                FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


FEDERAL TRADE COMMISSION,                No. 19-16122
               Plaintiff-Appellee,
                                           D.C. No.
                 v.                     5:17-cv-00220-
                                             LHK
QUALCOMM INCORPORATED, A
Delaware corporation,
              Defendant-Appellant,         OPINION

SAMSUNG ELECTRONICS COMPANY,
LTD.; SAMSUNG SEMICONDUCTOR
INC.; INTEL CORPORATION;
ERICSSON, INC.; SAMSUNG
ELECTRONICS AMERICA, INC.;
MEDIATEK INC.; APPLE INC.,
                      Intervenors,


NOKIA TECHNOLOGIES OY;
INTERDIGITAL, INC.; LENOVO
(UNITED STATES), INC.; MOTOROLA
MOBILITY LLC,
                        Intervenors.

      Appeal from the United States District Court
        for the Northern District of California
        Lucy H. Koh, District Judge, Presiding
2                      FTC V. QUALCOMM

          Argued and Submitted February 13, 2020
                 San Francisco, California

                      Filed August 11, 2020

Before: Johnnie B. Rawlinson and Consuelo M. Callahan,
Circuit Judges, and Stephen J. Murphy, III, * District Judge.

                   Opinion by Judge Callahan


                          SUMMARY **


                             Antitrust

    The panel vacated the district court’s judgment, and
reversed the district court’s permanent, worldwide
injunction prohibiting several of Qualcomm Incorporated’s
core business practices.

    The Federal Trade Commission (“FTC”) contended that
Qualcomm violated the Sherman Act, 15 U.S.C. §§ 1, 2, by
unreasonably restraining trade in, and unlawfully
monopolizing, the code division multiple access (“CDMA”)
and premium long-term evolution (“LTE”) cellular modern
chip markets.



    *
      The Honorable Stephen J. Murphy, III, United States District
Judge for the Eastern District of Michigan, sitting by designation.
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
                     FTC V. QUALCOMM                         3

    Qualcomm has made significant contributions to the
technological innovations underlying modern cellular
systems, including CDMA and LTE cellular standards.
Qualcomm protects and profits from its innovations through
patents, which it licenses to original equipment
manufacturers (“OEM”). Qualcomm’s patents include
cellular standard essential patents (“SEPs”), non-cellular
SEPS, and non-SEPs. Because SEP holders could prevent
industry participants from implementing a standard by
selectively refusing to license, international standard-setting
organizations require patent holders to commit to license
their SEPs on fair, reasonable, and nondiscriminatory
(“FRAND”) terms before their patents are incorporated into
standards.

   The panel framed the issues to focus on the impact, if
any, of Qualcomm’s practices in the area of effective
competition: the markets for CDMA and premium LTE
modern chips.

     The panel began by examining the district court’s
conclusion that Qualcomm had an antitrust duty to license
its SEPs to its direct competitors in the modern chip markets
pursuant to the exception outlined in Aspen Skiing Co. v.
Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). The
panel held that none of the required elements for the Aspen
Skiing exception were present, and the district court erred in
holding that Qualcomm was under an antitrust duty to
license rival chip manufacturers. The panel held that
Qualcomm’s OEM-level licensing policy, however novel,
was not an anticompetitive violation of the Sherman Act.

    The panel rejected the FTC’s contention that even
though Qualcomm was not subject to an antitrust duty to deal
under Aspen Skiing, Qualcomm nevertheless engaged in
anticompetitive conduct in violation of § 2 of the Sherman
4                   FTC V. QUALCOMM

Act. The panel held that the FTC did not satisfactorily
explain how Qualcomm’s alleged breach of its contractual
commitment itself impaired the opportunities of rivals.
Because the FTC did not meet its initial burden under the
rule of reason framework, the panel was less critical of
Qualcomm’s procompetitive justifications for its OEM-level
licensing policy—which, in any case, appeared to be
reasonable and consistent with current industry practice.
The panel concluded that to the extent Qualcomm breached
any of its FRAND commitments, the remedy for such a
breach was in contract or tort law.

    The panel next addressed the district court’s primary
theory of anticompetitive harm: Qualcomm’s imposition of
an “anticompetitive surcharge” on rival chip suppliers via its
licensing royalty rates. The panel held that Qualcomm’s
patent-licensing royalties and “no license, no chips” policy
did not impose an anticompetitive surcharge on rivals’
modem chip sales. Instead, these aspects of Qualcomm’s
business model were “chip-supplier neutral” and did not
undermine competition in the relevant markers. The panel
held further that Qualcomm’s 2011 and 2013 agreements
with Apple have not had the actual or practical effect of
substantially foreclosing competition in the CDMA modem
chip market. Also, because these agreements were
terminated years ago by Apple itself, there was nothing to be
enjoined.
                   FTC V. QUALCOMM                      5

                       COUNSEL

Thomas C. Goldstein (argued), Kevin K. Russell, and Eric
F. Citron, Goldstein & Russell P.C., Bethesda, Maryland;
Gary A. Bornstein, Antony L. Ryan, Yonatan Even, and M.
Brent Byars, Cravath Swaine & Moore LLP, New York,
New York; Robert A. Van Nest, Eugene M. Paige, Cody S.
Harris, and Justina Sessions, Keker Van Nest & Peters LLP,
San Francisco, California; Willard K. Tom, Morgan Lewis
& Bockius LLP, Washington, D.C.; Geoffrey T. Holtz,
Morgan Lewis & Bockius LLP, San Francisco, California;
Richard S. Taffet, Morgan Lewis & Bockius LLP, New
York, New York; Michael W. McConnell, Wilson Sonsini
Goodrich & Rosati, Palo Alto, California; for Defendant-
Appellant.

Brian H. Fletcher (argued), Special Counsel; Michele
Arington, Assistant General Counsel; Heather Hippsley,
Deputy General Counsel; Ian R. Conner, Deputy Director;
Daniel Francis, Associate Director; Jennifer Milici, Chief
Trial Counsel; Alexander Ansaldo, Joseph Baker, Wesley
Carson, Geoffrey Green, Rajesh James, Kenneth Merber,
and Mark Woodward, Attorneys, Bureau of Competition;
Federal Trade Commission, Washington, D.C.; for Plaintiff-
Appellee.

Michael F. Murray (argued), Deputy Assistant Attorney
General; William J. Rinner, Chief of Staff and Senior
Counsel; Daniel E. Haar, Acting Chief, Competition Policy
and Advocacy Section; Jennifer Dixton, Patrick M.
Kuhlmann, and Jeffrey D. Negrette, Attorneys; Antitrust
Division, United States Department of Justice, Washington,
D.C.; for Amicus Curiae United States.
6                  FTC V. QUALCOMM

Jonathan S. Massey, Matthew M. Collette, and Kathryn
Robinette, Massey & Gail LLP, Washington, D.C., for
Amicus Curiae Ericsson, Inc.

Amanda Tessar, Perkins Coie LLP, Denver, Colorado; Sarah
E. Fowler, Perkins Coie LLP, Palo Alto, California; for
Amicus Curiae Act | The App Association.

Henry C. Su, Ankur Kapoor and David Golden, Constantine
Cannon LLP, Washington, D.C., for Amicus Curiae High
Tech Inventors Alliance.

Steven C. Holtzman and Gabriel R. Schlabach, Boies
Schiller Flexner LLP, San Francisco, California, for Amicus
Curiae MediaTek Inc.

John J. Vecchione, Michael Pepson, and Jessica Thompson,
Cause of Action Institute, Washington, D.C., for Amicus
Curiae Cause of Action Institute.

Garrard R. Beeney and Akash M. Toprani, Sullivan &
Cromwell LLP, New York, New York, for Amicus Curiae
Dolby Laboratories, Inc.

Erik S. Jaffe, Schaerr Jaffe LLP, Washington, D.C., for
Amici Curiae Antitrust and Patent Law Professors,
Economists, and Scholars.

Matthew J. Dowd, Dowd Scheffel PLLC, Washington, D.C.,
for Amicus Curiae The Honorable Paul R. Michel (Ret.).

Andrew G. Isztwan, InterDigital Inc., Wilmington,
Delaware, for Amicus Curiae InterDigital Inc.
                   FTC V. QUALCOMM                     7

Robert P. Taylor, RPT Legal Strategies PC, San Francisco,
California, for Amicus Curiae Alliance of U.S. Startups &
Inventors for Jobs (USIJ).

Jarod M. Bona, Aaron R. Gott, Luis Blanquez, and Luke
Hasskamp, Bona Law PC, La Jolla, California; Alexander
Shear, Bona Law PC, New York, New York; for Amici
Curiae International Center for Law & Economics and
Scholars of Law and Economics.

Ryan W. Koppelman, Alston & Bird LLP, Palo Alto,
California, for Amicus Curiae Nokia Technologies Oy.

David W. Kesselman, Amy T. Brantly, and Monica M.
Castillo Van Panhuys, Kesselman Brantly Stockinger,
Manhattan Beach, California, for Amicus Curiae Professor
Jorge L. Contreras.

Sandeep Vaheesan, Open Markets Institute, Washington,
D.C., for Amicus Curiae Open Markets Institute.

Thomas G. Hungar and Nick Harper, Gibson Dunn &
Crutcher LLP, Washington, D.C.; Joshua Landau, Computer
& Communications Industry Association, Washington,
D.C.; for Amicus Curiae Computer and Communications
Industry Association.

