December 14, 2017
`
`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. 3279
`
`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
`
`(cid:44)(cid:51)(cid:53)(cid:21)(cid:19)(cid:20)(cid:28)(cid:16)(cid:19)(cid:19)(cid:20)(cid:21)(cid:28)
`(cid:52)(cid:88)(cid:68)(cid:79)(cid:70)(cid:82)(cid:80)(cid:80)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)(cid:15)(cid:3)(cid:83)(cid:17)(cid:20)
`
`

`

`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. 3279
`
`INTEL CORPORATION’S STATEMENT ON THE PUBLIC INTEREST RAISED
`BY THE COMPLAINT AND THE SECTION 210.8(B) STATEMENT
`FILED BY QUALCOMM INC.
`
`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
`
`(cid:44)(cid:51)(cid:53)(cid:21)(cid:19)(cid:20)(cid:28)(cid:16)(cid:19)(cid:19)(cid:20)(cid:21)(cid:28)
`(cid:52)(cid:88)(cid:68)(cid:79)(cid:70)(cid:82)(cid:80)(cid:80)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)(cid:15)(cid:3)(cid:83)(cid:17)(cid:21)
`
`

`

`This complaint marks the second time in five months that Qualcomm has attempted to
`commandeer the Commission’s Section 337 processes in a transparent attempt to stave off lawful
`competition from Intel Corporation (“Intel”)—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. Now that
`Intel has overcome the obstacles erected by Qualcomm and emerged as a competitor, Qualcomm
`has made clear that it will use any available anticompetitive maneuver to cement its monopoly
`position in the marketplace.
`In early July, Qualcomm filed a complaint that named Apple’s iPhone 7—conveniently,
`the only premium LTE smartphone on the market at that time that included a “non-Qualcomm
`brand” (i.e., an Intel) modem. Complaint, Dkt. No. 3235 (July 7, 2017); Statement on the Public
`Interest, Dkt. No. 3235 (July 7, 2017). Qualcomm has since confirmed in the first investigation
`(now Inv. No. 337-TA-1065) that it seeks to exclude every iPhone model—iPhone 7, iPhone 7
`Plus, iPhone 8, iPhone 8 Plus, and iPhone X—that includes an Intel modem. Having already
`withdrawn one patent from the first investigation, Qualcomm’s second complaint seeks to
`increase its chances of success of undermining Intel as a competitive threat before the ongoing
`litigation of its anticompetitive practices by the Federal Trade Commission (“FTC”), Apple, and
`consumers concludes. Qualcomm asserts five more patents and again seeks to exclude all
`iPhone models that include Intel modems. See 82 Fed. Reg. 57,613 (Dec. 6, 2017).
`Qualcomm’s latest complaint, like its first one, is not an effort to stop the alleged
`infringement of Qualcomm’s patent rights. Rather, this complaint again asks the Commission to
`exclude allegedly infringing Apple products using Intel modems and “replace” them with
`allegedly infringing Apple products “us[ing] a Qualcomm brand” modem. Statement on the
`Public Interest 3–4, Dkt. No. 3279 (Nov. 30, 2017). This is the latest in a long line of
`anticompetitive maneuvers that Qualcomm has used to quash incipient competitors and avoid
`competition on the merits. As such, it is an improper manipulation of the Commission’s powers.
`Like Qualcomm’s other well-documented anticompetitive conduct, an exclusion order
`here 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 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 latest complaint, it should do so with full
`awareness of Qualcomm’s abusive practices and the risks to the public interest from the order
`Qualcomm seeks. If there could have been any doubt that Qualcomm is trying to abuse this
`Commission’s authority in the same way as it has engaged in other prior anticompetitive
`practices, this second attempt to target Intel’s modems makes Qualcomm’s abuse even clearer.
`Accordingly, if the Commission elects to institute an investigation, Intel respectfully suggests
`consolidation of the new complaint with the existing complaint, and requests that the
`Commission delegate the public interest question to Administrative Law Judge Pender 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.
`
`1
`
`(cid:44)(cid:51)(cid:53)(cid:21)(cid:19)(cid:20)(cid:28)(cid:16)(cid:19)(cid:19)(cid:20)(cid:21)(cid:28)
`(cid:52)(cid:88)(cid:68)(cid:79)(cid:70)(cid:82)(cid:80)(cid:80)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)(cid:15)(cid:3)(cid:83)(cid:17)(cid:22)
`
`

`

`I.
`
`Background
`As the Commission is aware, for at least the last twenty years, Qualcomm has been the
`dominant supplier of 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. 5:17-cv-220 (N.D. Cal. May 12, 2017) (same).
`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 bars licensees from challenging its patents and 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 chipset
`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 to all standard implementers. But
`Qualcomm has broken that promise, making it impossible for its competitors (e.g., Intel) to offer
`OEMs fully-licensed competing devices (e.g., Intel’s modems). 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
`
`2
`
`(cid:44)(cid:51)(cid:53)(cid:21)(cid:19)(cid:20)(cid:28)(cid:16)(cid:19)(cid:19)(cid:20)(cid:21)(cid:28)
`(cid:52)(cid:88)(cid:68)(cid:79)(cid:70)(cid:82)(cid:80)(cid:80)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)(cid:15)(cid:3)(cid:83)(cid:17)(cid:23)
`
`

