handsets and tablets, see Complainant’s Initial Statement on the Public Interest at 4, Qualcomm’s
`
`* Qualcomm does not suggest that it targets Intel because the asserted patents are generally
`licensed or exhausted, but are not licensed or exhausted with regard to Apple products using Intel
`modems. Qualcomm has, of course, already collected massive royalties on Apple products—
`now the subject of dispute between Qualcomm and the contract manufacturers of Apple’s
`products. See Qualcomm Inc. v. Compal Elecs., Inc., No. 3:17-cv-1010 (S.D. Cal.). If the
`asserted patents are actually licensed under the agreements at issue in that dispute, then
`different—but equally serious—public-interest questions would arise from Qualcomm’s decision
`to invoke this Commission’s process when a parallel contract action is already underway.
`
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`anticompetitive practices make it all but certain that no company but Qualcomm could fill the
`modem void.
`This would do nothing to encourage domestic production of modems because Qualcomm
`relies on overseas fabrication of its modems (and would surely do so to meet “ramp[ed] up
`production” needs). Moreover, excluding Intel modems could harm long-term domestic
`investment. Historically, the demand for improved cellular communications technology has
`attracted massive and continuing investments in research and development of higher-
`performance standards. But along the way, Qualcomm’s practices have led competitors to sell
`off or shutter their modem businesses. See Intel Br. 5–6. Intel, among others, has invested in
`developing next-generation standards, motivated in part by the desire to be a leader in sales of
`the modems that practice those standards. More broadly, Intel has invested in the United States
`throughout its nearly 50 years of leadership in the American high-tech industry. Today, Intel is
`investing billions of dollars in United States research and development and manufacturing, and it
`employs over 50,000 people in the United States. Having played a pioneering role in creating
`the modern computing industry, Intel is now helping to drive computing technologies in new
`fields. An order effectively excluding all Intel modems from the United States thus has the
`potential to undermine the case for Intel’s investment in modems in the United States in the
`future, injuring American innovation and productivity.
`U.S. Consumers. An exclusion order would harm United States consumers by
`perpetuating Qualcomm’s unlawful monopoly. When a monopolist retains its monopoly for
`reasons unrelated to the merits of its product, consumers suffer. For example, an exclusion order
`would allow Qualcomm to continue overcharging its OEM customers. Those costs inevitably
`harm consumers by raising the price of handsets and tablets, forcing OEMs to compromise other
`features, or reducing the availability of those products.
`Worse yet, because competition drives innovation, an exclusion order barring Apple
`products that use non-Qualcomm modems would stifle future innovation. Potential competitors
`in the premium LTE modem market already face enormous entry costs, due to barriers like
`Qualcomm’s no-license-no-chips policy and its exclusive supply arrangements. Qualcomm’s
`success before the Commission would create another powerful disincentive.
`Absent competitors willing to innovate, customers are deprived of a meaningful choice
`when selecting a modem. When it comes to cellular phones and tablets, Qualcomm’s
`anticompetitive tactics have meant that consumers who wish to purchase a premium product that
`operates on the LTE network have few choices but to buy a Qualcomm modem—the only real
`alternatives are the latest Apple handsets with Intel modems, and a modest number of Samsung
`handsets and tablets using Samsung’s own modems. An exclusion order would reinforce that
`lack of consumer choice at the very moment when challenges across the globe by public and
`private plaintiffs alike seek to end Qualcomm’s unmerited dominance by opening up the modem
`merchant market to lawful competition.
`IV.
`Conclusion
`For the foregoing reasons, the Commission should decline to institute an investigation, or
`if it elects to institute an investigation, it should delegate the public-interest question to an ALJ
`for development of an evidentiary record.
`
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`
`
`Dated: July 20, 2017
`
`Respectfully submitted,
`
`/s/ Donald B. Verrilli, Jr.
`Donald B. Verrilli, Jr.
`Chad I. Golder
`Sarah G. Boyce
`MUNGER, TOLLES & OLSON LLP
`1155 F Street N.W.
`Washington, D.C. 20004
`Telephone: (202) 220-1100
`
`Benjamin J. Horwich
`MUNGER, TOLLES & OLSON LLP
`560 Mission Street
`San Francisco, CA 94105
`Telephone: (415) 512-4000
`
`Kimberly Schmitt
`INTEL CORPORATION
`2200 Mission College Blvd.
`Santa Clara, CA 95054
`Telephone: (408) 653-9574
`
`Counsel for Intel Corporation
`
`6
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