Ian Simmons, Benjamin J. Henricks, Brian P. Quinn, and
Scott Schaeffer, O’Melveny & Myers LLP, Washington,
D.C.; Michael D. Hausfeld and Scott Martin, Hausfeld LLP,
New York, New York; for Amici Curiae Law and
Economics Scholars.

Charles Duan, R Street Institute, Washington, D.C., for
Amicus Curiae R Street Institute.
8                   FTC V. QUALCOMM


Gregory P. Stone, Benjamin J. Horwich, Justin P. Raphael,
and Stephanie G. Herrera, Munger Tolles & Olson LLP, San
Francisco, California; Donald B. Verrilli Jr., Munger Tolles
& Olson LLP, Washington, D.C.; for Amicus Curiae Intel
Corporation.

Andrew J. Pincus, Mayer Brown LLP, Washington, D.C.,
for Amici Curiae Association of Global Automakers and
Alliance of Automobile Manufacturers.

John (“Jay”) Jurata Jr., Randall C. Smith, Thomas King-Sun
Fu, and Emily Luken, Orrick Herrington & Sutcliffe LLP,
Washington, D.C., for Amici Curiae Continental
Automotive Systems Inc., and Denso Corporation.

Jean-Claude André and David R. Carpenter, Sidley Austin
LLP, Los Angeles, California; Raymond A. Atkins and
Joseph V. Coniglio, Sidley Austin LLP, Washington, D.C.;
for Amicus Curiae Timothy J. Muris.

Randy M. Stutz, American Antitrust Institute, Washington,
D.C., for Amici Curiae American Antitrust Institute and
Public Knowledge.

David H. Herrington, and Alexandra K. Theobald, Cleary
Gottlieb Steen & Hamilton LLP, New York, New York;
Daniel P. Culley and Jessica A. Hollis, Cleary Gottlieb Steen
& Hamilton LLP, Washington, D.C.; for Amicus Curiae Fair
Standards Alliance.
                     FTC V. QUALCOMM                         9

                         OPINION

CALLAHAN, Circuit Judge:

    This case asks us to draw the line between
anticompetitive behavior, which is illegal under federal
antitrust law, and hypercompetitive behavior, which is not.
The Federal Trade Commission (“FTC”) contends that
Qualcomm Incorporated (“Qualcomm”) violated the
Sherman Act, 15 U.S.C. §§ 1, 2, by unreasonably restraining
trade in, and unlawfully monopolizing, the code division
multiple access (“CDMA”) and premium long-term
evolution (“LTE”) cellular modem chip markets. After a
ten-day bench trial, the district court agreed and ordered a
permanent, worldwide injunction prohibiting several of
Qualcomm’s core business practices.              We granted
Qualcomm’s request for a stay of the district court’s
injunction pending appeal. FTC v. Qualcomm Inc., 935 F.3d
752 (9th Cir. 2019). At that time, we characterized the
district court’s order and injunction as either “a trailblazing
application of the antitrust laws” or “an improper excursion
beyond the outer limits of the Sherman Act.” Id. at 757. We
now hold that the district court went beyond the scope of the
Sherman Act, and we reverse.

                               I

                              A

    Founded in 1985, Qualcomm dubs itself “the world’s
leading cellular technology company.” Over the past several
decades, the company has made significant contributions to
the technological innovations underlying modern cellular
systems, including third-generation (“3G”) CDMA and
fourth-generation (“4G”) LTE cellular standards—the
standards practiced in most modern cellphones and
10                     FTC V. QUALCOMM

“smartphones.” Qualcomm protects and profits from its
technological innovations through its patents, which it
licenses to original equipment manufacturers (“OEMs”)
whose products (usually cellphones, but also smart cars and
other products with cellular applications) practice one or
more of Qualcomm’s patented technologies.

    Qualcomm’s patents include cellular standard essential
patents (“SEPs”), non-cellular SEPs, and non-SEPs.
Cellular SEPs are patents on technologies that international
standard-setting organizations (“SSOs”) choose to include in
technical standards practiced by each new generation of
cellular technology. SSOs—also referred to as standards
development      organizations    (“SDOs”)—are          global
collaborations of industry participants that “establish
technical specifications to ensure that products from
different manufacturers are compatible with each other.”
Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 875 (9th
Cir. 2012) (“Microsoft II”) (citing Mark A. Lemley,
Intellectual Property Rights and Standard-Setting
Organizations, 90 Calif. L. Rev. 1889 (2002)). Cellular
SEPs are necessary to practice a particular cellular standard.
Because SEP holders could prevent industry participants
from implementing a standard by selectively refusing to
license, SSOs require patent holders to commit to license
their SEPs on fair, reasonable, and nondiscriminatory
(“FRAND”) terms before their patents are incorporated into
standards. 1


     1
       See generally Joshua D. Wright, SSOs, FRAND, and Antitrust:
Lessons from the Economics of Incomplete Contracts, 21 GEO. MASON
L. REV. 791 (2014) (discussing the role of SSOs in the selection and
enforcement of standards and whether antitrust law has, or should have,
a role in regulating the SSO contracting processes).
                       FTC V. QUALCOMM                            11

    Some of Qualcomm’s SEPs and other patents relate to
CDMA and premium LTE technologies—that is, the way
cellular devices communicate with the 3G and 4G cellular
networks—while others relate to other cellular and non-
cellular applications and technologies, such as multimedia,
cameras, location detecting, user interfaces, and more.
Rather than license its patents individually, Qualcomm
generally offers its customers various “patent portfolio”
options, whereby the customer/licensee pays for and
receives the right to practice all three types of Qualcomm
patents (SEPs, non-cellular SEPs, and non-SEPs).

    Qualcomm’s patent licensing business is very profitable,
representing around two-thirds of the company’s value. But
Qualcomm is no one-trick pony. The company also
manufactures and sells cellular modem chips, the hardware
that enables cellular devices to practice CDMA and premium
LTE technologies and thereby communicate with each other
across cellular networks. 2 This makes Qualcomm somewhat
unique in the broader cellular services industry. Companies
such as Nokia, Ericsson, and Interdigital have comparable
SEP portfolios but do not compete with Qualcomm in the
modem chip markets. On the other hand, Qualcomm’s main
competitors in the modem chip markets—companies such as
MediaTek, HiSilicon, Samsung LSI, ST-Ericsson, and VIA




    2
      Qualcomm’s licensing and modem chip businesses are run out of
two different divisions: (1) Qualcomm Technology Licensing, which is
responsible for granting licenses to Qualcomm’s patent portfolios and
determining what royalty rates to charge for those licenses; and
(2) Qualcomm CDMA Technologies, which is responsible for
manufacturing, pricing, and selling Qualcomm’s CDMA and premium
LTE modem chips. Id. at 669–75.
12                      FTC V. QUALCOMM

Telecom (purchased by Intel in 2015)—do not hold or have
not held comparable SEP portfolios. 3

    Like its licensing business, Qualcomm’s modem chip
business has been very successful. From 2006 to 2016,
Qualcomm possessed monopoly power in the CDMA
modem chip market, including over 90% of market share.
From 2011 to 2016, Qualcomm possessed monopoly power
in the premium LTE modem chip market, including at least
70% of market share. During these timeframes, Qualcomm
leveraged its monopoly power to “charge monopoly prices
on [its] modem chips.” Qualcomm, 411 F. Supp. 3d at 800.
Around 2015, however, Qualcomm’s dominant position in
the modem chip markets began to recede, as competitors like
Intel and MediaTek found ways to successfully compete.
Based on projections from 2017 to 2018, Qualcomm
maintains approximately a 79% share of the CDMA modem
chip market and a 64% share of the premium LTE modem
chip market. 4

                                   B

    Qualcomm licenses its patent portfolios exclusively at
the OEM level, setting the royalty rates on its CDMA and
LTE patent portfolios as a percentage of the end-product

     3
       The now-defunct modem chip supplier ST-Ericsson presents the
only partial exception to this general pattern. ST-Ericsson was a joint
venture between Ericsson, which does have a large SEP portfolio, and
STMicroelectronics. The company was dissolved in 2013. See TCL
Commc’n Tech. Holdings, Ltd. v. Telefonaktiebolaget LM Ericsson, No.
CV 15-2370 JVS(DFMx), 2018 WL 4488286, at *44 (C.D. Cal. Sept.
14, 2018), rev’d in part, vacated in part, 943 F.3d 1360 (Fed. Cir. 2019).
    4
      According to Qualcomm, its market share in premium LTE modem
chips dropped below 50% in 2017. Appellant’s Opening Br. at 118.
                        FTC V. QUALCOMM                               13

sales price. This practice is not unique to Qualcomm. As
the district court found, “[f]ollowing Qualcomm’s lead,
other SEP licensors like Nokia and Ericsson have concluded
that licensing only OEMs is more lucrative, and structured
their practices accordingly.” 5 Id. at 754–55. OEM-level
licensing allows these companies to obtain the maximum
value for their patented technologies while avoiding the
problem of patent exhaustion, whereby “the initial
authorized [or licensed] sale of a patented item terminates all
patent rights to that item.” Quanta Comput., Inc. v. LG
Elecs., Inc., 553 U.S. 617, 625 (2008); see also Adams v.
Burke, 84 U.S. 453, 457 (1873) (when a patented item is
“once lawfully made and sold, there is no restriction on [its]
use to be implied for the benefit of the patentee or his
assignees or licensees”). Due to patent exhaustion, if
Qualcomm licensed its SEPs further “upstream” in the
manufacturing process to competing chip suppliers, then its
patent rights would be exhausted when these rivals sold their
products to OEMs. OEMs would then have little incentive
to pay Qualcomm for patent licenses, as they could instead