`

`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 in premium LTE modems, when Apple declined to agree to
`another exclusive supply arrangement with Qualcomm and instead signed contracts with Intel for
`supply of a portion of Apple’s modem needs for the iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8
`Plus, and iPhone X, the same products targeted by Qualcomm’s two ITC complaints.
`Apple’s decision to turn to a second source of supply and 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. Qualcomm is currently fighting a multi-billion-dollar
`lawsuit brought by Apple and the enforcement action brought by the FTC, both of which rightly
`accuse Qualcomm of antitrust violations. Not coincidentally, Qualcomm has targeted Apple in
`each of its ITC complaints 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 . . . 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. Every one of those antitrust agencies that has concluded its investigation of
`Qualcomm has found it engaged in multiple abusive practices.
`II.
`Qualcomm’s Complaint
`Against this backdrop, Qualcomm has, for a second time, asked 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: This complaint, like the one before it,
`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 force Apple to drop Intel as a supplier, regardless of whether Apple
`continues the allegedly infringing activity by continuing to import Apple products that
`incorporate a Qualcomm modem. This strategy is laid bare by Qualcomm’s decision to assert
`certain patents that have nothing to do with Intel’s modems—for example (¶ 68), one involving
`the “bokeh” effect, “a popular artistic photography effect[]” that would be infringed (or not
`infringed) regardless of whether the Apple product contains an Intel or Qualcomm modem.
`Qualcomm’s complaint 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 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 from switching away from Qualcomm) with
`an exclusion order. Qualcomm’s filings here show 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 Qualcomm’s complaint targets both one product explicitly (Apple iPhones) and
`another silently but quite obviously (Intel modems), the Commission should consider how the
`exclusion of each product will impact the public interest. As the supplier of the latter product,
`
`3
`
`(cid:44)(cid:51)(cid:53)(cid:21)(cid:19)(cid:20)(cid:28)(cid:16)(cid:19)(cid:19)(cid:20)(cid:21)(cid:28)
`(cid:52)(cid:88)(cid:68)(cid:79)(cid:70)(cid:82)(cid:80)(cid:80)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)(cid:15)(cid:3)(cid:83)(cid:17)(cid:24)
`
`

`

`Intel 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).
`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.
`Most obviously, an exclusion order would seek to push 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 completely different in
`kind 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 OEMs depend on Qualcomm’s modems and lack alternatives, 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 leading 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 invest in 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.
`
`* 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.
`
`4
`
`(cid:44)(cid:51)(cid:53)(cid:21)(cid:19)(cid:20)(cid:28)(cid:16)(cid:19)(cid:19)(cid:20)(cid:21)(cid:28)
`(cid:52)(cid:88)(cid:68)(cid:79)(cid:70)(cid:82)(cid:80)(cid:80)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)(cid:15)(cid:3)(cid:83)(cid:17)(cid:25)
`
`

`

`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 11/30/17 Public Interest Statement at 3, Qualcomm’s anticompetitive
`practices make it all but certain that no company but Qualcomm could fill the modem void.
`Increasing Qualcomm products would do nothing to encourage domestic production of
`modems because Qualcomm relies on overseas fabrication of its modems. Moreover, excluding
`Intel modems could harm long-term domestic investment. Historically, the demand for
`improved cellular technology has attracted massive continuing investments in the development
`of higher-performance standards. But along the way, Qualcomm’s practices have led
`competitors to sell off or shutter their modem businesses. 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 modems that practice those standards. More broadly, Intel has invested in the U.S.
`throughout its 50 years of leadership in the high-tech industry. Today, Intel is investing billions
`of dollars in U.S. research and development and manufacturing, and it employs over 50,000
`people nationwide. 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 barring
`importation of all Intel modems thus has the potential to undermine the case for Intel’s
`investment in modems in the 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 the enormous entry costs resulting from
`Qualcomm’s no-license-no-chips policy and its exclusive supply arrangements. Qualcomm’s
`success before the Commission would create another powerful disincentive to new entry.
`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 LTE
`product have few choices but to buy a Qualcomm modem—the only real alternatives are the
`Apple handsets with Intel modems, and a modest number of Samsung products that use
`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 market to lawful competition.
`IV.
`Conclusion
`For all these reasons, the Commission should either decline to institute an investigation or
`delegate the public interest question to an ALJ for development of an evidentiary record.
`
`5
`
`(cid:44)(cid:51)(cid:53)(cid:21)(cid:19)(cid:20)(cid:28)(cid:16)(cid:19)(cid:19)(cid:20)(cid:21)(cid:28)
`(cid:52)(cid:88)(cid:68)(cid:79)(cid:70)(cid:82)(cid:80)(cid:80)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)(cid:15)(cid:3)(cid:83)(cid:17)(cid:26)
`
`

`

`Dated: December 14, 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
`
`(cid:44)(cid:51)(cid:53)(cid:21)(cid:19)(cid:20)(cid:28)(cid:16)(cid:19)(cid:19)(cid:20)(cid:21)(cid:28)
`(cid:52)(cid:88)(cid:68)(cid:79)(cid:70)(cid:82)(cid:80)(cid:80)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)(cid:15)(cid:3)(cid:83)(cid:17)(cid:27)
`
`