    5
       According to Nokia and other companies, OEM-level licensing is
now the industry norm. See Br. of Amicus Curiae Nokia Technologies
Oy at 4 (“Requiring component-level licensing contravenes industry
norms, leads to the ATIS and TIA IPR Policies being inconsistent with
[other SSO policies], and could have unintended consequences for other
SEP holders and the industry at large.”); Br. of Amicus Curiae Dolby
Laboratories, Inc. at 16 (“The consistent experience of Dolby, a licensor
to thousands of licenses under SEPs, is that FRAND licensing of SEPs
takes place at the end-product level.”); see also Br. of Amici Curiae
Continental Automotive Systems, Inc. and Denso Corporation at 1–2
(“[J]ust as in the smartphone industry, many cellular SEP-holders restrict
their licensing in the automotive industry solely to the manufacturers of
consumer goods (here, the Big Three and other automakers), meaning
that upstream manufacturers like amici are left out in the cold.”).
14                       FTC V. QUALCOMM

become “downstream” recipients of the already exhausted
patents embodied in these rivals’ products. 6

    Because rival chip manufacturers practice many of
Qualcomm’s SEPs by necessity, Qualcomm offers these
companies what it terms “CDMA ASIC Agreements,”
wherein Qualcomm promises not to assert its patents in
exchange for the company promising not to sell its chips to
unlicensed OEMs. 7 These agreements, which essentially
function as patent-infringement indemnifications, include
reporting requirements that allow Qualcomm to know the
details of its rivals’ chip supply agreements with various
OEMs. But they also allow Qualcomm’s competitors to
practice Qualcomm’s SEPs royalty-free.

   Qualcomm reinforces these practices with its so-called
“no license, no chips” policy, under which Qualcomm

     6
        The terms “upstream” and “downstream” refer to the
manufacturing chain for consumer products such as cellphones that
contain component parts produced by different companies that are
sequentially installed until the end-product takes shape, at which point it
is sold by an OEM (the most “downstream” manufacturer in the chain)
directly to consumers. See MEMC Elec. Materials, Inc. v. Mitsubishi
Materials Silicon Corp., 420 F.3d 1369, 1372, 1374 (Fed. Cir. 2005)
(describing the upstream and downstream manufacturing process in the
context of silicon wafers used in semiconductors).

     7
       See Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1209 (Fed.
Cir. 2014) (“Because the standard requires that devices utilize specific
technology, compliant devices necessarily infringe certain claims in
patents that cover technology incorporated into the standard.”).
Previously, in the 1990s, Qualcomm provided “non-exhaustive licenses”
to rival chip suppliers, charging a royalty rate on their chipset sales.
Qualcomm, 411 F. Supp. 3d at 673, 754. According to Qualcomm, these
were actually “non-exhaustive, royalty-bearing agreements with
chipmakers that explicitly did not grant rights to the chipmaker’s [OEM]
customers.” Appellant’s Opening Br. at 45.
                        FTC V. QUALCOMM                             15

refuses to sell modem chips to OEMs that do not take
licenses to practice Qualcomm’s SEPs. Otherwise, because
of patent exhaustion, OEMs could decline to take licenses,
arguing instead that their purchase of chips from Qualcomm
extinguished Qualcomm’s patent rights with respect to any
CDMA or premium LTE technologies embodied in the
chips. This would not only prevent Qualcomm from
obtaining the maximum value for its patents, it would result
in OEMs having to pay more money (in licensing royalties)
to purchase and use a competitor’s chips, which are
unlicensed. Instead, Qualcomm’s practices, taken together,
are “chip supplier neutral”—that is, OEMs are required to
pay a per-unit licensing royalty to Qualcomm for its patent
portfolios regardless of which company they choose to
source their chips from.

    Although Qualcomm’s licensing and modem chip
businesses have made it a major player in the broader
cellular technology market, the company is not an OEM.
That is, Qualcomm does not manufacture and sell cellphones
and other end-use products (like smart cars) that consumers
purchase and use. Thus, it does not “compete”—in the
antitrust sense—against OEMs like Apple and Samsung in
these product markets.        Instead, these OEMs are
Qualcomm’s customers.  8




    8
      Samsung presents the one exception to this rule, as it is both one
of Qualcomm’s OEM customers and one of its competitors in the modem
chip markets (Samsung LSI is Samsung’s modem chip division). 411 F.
Supp. 3d at 746, 750. However, as Samsung LSI does not sell chips
externally, “Samsung is not a competitor [of Qualcomm] to sell modem
chips to external OEMs.” Id. at 750.
16                   FTC V. QUALCOMM

                               C

    Over the past several decades, as Qualcomm’s licensing
and modem chip businesses thrived and the company gained
more and more market share, its OEM customers and rival
chipmakers grew frustrated with the company’s business
practices.   The targets of these complaints included
Qualcomm’s practice of licensing exclusively at the OEM
level and refusing to license rival chipmakers, its licensing
royalty rates, its “no license, no chips” policy, and
Qualcomm’s sometimes aggressive defense of these policies
and practices.      Qualcomm’s customers occasionally
attempted to “discipline” its pricing through arbitration
claims, negotiations, threatening to change chip suppliers,
and litigation. These maneuvers generally resulted in
settlements and renegotiated licensing and chip-supply
agreements with Qualcomm, even as OEMs continued to
look elsewhere for less expensive modem chip options.

    Qualcomm’s competitors in the modem chip markets
contend that Qualcomm’s business practices, in particular its
refusal to license them, have hampered or slowed their
ability to develop and retain OEM customer bases, limited
their growth, delayed or prevented their entry into the
market, and in some cases forced them out of the market
entirely. These competitors contend that this result is not
just anticompetitive, but a violation of Qualcomm’s
contractual commitments to two cellular SSOs—the
Telecommunications Industry Association (“TIA”) and
Alliance for Telecommunications Industry Solutions
(“ATIS”)—to license its SEPs “to all applicants” on FRAND
terms. 9 Qualcomm argues that it has no antitrust duty to deal

     9
      Under the TIA contract, Qualcomm agreed to make its SEPs
“available to all applicants under terms and conditions that are
                        FTC V. QUALCOMM                              17

with its rivals, and in any case OEM-level licensing is
consistent with Qualcomm’s SSO commitments because
only OEM products (i.e., cellphones, tablets, etc.) “practice”
or “implement” the standards embodied in Qualcomm’s
SEPs. Furthermore, Qualcomm argues that it substantially
complies with the TIA and ATIS requirements by not
asserting its patents against rival chipmakers.

     In 2011 and 2013, Qualcomm signed agreements with
Apple under which Qualcomm offered Apple billions of
dollars in incentive payments contingent on Apple sourcing
its iPhone modem chips exclusively from Qualcomm and
committing to purchase certain quantities of chips each year.
Again, rivals such as Intel—as well as Apple itself, which
was interested in using Intel as an alternative chip supplier—
complained that Qualcomm was engaging in anticompetitive
business practices designed to maintain its monopolies in the
CDMA and premium LTE modem chip markets while
making it impossible for rivals to compete. 10 In 2014, Apple

reasonable and non-discriminatory . . . and only to the extent necessary
for the practice of any or all of the Normative portions for the field of
use of practice of the Standard.” FTC v. Qualcomm Inc., No. 17-CV-
00220-LHK, 2018 WL 5848999, at *3 (N.D. Cal. Nov. 6, 2018). Under
the ATIS contract, Qualcomm committed to making its SEPs “available
to applicants desiring to utilize the license for the purpose of
implementing the standard . . . under reasonable terms and conditions
that are demonstrably free of any unfair discrimination.” Id.
    10
       Under the 2013 agreement, Qualcomm paid Apple a “marketing
fund” (effectively a price rebate on chips) of $2.50 per iPhone sold with
a Qualcomm chip and $1.50 per iPad sold with a Qualcomm chip, plus
hundreds of millions of dollars in “incentive funds” contingent on Apple
purchasing at least 100 million Qualcomm chips in 2015 and 2016.
411 F. Supp. 3d at 732. The agreement contained a “clawback
provision” providing that if Apple sold devices without Qualcomm
chips, then it would have to reimburse Qualcomm all or a large
18                     FTC V. QUALCOMM

decided to terminate these agreements and source its modem
chips from Intel for its 2016 model iPhone.

                                  D

    In January 2017, the FTC sued Qualcomm for equitable
relief, alleging that Qualcomm’s interrelated policies and
practices excluded competitors and harmed competition in
the modem chip markets, in violation § 5(a) of the FTC Act,
15 U.S.C. § 45(a), and §§ 1 and 2 of the Sherman Act,
15 U.S.C. §§ 1, 2. After a ten-day bench trial, the district
court concluded that “Qualcomm’s licensing practices are an
unreasonable restraint of trade under § 1 of the Sherman Act
and exclusionary conduct under § 2 of the Sherman Act.”11
Qualcomm, 411 F. Supp. 3d at 812 (citing United States v.
Microsoft Corp., 253 F.3d 34, 58–59 (D.C. Cir. 2001)). The
district court ordered a permanent, worldwide injunction
prohibiting Qualcomm’s core business practices. Id. at 820–
24.

    The district court’s decision consists of essentially five
mixed findings of fact and law: (1) Qualcomm’s “no license,
no chips” policy amounts to “anticompetitive conduct
against OEMs” and an “anticompetitive practice[] in patent
license negotiations”; (2) Qualcomm’s refusal to license
rival chipmakers violates both its FRAND commitments and


percentage of the per-unit marketing funds, as well as the incentive
funds. Id.

     11
        Because the district court concluded that Qualcomm violated the
Sherman Act and thereby violated the FTC Act—which prohibits
“[u]nfair methods of competition,” including Sherman Act violations—
it did not address whether Qualcomm’s conduct constituted a standalone
violation of the FTC Act. Id. at 683.
                         FTC V. QUALCOMM                                 19

an antitrust duty to deal under § 2 of the Sherman Act; 12
(3) Qualcomm’s “exclusive deals” with Apple “foreclosed a
‘substantial share’ of the modem chip market” in violation
of both Sherman Act provisions; (4) Qualcomm’s royalty
rates are “unreasonably high” because they are improperly
based on its market share and handset price instead of the
value of its patents; and (5) Qualcomm’s royalties, in
conjunction with its “no license, no chips” policy, “impose
an artificial and anticompetitive surcharge” on its rivals’
sales, “increas[ing] the effective price of rivals’ modem
chips” and resulting in anticompetitive exclusivity.
Qualcomm, 411 F. Supp. 3d at 697–98, 751–62, 766, 771–
92 (citations omitted). “Collectively,” the district court
found, these policies and practices “create insurmountable
and artificial barriers for Qualcomm’s rivals, and thus do not
further competition on the merits.” Id. at 797.

    The district court concluded that “[b]y attacking all
facets of rivals’ businesses and preventing competition on
the merits, [Qualcomm’s] practices ‘harm the competitive
process and thereby harm consumers.’” Id. (quoting

    12
        The district court granted the FTC’s pretrial motion for partial
summary judgment on the issue of whether Qualcomm’s SSO
commitments contractually require it to license its SEPs on FRAND
terms to competing modem chip suppliers. 2018 WL 5848999, at *1, 15.
The district court concluded that “Ninth Circuit precedent establishes
that Qualcomm’s FRAND commitments include an obligation to license
to all comers, including competing modem chip suppliers.” Id. at *10
(citing Microsoft II, 696 F.3d at 876 (noting that “[m]any SSOs try to
mitigate the threat of patent holdup by requiring members who hold IP
rights in standard-essential patents to agree to license those patents to all
comers on terms that are ‘reasonable and nondiscriminatory,’ or
‘RAND.’” (quoting Lemley, supra, at 1902, 1906)); Microsoft Corp. v.
Motorola, Inc., 795 F.3d 1024, 1031 (9th Cir. 2015) (“Microsoft III”)
(“[An] SEP holder cannot refuse a license to a manufacturer who
commits to paying the RAND rate.”)).
20                     FTC V. QUALCOMM

Microsoft, 253 F.3d at 58). Accordingly, the district court
held that the FTC met its burden under the Sherman Act of
proving “market power plus some evidence that the
challenged restraint harms competition.” Id. at 804 (quoting
Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018)).
Furthermore, the district court held that it could “infer” a
causal connection between Qualcomm’s conduct and
anticompetitive harm because that conduct “‘reasonably
appear[s] capable of making a significant contribution to . . .
maintaining monopoly power.’” Id. at 804–05 (alterations
in original) (quoting Microsoft, 253 F.3d at 79).

     Qualcomm timely appealed. It asks us to reverse the
district court’s Sherman Act ruling, vacate the district
court’s injunction and summary judgment ruling on
Qualcomm’s SSO commitments, and remand the latter for
trial. For the reasons that follow, we reverse the district
court’s Sherman Act ruling and its issuance of a worldwide
injunction. Because our reversal does not depend on the
district court’s grant of partial summary judgment with
respect to Qualcomm’s contractual commitments to license
its SEPs to rival chip suppliers, we vacate that order as moot
without reaching its merits. 13




     13
        See supra note 12. Although the FTC discussed Qualcomm’s
FRAND commitments in its complaint and argued that “Qualcomm’s
refusal to license competing manufacturers of baseband processors, in
contravention of its FRAND commitments, contributes to its ability to
tax its competitors’ sales and maintain its monopoly,” the complaint
itself only alleged antitrust violations and requested equitable relief
“necessary to redress and prevent recurrence of Qualcomm’s violations
of” the FTC Act and Sherman Act.
                      FTC V. QUALCOMM                          21

                                II

     Antitrust law, like patent law, is “aimed at encouraging
innovation, industry and competition.” Atari Games Corp.
v. Nintendo of Am., Inc., 897 F.2d 1572, 1576 (Fed. Cir.
1990) (citing Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861,
876–77 (Fed. Cir. 1985)). “Despite the opportunities for
conflict . . . a central goal of both patent and antitrust law is
the promotion of the public benefit through a competitive
economy.” Int’l Wood Processors v. Power Dry, Inc.,
792 F.2d 416, 427 (4th Cir. 1986); see also Am. Express,
138 S. Ct. at 2290 (“[I]t is ‘[t]he promotion of interbrand
competition,’ after all, that ‘is . . . the primary purpose of the
antitrust laws.’” (some alterations in original) (quoting
Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S.
877, 890 (2007))). Indeed, the Federal Circuit, which
frequently examines cases at the intersection of patent and
antitrust law, has commented that “[t]he patent and antitrust
laws are complementary, the patent system serving to
encourage invention and the bringing of new products to
market by adjusting investment-based risk, and the antitrust
laws serving to foster industrial competition.” Intergraph
Corp. v. Intel Corp., 195 F.3d 1346, 1362 (Fed. Cir. 1999)
(citing Loctite Corp., 781 F.2d at 866–67).

    Among the antitrust laws, the Sherman Act, 15 U.S.C.
§§ 1, 2, is particularly “important to the preservation of
economic freedom and our free-enterprise system.” United
States v. Topco Assocs., Inc., 405 U.S. 596, 610 (1972).
Enacted in 1890, when the emergence of trusts and
monopolies with the power to suppress competition and
completely control markets had become a matter of great
public concern,

        [t]he Sherman Act was designed to be a
        comprehensive charter of economic liberty
22                   FTC V. QUALCOMM

       aimed at preserving free and unfettered
       competition as the rule of trade. It rests on
       the premise that the unrestrained interaction
       of competitive forces will yield the best
       allocation of our economic resources, the
       lowest prices, the highest quality and the
       greatest material progress, while at the same
       time providing an environment conducive to
       the preservation of our democratic political
       and social institutions.

N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958). In
pursuit of these goals, the Sherman Act protects “the
freedom guaranteed each and every business . . . to
compete—to assert with vigor, imagination, devotion, and
ingenuity whatever economic muscle it can muster.” Topco
Assocs., 405 U.S. at 610.

                               A

    Section 1 of the Sherman Act prohibits “[e]very contract,
combination in the form of trust or otherwise, or conspiracy,
in restraint of trade or commerce among the several States.”
15 U.S.C. § 1. The Supreme Court “has long recognized
that, ‘[i]n view of the common law and the law in this
country’ when the Sherman Act was passed, the phrase
‘restraint of trade’ is best read to mean ‘undue restraint.’”
Am. Express, 138 S. Ct. at 2283 (alteration in original)
(quoting Standard Oil Co. of N.J. v. United States, 221 U.S.
1, 59–60 (1911)); see also State Oil Co. v. Khan, 522 U.S. 3,
10 (1997) (noting that § 1 of the Sherman Act is understood
“to outlaw only unreasonable restraints”) (emphasis added)
(citation omitted). Thus, “[t]o establish liability under § 1, a
plaintiff must prove (1) the existence of an agreement, and
(2) that the agreement was in unreasonable restraint of
                      FTC V. QUALCOMM                          23

trade.” Aerotec Int’l, Inc. v. Honeywell Int’l, Inc., 836 F.3d
1171, 1178 (9th Cir. 2016) (emphasis added) (citing Am.
Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 189–90
(2010)).

    “Restraints that are not unreasonable per se are judged
under the ‘rule of reason.’” Am. Express, 138 S. Ct. at 2283
(quoting Business Elecs. Corp. v. Sharp Elecs. Corp.,
485 U.S. 717, 723 (1988)). “The rule of reason requires
courts to conduct a fact-specific assessment of ‘market
power and market structure . . . to assess the [restraint]’s
actual effect’ on competition.” Id. (alterations in original)
(emphasis added) (quoting Copperweld Corp. v. Indep. Tube
Corp., 467 U.S. 752, 768 (1984)); see also In re Nat’l
Football League’s Sunday Ticket Antitrust Litig., 933 F.3d
1136, 1150 (9th Cir. 2019) (“Under this rule, we examine
‘the facts peculiar to the business, the history of the restraint,
and the reasons why it was imposed,’ to determine the effect
on competition in the relevant product market.” (quoting
Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679,
692 (1978))). “The goal is to ‘distinguis[h] between
restraints with anticompetitive effect that are harmful to the
consumer and restraints stimulating competition that are in
the consumer’s best interest.’” Am. Express, 138 S. Ct.
at 2284 (alteration in original) (quoting Leegin Creative
Leather Prods., 551 U.S. at 886).

    In Am. Express, for example, the Supreme Court held
that the plaintiffs failed to meet their burden to show that
antisteering provisions in American Express’s merchant
agreements—which prohibit merchants from encouraging
customers at the point of sale to use other credit cards, like
Visa, with lower transaction fees—have anticompetitive
effects that harm consumers. Id. at 2280, 2289–90. Instead,
Amex’s unique business model and the antisteering
24                   FTC V. QUALCOMM

provisions it relies on have increased competition in the
credit card transaction market by forcing rivals like Visa and
Mastercard to adapt and innovate, which has ultimately
benefited consumers by “increas[ing] the quality and
quantity of credit-card transactions.” Id. at 2290. In other
words, what appeared at first to be anticompetitive—
Amex’s unique business model and its use of antisteering
clauses—was actually procompetitive and innovative. It
just took a while for the market to adjust.

    A plaintiff may prove that a restraint has anticompetitive
effect either “directly or indirectly.” Am. Express, 138 S. Ct.
at 2284. Direct evidence includes “‘proof of actual
detrimental effects [on competition],’” id. (alteration in
original) (quoting FTC v. Ind. Fed’n of Dentists, 476 U.S.
447, 460 (1986)), “such as reduced output, increased prices,
or decreased quality in the relevant market,” id. (citing 1 J.
Kalinowski, Antitrust Laws and Trade Regulation
§ 12.02[2] (2d ed. 2017); Craftsmen Limousine, Inc. v. Ford
Motor Co., 491 F.3d 380, 390 (8th Cir. 2007); Virgin Atl.
Airways Ltd. v. British Airways PLC, 257 F.3d 256, 264 (2nd
Cir. 2001)). Indirect evidence involves “proof of market
power plus some evidence that the challenged restraint
harms competition.” Id. (citing 1 Kalinowski § 12.02[2];
Tops Markets, Inc. v. Quality Markets, Inc., 142 F.3d 90, 97
(2nd Cir. 1998); Spanish Broadcasting Sys. of Fla. v. Clear
Channel Commc’ns, Inc., 376 F.3d 1065, 1073 (11th Cir.
2004)).

    Whereas § 1 of the Sherman Act targets concerted
anticompetitive conduct, § 2 targets independent
anticompetitive conduct. Am. Needle, Inc., 560 U.S. at 190.
The statute makes it illegal to “monopolize . . . any part of
the trade or commerce among the several States.” 15 U.S.C.
§ 2. To establish liability under § 2, a plaintiff must show:
                    FTC V. QUALCOMM                       25

“‘(a) the possession of monopoly power in the relevant
market; (b) the willful acquisition or maintenance of that
power; and (c) causal antitrust injury.’” Somers v. Apple,
Inc., 729 F.3d 953, 963 (9th Cir. 2013) (quoting Allied
Orthopedic Appliances Inc. v. Tyco Health Care Grp. LP,
592 F.3d 991, 998 (9th Cir. 2010) (“Allied Orthopedic”)).
“The mere possession of monopoly power, and the
concomitant charging of monopoly prices, is not [itself]
unlawful; [instead,] it is an important element of the free-
market system.” Verizon Commc’ns Inc. v. Law Offices of
Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004) (“Trinko”).
“The opportunity to charge monopoly prices—at least for a
short period—is what attracts ‘business acumen’ in the first
place; it induces risk taking that produces innovation and
economic growth.” Id.

    “To safeguard the incentive to innovate, the possession
of monopoly power will not be found unlawful [under § 2]
unless it is accompanied by an element of anticompetitive
conduct.” Id. Accordingly, plaintiffs are required to prove
“anticompetitive abuse or leverage of monopoly power, or a
predatory or exclusionary means of attempting to
monopolize the relevant market.” Allied Orthopedic,
592 F.3d at 1000 (quoting Foremost Pro Color, Inc. v.
Eastman Kodak Co., 703 F.2d 534, 545–46 (9th Cir. 1983));
see also United States v. Grinnell Corp., 384 U.S. 563, 570–
71 (1966) (distinguishing “willful acquisition” of monopoly
power from “development as a consequence of a superior
product, business acumen, or historic accident”). “[T]o be
condemned as exclusionary, a monopolist’s act must have an
‘anticompetitive effect’”—that is, it “must harm the
competitive process and thereby harm consumers.”
Microsoft, 253 F.3d at 58. “In contrast, harm to one or more
competitors will not suffice.” Id.; see also Spectrum Sports,
Inc. v. McQuillan, 506 U.S. 447, 458 (1993) (noting that the
26                   FTC V. QUALCOMM

antitrust laws are directed “not against conduct which is
competitive, even severely so, but [only] against conduct
which unfairly tends to destroy competition itself”).

     Allegations that conduct “has the effect of reducing
consumers’ choices or increasing prices to consumers do[]
not sufficiently allege an injury to competition . . . [because]
[b]oth effects are fully consistent with a free, competitive
market.” Brantley v. NBC Universal, Inc., 675 F.3d 1192,
1202 (9th Cir. 2012) (citations omitted); see also Brooke
Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S.
209, 237 (1993) (“Where . . . output is expanding at the same
time prices are increasing, rising prices are equally
consistent with growing product demand.”). Instead, in
order to prove a violation of the Sherman Act, the plaintiff
must show that diminished consumer choices and increased
prices are the result of a less competitive market due to either
artificial restraints or predatory and exclusionary conduct.
See Am. Express, 138 S. Ct. at 2288 (“This Court will ‘not
infer competitive injury from price and output data absent
some evidence that tends to prove that output was restricted
or prices were above a competitive level.’” (quoting Brooke
Grp. Ltd., 509 U.S. at 237)).

     Furthermore, novel business practices—especially in
technology markets—should not be “conclusively presumed
to be unreasonable and therefore illegal without elaborate
inquiry as to the precise harm they have caused or the
business excuse for their use.” Microsoft, 253 F.3d at 91
(citing N. Pac. Ry. Co., 356 U.S. at 5). “Because innovation
involves new products and business practices, courts[’] and
economists’ initial understanding of these practices will
skew initial likelihoods that innovation is anticompetitive
and the proper subject of antitrust scrutiny.” Geoffrey A.
Manne & Joshua D. Wright, Innovation and the Limits of
                     FTC V. QUALCOMM                         27

Antitrust, 6 J. Comp. L. & Econ. 153, 167 (2010); see also
Rachel S. Tennis & Alexander Baier Schwab, Business
Model Innovation and Antitrust Law, 29 Yale J. on Reg. 307,
319 (2012) (explaining how “antitrust economists, and in
turn lawyers and judges, tend to treat novel products or
business practices as anticompetitive” and “are likely to
decide cases wrongly in rapidly changing dynamic markets,”
which can have long-lasting effects particularly in
technological markets, where innovation “is essential to
economic growth and social welfare” and “an erroneous
decision will deny large consumer benefits”).

     Regardless of whether the alleged antitrust violation
involves concerted anticompetitive conduct under § 1 or
independent anticompetitive conduct under § 2, the three-
part burden-shifting test under the rule of reason is
essentially the same. See Standard Oil Co. of N.J., 221 U.S.
at 61–62; Microsoft, 253 F.3d at 58–59. Under § 1, “the
plaintiff has the initial burden to prove that the challenged
restraint has a substantial anticompetitive effect that harms
consumers in the relevant market.” Am. Express, 138 S. Ct.
at 2284 (citing 1 Kalinowski § 12.02[1]; P. Areeda & H.
Hovenkamp, Fundamentals of Antitrust Law § 15.02[B] (4th
ed. 2017) (Areeda & Hovenkamp); Capital Imaging Assoc.,
P.C. v. Mohawk Valley Med. Assocs., Inc., 996 F.2d 537, 543
(2nd Cir. 1993)). “If the plaintiff carries its burden, then the
burden shifts to the defendant to show a procompetitive
rationale for the restraint.” Id. (citing 1 Kalinowski
§ 12.02[1]; Areeda & Hovenkamp § 15.02[B]; Capital
Imaging Assoc., 996 F.2d at 543). “If the defendant makes
this showing, then the burden shifts back to the plaintiff to
demonstrate that the procompetitive efficiencies could be
reasonably achieved through less anticompetitive means.”
Id. (citing 1 Kalinowski § 12.02[1]; Capital Imaging Assoc.,
996 F.2d at 543).
28                   FTC V. QUALCOMM

     Likewise, “if a plaintiff successfully establishes a prima
facie case under § 2 by demonstrating anticompetitive effect,
then the monopolist may proffer a ‘procompetitive
justification’ for its conduct.” Microsoft, 253 F.3d at 59
(citing Eastman Kodak Co. v. Image Tech. Servs., Inc.,
504 U.S. 451, 483 (1992)). “If the monopolist asserts a
procompetitive justification—a nonpretextual claim that its
conduct is indeed a form of competition on the merits
because it involves, for example, greater efficiency or
enhanced consumer appeal—then the burden shifts back to
the plaintiff to rebut that claim.” Id. If the plaintiff cannot
rebut the monopolist’s procompetitive justification, “then
the plaintiff must demonstrate that the anticompetitive harm
of the conduct outweighs the procompetitive benefit.” Id.

    The similarity of the burden-shifting tests under §§ 1
and 2 means that courts often review claims under each
section simultaneously. If, in reviewing an alleged Sherman
Act violation, a court finds that the conduct in question is not
anticompetitive under § 1, the court need not separately
analyze the conduct under § 2. Williams v. I.B. Fischer Nev.,
999 F.2d 445, 448 (9th Cir. 1993). However, although the
tests are largely similar, a plaintiff may not use indirect
evidence to prove unlawful monopoly maintenance via
anticompetitive conduct under § 2. See Broadcom Corp. v.
Qualcomm Inc., 501 F.3d 297, 307–08 (3d Cir. 2007)
(distinguishing between proving the existence of monopoly
power through indirect evidence and proving
anticompetitive conduct itself, the second element of a § 2
claim). In this respect, proving an antitrust violation under
§ 2 of the Sherman Act is more exacting than proving a § 1
violation, although courts have also held that the third
element of a § 2 claim, the causation element, may be
inferred. See Microsoft, 253 F.3d at 79.
                        FTC V. QUALCOMM                               29

                                   B

    A threshold step in any antitrust case is to accurately
define the relevant market, which refers to “the area of
effective competition.” Am. Express, 138 S. Ct. at 2285
(citation omitted); see also Image Tech. Servs., Inc. v.
Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997)
(“The relevant market is the field in which meaningful
competition is said to exist.” (citing United States v.
Continental Can Co., 378 U.S. 441, 449 (1964))). “[C]ourts
usually cannot properly apply the rule of reason without an
accurate definition of the relevant market.” Am. Express,
138 S. Ct. at 2285. Otherwise, “‘there is no way to measure
[the defendant’s] ability to lessen or destroy competition.’”
Id. (alteration in original) (quoting Walker Process Equip.,
Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177
(1965)). Furthermore, in assessing alleged antitrust injuries,
courts must focus on anticompetitive effects “in the market
where competition is [allegedly] being restrained.” Am. Ad
Mgmt., Inc. v. Gen. Tel. Co. of Cal., 190 F.3d 1051, 1057
(9th Cir. 1999). “Parties whose injuries, though flowing
from that which makes the defendant’s conduct unlawful,
are experienced in another market do not suffer antitrust
injury.” Id.; see Intergraph Corp., 195 F.3d at 1353 (noting
that “[t]he prohibited conduct must be directed toward
competitors and must be intended to injure competition”
(emphasis added) (citing Spectrum Sports, 506 U.S.
at 458)). 14


    14
       But see Am. Ad Mgmt., 190 F.3d at 1057 n.5 (noting that the
Supreme Court “has carved a narrow exception to the market participant
requirement for parties whose injuries are ‘inextricably intertwined’ with
the injuries of market participants” (citing Blue Shield v. McCready,
457 U.S. 465 (1982))).
30                   FTC V. QUALCOMM

    Here, the district court correctly defined the relevant
markets as “the market for CDMA modem chips and the
market for premium LTE modem chips.” Qualcomm, 411 F.
Supp. 3d at 683. Nevertheless, its analysis of Qualcomm’s
business practices and their anticompetitive impact looked
beyond these markets to the much larger market of cellular
services generally. Thus, a substantial portion of the district
court’s ruling considered alleged economic harms to
OEMs—who are Qualcomm’s customers, not its
competitors—resulting in higher prices to consumers. These
harms, even if real, are not “anticompetitive” in the antitrust
sense—at least not directly—because they do not involve
restraints on trade or exclusionary conduct in “the area of
effective competition.” Am. Express, 138 S. Ct. at 2285.

     The district court’s consideration of anticompetitive
impacts outside of the relevant markets is reflected in the
way it framed and organized the issues. For example, the
first, major portion of the district court’s rule of reason
analysis (“Anticompetitive Conduct Against OEMs and
Resulting Harm”) provides a detailed account of
Qualcomm’s “anticompetitive acts against OEMs” via the
company’s “no license, no chips” policy. Qualcomm, 411 F.
Supp. 3d at 697–744. Yet when the district court set forth
its primary theory of anticompetitive harm—that
Qualcomm’s licensing royalty rates “impose a surcharge on
rivals’ modem chips,” thereby inhibiting free and fair
competition in the relevant markets—it did so only in
passing. Id. at 790–92.

    Moreover, throughout its analysis, the district court
failed to distinguish between Qualcomm’s licensing
practices (which primarily impacted OEMs) and its practices
relating to modem chip sales (the relevant antitrust market).
This was, no doubt, intentional: the district court
                    FTC V. QUALCOMM                        31

characterized Qualcomm’s various business practices as
“interrelated” and mutually reinforcing, and it described
their anticompetitive effects as “compounding” and
“cycl[ical].” Id. at 797–98. But even if Qualcomm’s
practices are interrelated, actual or alleged harms to
customers and consumers outside the relevant markets are
beyond the scope of antitrust law.

                             III

    Accordingly, we reframe the issues to focus on the
impact, if any, of Qualcomm’s practices in the area of
effective competition: the markets for CDMA and premium
LTE modem chips. Thus, we begin by examining the district
court’s conclusion that Qualcomm has an antitrust duty to
license its SEPs to its direct competitors in the modem chip
markets. We then consider Qualcomm’s royalty rates, its
“no license, no chips” policy, and its agreements with Apple
in 2011 and 2013 to supply all or a substantial portion of the
modem chips Apple used for its pre-2016 model iPhones.

    Throughout our analysis, we review for clear error the
district court’s findings of fact and we review de novo its
conclusions of law and any mixed questions of law and fact.
OneBeacon Ins. Co. v. Haas Indus., Inc., 634 F.3d 1092,
1096 (9th Cir. 2011).

                              A

    “As the Supreme Court has repeatedly emphasized, there
is ‘no duty to deal under the terms and conditions preferred
by [a competitor’s] rivals[.]” Aerotec Int’l, 836 F.3d at 1184
(quoting Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc.,
555 U.S. 438, 457 (2009) (“linkLine”)). Likewise, “the
Sherman Act ‘does not restrict the long recognized right of
[a] trader or manufacturer engaged in an entirely private
32                   FTC V. QUALCOMM

business, freely to exercise his own independent discretion
as to parties with whom he will deal.’” Trinko, 540 U.S.
at 408 (alteration in original) (quoting United States v.
Colgate & Co., 250 U.S. 300, 307 (1919)); see linkLine,
555 U.S. at 448 (“As a general rule, businesses are free to
choose the parties with whom they will deal, as well as the
prices, terms, and conditions of that dealing.” (citing
Colgate, 250 U.S. at 307)). This is because the antitrust
laws, including the Sherman Act, “were enacted for ‘the
protection of competition, not competitors.’” Brunswick
Corp. v. Pueblo Bowl–O–Mat, Inc., 429 U.S. 477, 488
(1977) (emphasis added) (quoting Brown Shoe Co. v. United
States, 370 U.S. 294, 320 (1962)). Or, as we recently put it,
in a bit more colorful terms: “Competitors are not required
to engage in a lovefest.” Aerotec Int’l, 836 F.3d at 1184.

    The one, limited exception to this general rule that there
is no antitrust duty to deal comes under the Supreme Court’s
decision in Aspen Skiing Co. v. Aspen Highlands Skiing
Corp., 472 U.S. 585 (1985). There, the Court held that a
company engages in prohibited, anticompetitive conduct
when (1) it “unilateral[ly] terminat[es] . . . a voluntary and
profitable course of dealing,” MetroNet Servs. Corp. v.
Qwest Corp., 383 F.3d 1124, 1132 (9th Cir. 2004); (2) “the
only conceivable rationale or purpose is ‘to sacrifice short-
term benefits in order to obtain higher profits in the long run
from the exclusion of competition,’” Aerotec Int’l, 836 F.3d
at 1184 (quoting MetroNet Servs., 383 F.3d at 1132); and
(3) the refusal to deal involves products that the defendant
already sells in the existing market to other similarly situated
customers, see MetroNet Servs., 383 F.3d at 1132–33. The
Supreme Court later characterized the Aspen Skiing
exception as “at or near the outer boundary of § 2 liability.”
Trinko, 540 U.S. at 409.
                     FTC V. QUALCOMM                        33

    The district court’s conclusion that Qualcomm’s refusal
to provide exhaustive SEP licenses to rival chip suppliers
meets the Aspen Skiing exception ignores critical differences
between Qualcomm’s business practices and the conduct at
issue in Aspen Skiing, and it ignores the Supreme Court’s
subsequent warning in Trinko that the Aspen Skiing
exception should be applied only in rare circumstances. As
a result, the FTC concedes error here. We agree.

    First, the district court was incorrect that “Qualcomm
terminated a ‘voluntary and profitable course of dealing’”
with respect to its previous practice of licensing at the chip-
manufacturer level. Qualcomm, 411 F. Supp. 3d at 759–60
(quoting MetroNet Servs., 383 F.3d at 1131). In support of
this finding, the district court cited a single piece of record
evidence: an email from a Qualcomm lawyer regarding 3%-
royalty-bearing licenses for modem chip suppliers. But this
email was sent in 1999, seven years before Qualcomm
gained monopoly power in the CDMA modem chip market.
Furthermore, Qualcomm claims that it never granted
exhaustive licenses to rival chip suppliers. Instead, as the
1999 email suggests, it entered into “non-exhaustive,
royalty-bearing agreements with chipmakers that explicitly
did not grant rights to the chipmaker’s customers.”
Appellant’s Opening Br. at 45.

    According to Qualcomm, it ceased this practice in
response to developments in patent law’s exhaustion
doctrine, see, e.g., Quanta Comput., 553 U.S. at 625 (noting
that “the initial authorized sale of a patented item terminates
all patent rights to that item”), which made it harder for
Qualcomm to argue that it could provide “non-exhaustive”
licenses in the form of royalty agreements. Nothing in the
record or in the district court’s factual findings rebuts these
claims. The FTC offered no evidence that, from the time
34                       FTC V. QUALCOMM

Qualcomm first gained monopoly power in the modem chip
market in 2006 until now, it ever had a practice of providing
exhaustive licenses at the modem chip level rather than the
OEM level.

    Second, Qualcomm’s rationale for “switching” to OEM-
level licensing was not “to sacrifice short-term benefits in
order to obtain higher profits in the long run from the
exclusion of competition,” the second element of the Aspen
Skiing exception. Aerotec Int’l, 836 F.3d at 1184 (internal
quotation marks and citation omitted). Instead, Qualcomm
responded to the change in patent-exhaustion law by
choosing the path that was “far more lucrative,” both in the
short term and the long term, regardless of any impacts on
competition. Qualcomm, 411 F. Supp. 3d at 753. The
district court itself acknowledged that this was Qualcomm’s
purpose, observing: “Following Qualcomm’s lead, other
SEP licensors like Nokia and Ericsson have concluded that
licensing only OEMs is more lucrative, and structured their
practices accordingly.”        Id. at 754–55.        Because
Qualcomm’s purpose was greater profits in both the short
and long terms, the second required element of the Aspen
Skiing exception is not present in this case. 15


     15
        Throughout its analysis, the district court conflated the desire to
maximize profits with an intent to “destroy competition itself.”
Spectrum Sports, 506 U.S. at 458. As noted supra, the goal of antitrust
law is not to force businesses to forego profits or even “[t]he opportunity
to charge monopoly prices,” which is “what attracts ‘business acumen’
in the first place.” Trinko, 540 U.S. at 407. Here, Qualcomm’s desire to
maximize profits both in the short-term and the long-term undermines,
rather than supports, the district court’s finding of anticompetitive
conduct under § 2. See Douglas H. Ginsburg et al., Section 2 Mangled:
FTC v. Qualcomm on the Duty to Deal, Price Squeezes, and Exclusive
Dealing 13 (Geo. Mason U. Law & Econ. Res. Paper Series, Paper
                        FTC V. QUALCOMM                               35

    Finally, unlike in Aspen Skiing, the district court found
no evidence that Qualcomm singles out any specific chip
supplier for anticompetitive treatment in its SEP-licensing.
In Aspen Skiing, the defendant refused to sell its lift tickets
to a smaller, rival ski resort even as it sold the same lift
tickets to any other willing buyer (including any other ski
resort); moreover, this refusal was designed specifically to
put the smaller, nearby rival out of business. 472 U.S.
at 593–94. Qualcomm applies its OEM-level licensing
policy equally with respect to all competitors in the modem
chip markets and declines to enforce its patents against these
rivals even though they practice Qualcomm’s patents
(royalty-free). Instead, Qualcomm provides these rivals
indemnifications through the use of “CDMA ASIC
Agreements”—the Aspen Skiing equivalent of refusing to
sell a skier a lift ticket but letting them ride the chairlift
anyway. Thus, while Qualcomm’s policy toward OEMs is
“no license, no chips,” its policy toward rival chipmakers
could be characterized as “no license, no problem.” Because
Qualcomm applies the latter policy neutrally with respect to
all competing modem chip manufacturers, the third Aspen
Skiing requirement does not apply.

    As none of the required elements for the Aspen Skiing
exception are present, let alone all of them, the district court
erred in holding that Qualcomm is under an antitrust duty to
license rival chip manufacturers. We hold that Qualcomm’s




No. 19-21, 2019) (“The district court expands Aspen Skiing well beyond
the ‘outer boundary’ of Section 2 by applying it to all contracts
previously negotiated by the defendant firm and by inferring the firm
was willing to sacrifice profits even in the face of evidence the firm had
changed its business model to increase current profits.”).
36                        FTC V. QUALCOMM

OEM-level licensing policy, however novel, is not an
anticompetitive violation of the Sherman Act.

                                       B

    Conceding error in the district court’s conclusion that
Qualcomm is subject to an antitrust duty to deal under Aspen
Skiing, the FTC contends that this court may nevertheless
hold that Qualcomm engaged in anticompetitive conduct in
violation of § 2. This is so, the FTC urges, because
(1) “Qualcomm entered into a voluntary contractual
commitment to deal with its rivals as part of the SSO
process, which is itself a derogation from normal market
competition,” and (2) Qualcomm’s breach of this contractual
commitment “satisfies traditional Section 2 standards [in
that] it ‘tends to impair the opportunities of rivals and . . .
does not further competition on the merits.’” Appellee’s Br.
at 69, 77 (quoting Cascade Health Sols. v. PeaceHealth,
515 F.3d 883, 894 (9th Cir. 2008)). We disagree.

    Even if the district court is correct that Qualcomm is
contractually obligated via its SSO commitments to license
rival chip suppliers—a conclusion we need not and do not
reach 16—the FTC still does not satisfactorily explain how
Qualcomm’s alleged breach of this contractual commitment
itself impairs the opportunities of rivals. It argues the breach
“facilitat[es] Qualcomm’s collection of a surcharge from
rivals’ customers.” Appellee’s Br. at 77. But this refers to a
distinct business practice, licensing royalties, and alleged
harm to OEMs, not rival chipmakers. In any case,
Qualcomm’s royalties are “chip-supplier neutral” because
Qualcomm collects them from all OEMs that license its
patents, not just “rivals’ customers.” The FTC argues that

     16
          See supra notes 12 and 13.
                        FTC V. QUALCOMM                               37

Qualcomm’s breach directly impacts rivals by “otherwise
deterring [their] entry and investment.” Id. But this ignores
that Qualcomm’s “CDMA ASIC Agreements” functionally
act as de facto licenses (“no license, no problem”) by
allowing competitors to practice Qualcomm’s SEPs
(royalty-free) before selling their chips to downstream
OEMs. Furthermore, in order to make out a § 2 violation,
the anticompetitive harm identified must be to competition
itself, not merely to competitors. Microsoft, 253 F.3d at 58.
The FTC identifies no such harm to competition.

    The FTC’s conclusion that OEM-level licensing does not
further competition on the merits is not only belied by
MediaTek and Intel’s entries into the modem chip markets
in the 2015–2016 timeframe, it also gives inadequate weight
to Qualcomm’s reasonable, procompetitive justification that
licensing at the OEM and chip-supplier levels
simultaneously would require the company to engage in
“multi-level licensing,” leading to inefficiencies and less
profit.    Qualcomm’s procompetitive justification is
supported by at least two other companies—Nokia and
Dolby—with similar SEP portfolios to Qualcomm’s. 17
More critically, this part of the FTC’s argument skips ahead

    17
         See Br. of Amicus Curiae Nokia Technologies Oy at 18–19
(noting that “[t]here are good reasons for SEP owners to structure their
licensing programs to license end-user products,” including the reduction
of “transaction costs and complexities associated with negotiating and
executing licenses at multiple points in the supply chain,” the avoidance
of “overlapping and duplicative licensing,” “expedite[d] access to SEPs
for the entire supply chain,” and “greater visibility to what products are
actually licensed, for example, for auditing purposes”); Br. of Amicus
Curiae Dolby Laboratories, Inc. at 28 (“Forcing SEP holders to license
component suppliers would interfere with historical precedents and
established practices, and produce significant inefficiencies and lack of
transparency regarding whether products in the stream of commerce are
in fact licensed.”).
38                  FTC V. QUALCOMM

to an examination of Qualcomm’s procompetitive
justifications, failing to recognize that the burden does not
shift to Qualcomm to provide such justifications unless and
until the FTC meets its initial burden of proving
anticompetitive harm. Because the FTC has not met its
initial burden under the rule of reason framework, we are
less critical of Qualcomm’s procompetitive justifications for
its OEM-level licensing policy—which, in any case, appear
to be reasonable and consistent with current industry
practice.

    The FTC points to one case, Broadcom Corp. v.
Qualcomm Inc., 501 F.3d 297 (3rd Cir. 2007), as support for
its argument that a company’s breach of its SSO
commitments may rise to the level of an antitrust violation.
But in that earlier antitrust action against Qualcomm, the
alleged anticompetitive conduct was not Qualcomm’s
practice of licensing at the OEM level while not enforcing
its patents against rival chip suppliers; instead, Broadcom
asserted that Qualcomm intentionally deceived SSOs by
inducing them to standardize one of its patented
technologies, which it then licensed at “discriminatorily
higher” royalty rates to competitors and customers using
non-Qualcomm chipsets. Id. at 304. The Broadcom court
held that Qualcomm’s “intentionally false promise to license
[its SEP] on FRAND terms . . . coupled with an SDO’s
reliance on that promise” and Qualcomm’s subsequent
discriminatory pricing sufficiently alleged “actionable
anticompetitive conduct” under § 2 to overcome
Qualcomm’s motion to dismiss. Id. at 314.

   Here, the district court found neither intentional
deception of SSOs on the part of Qualcomm nor that
Qualcomm charged discriminatorily higher royalty rates to
competitors and OEM customers using non-Qualcomm
                        FTC V. QUALCOMM                              39

chips. Instead, it is undisputed that Qualcomm’s current
royalty rates—which the district court found “unreasonably
high” (a finding discussed in greater detail in the next section
of our opinion)—are based on the patent portfolio chosen by
the OEM customer regardless of where the OEM sources its
chips. Furthermore, competing chip suppliers are permitted
to practice Qualcomm’s SEPs freely without paying any
royalties at all. Thus, the Third Circuit’s “intentional
deception” exception to the general rule that breaches of
SSO commitments do not give rise to antitrust liability does
not apply to this case. 18

    Finally, we note the persuasive policy arguments of
several academics and practitioners with significant
experience in SSOs, FRAND, and antitrust enforcement,
who have expressed caution about using the antitrust laws to
remedy what are essentially contractual disputes between
private parties engaged in the pursuit of technological
innovation. The Honorable Paul R. Michel, retired Chief
Judge of the Court of Appeals for the Federal Circuit, argues
that it would be a mistake to use “the hammer of antitrust
law . . . to resolve FRAND disputes when more precise
scalpels of contract and patent law are effective.” Amicus
Curiae Br. of The Honorable Paul R. Michel (Ret.) at 23.

    18
       See Wright, supra note 1, at 803 (“There is no empirical evidence
that supports the proposition that breach of an SSO contract—even one
resulting in higher royalty rates—is somehow analogous to the collusive
interaction between rivals conventionally condemned by the antitrust
laws, or that it generates similar economic effects. Furthermore, courts
have uniformly rejected this view when interpreting and applying the
Sherman Act. In particular, to date there does not appear to be a single
case that finds breach of an SSO agreement without proof that deception
resulted in acquisition of market power, a violation of the Sherman Act.”
(citing Rambus Inc. v. FTC, 522 F.3d 456, 466–67 (D.C. Cir. 2008), cert.
denied, 555 U.S. 1171 (2009); Broadcom, 501 F.3d at 310–12)).
40                   FTC V. QUALCOMM

Judge Michel notes that “[w]hile antitrust policy has its place
as a policy lever to enhance market competition, the rules of
contract and patent law are better equipped to handle
commercial disputes between the world’s most sophisticated
companies about FRAND agreements.” Id. at 24. Echoing
this sentiment, a former FTC Commissioner, Joshua Wright,
argues that “the antitrust laws are not well suited to govern
contract disputes between private parties in light of remedies
available under contract or patent law,” and that “imposing
antitrust remedies in pure contract disputes can have harmful
effects in terms of dampening incentives to participate in
standard-setting bodies and to commercialize innovation.”
Wright, supra note 1, at 808–09.

     In short, we are not persuaded by the FTC’s argument
that we should adopt an additional exception, beyond the
Aspen Skiing exception that the FTC concedes does not
apply here, to the general rule that “businesses are free to
choose the parties with whom they will deal, as well as the
prices, terms, and conditions of that dealing.” linkLine,
555 U.S. at 448 (citing Colgate, 250 U.S. at 307). We
therefore decline to hold that Qualcomm’s alleged breach of
its SSO commitments to license its SEPs on FRAND terms,
even assuming there was a breach, amounted to
anticompetitive conduct in violation of § 2.

                              C

    We next address the district court’s primary theory of
anticompetitive harm: Qualcomm’s imposition of an
“anticompetitive surcharge” on rival chip suppliers via its
licensing royalty rates. According to the district court,

       Qualcomm’s unreasonably high royalty rates
       enable Qualcomm to control rivals’ prices
       because Qualcomm receives the royalty even
                      FTC V. QUALCOMM                          41

        when an OEM uses one of Qualcomm’s
        rival’s chips. Thus, the “all-in” price of any
        modem chip sold by one of Qualcomm’s
        rivals effectively includes two components:
        (1) the nominal chip price; and (2)
        Qualcomm’s royalty surcharge.

Qualcomm, 411 F. Supp. 3d at 791. This central component
of the district court’s ruling is premised on the district court’s
findings      that     Qualcomm’s        royalty     rates    are
(1) “unreasonably high” because they are improperly based
on Qualcomm’s monopoly chip market share and handset
price instead of the “fair value of Qualcomm’s patents,” and
(2) anticompetitive because they raise costs to OEMs, who
pass the extra costs along to consumers and are forced to
invest less in other handset features. Id. at 773–90, 795,
820–21. The FTC agrees with this aspect of the district
court’s ruling, pointing out that its “reasonableness”
determination regarding Qualcomm’s royalty rates is a
factual finding subject to clear error review and arguing that
this finding “was supported by overwhelming evidence.”
Appellee’s Br. at 44 (citing Faulkner v. Gibbs, 199 F.2d 635,
639 (9th Cir. 1952)).

    We hold that the district court’s “anticompetitive
surcharge” theory fails to state a cogent theory of
anticompetitive harm.        Instead, it is premised on a
misunderstanding of Federal Circuit law pertaining to the
calculation of patent damages, it incorrectly conflates
antitrust liability and patent law liability, and it improperly
considers “anticompetitive harms to OEMs” that fall outside
the relevant antitrust markets. Furthermore, even if we were
to accept the district court’s conclusion that Qualcomm’s
royalty rates are unreasonable, we conclude that the district
42                    FTC V. QUALCOMM

court’s surcharging theory still fails as a matter of law and
logic.

                                1

    First, the district court’s determination that Qualcomm’s
royalty rates are “unreasonable” because they are based on
handset prices misinterprets Federal Circuit law regarding
“the patent rule of apportionment” and the smallest salable
patent-practicing unit (“SSPPU”).          The district court
observed “that ‘it is generally required that royalties be
based not on the entire product, but instead on the
[SSPPU].’” Qualcomm, 411 F. Supp. 3d at 783 (quoting
LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51,
67 (Fed. Cir. 2012)). The district court then cited an
unpublished, district court case for the proposition that “the
modem chip . . . ‘is the proper [SSPPU]’ in a cellular
handset.” Id. (quoting GPNE Corp. v. Apple, Inc., No. 12-
CV-02885-LHK, 2014 WL 1494247, at *13 (N.D. Cal. Apr.
16, 2014)). 19 Based on LaserDynamics and GPNE, the
district court concluded that “Qualcomm is not entitled to a
royalty on the entire handset.” Id.

    Even if we accept that the modem chip in a cellphone is
the cellphone’s SSPPU, the district court’s analysis is still
fundamentally flawed. No court has held that the SSPPU
concept is a per se rule for “reasonable royalty” calculations;
instead, the concept is used as a tool in jury cases to
minimize potential jury confusion when the jury is weighing
complex expert testimony about patent damages. See
Ericsson, 773 F.3d at 1226 (explaining that the SSPPU
concept is a flexible evidentiary tool, not an unyielding

    19
       GPNE was presided over by the same district court judge that
presided over this case.
                     FTC V. QUALCOMM                        43

substantive element of patent damages law); VirnetX, Inc. v.
Cisco Sys., Inc., 767 F.3d 1308, 1327–28 (Fed. Cir. 2014)
(same); LaserDynamics, 694 F.3d at 68 (same). As this case
involved a bench trial, the potential for jury confusion was
absent.

    Moreover, the Federal Circuit rejected the premise of the
district court’s determination: that the SSPPU concept is
required when calculating patent damages.                  See
Commonwealth Sci. & Indus. Research Org. v. Cisco Sys.,
Inc., 809 F.3d 1295, 1303 (Fed. Cir. 2015) (“The rule Cisco
advances—which would require all damages models to
begin with the [SSPPU]—is untenable [and] conflicts with
our prior approvals of a methodology that values the asserted
patent based on comparable licenses.”) (citations omitted).
The Federal Circuit has also observed that “‘[s]ophisticated
parties routinely enter into license agreements that base the
value of the patented inventions as a percentage of the
commercial products’ sales price,’ and thus ‘[t]here is
nothing inherently wrong with using the market value of the
entire product.’” Exmark Mfg. Co. Inc. v. Briggs & Stratton
Power Prods. Grp., LLC, 879 F.3d 1332, 1349 (Fed. Cir.
2018) (some alterations in original) (quoting Lucent Techs.,
Inc. v. Gateway, Inc., 580 F.3d 1301, 1339 (Fed. Cir. 2009)).
These statements of law and current practice run counter to
the district court’s conclusion that patent royalties cannot be
based on total handset price and that doing so exposes a firm
to potential antitrust liability.

    A second problem with the district court’s “unreasonable
royalty rate” conclusion is that it erroneously assumes that
royalties are “anticompetitive”—in the antitrust sense—
unless they precisely reflect a patent’s current, intrinsic
value and are in line with the rates other companies charge
for their own patent portfolios. Neither the district court nor
44                      FTC V. QUALCOMM

the FTC provides any case law to support this proposition,
which sounds in patent law, not antitrust law. See 35 U.S.C.
§ 284 (entitling a patent owner to “damages adequate to
compensate for the infringement, but in no event less than a
reasonable royalty for the use made of the invention by the
infringer” (emphasis added)). We decline to adopt a theory
of antitrust liability that would presume anticompetitive
conduct any time a company could not prove that the “fair
value” of its SEP portfolios corresponds to the prices the
market appears willing to pay for those SEPs in the form of
licensing royalty rates. 20

    Finally, even assuming that a deviation between
licensing royalty rates and a patent portfolio’s “fair value”
could amount to “anticompetitive harm” in the antitrust
sense, the primary harms the district court identified here
were to the OEMs who agreed to pay Qualcomm’s royalty
rates—that is, Qualcomm’s customers, not its competitors.
These harms were thus located outside the “areas of effective
competition”—the markets for CDMA and premium LTE
modem chips—and had no direct impact on competition in
those markets. See Rambus, 522 F.3d at 464 (noting that if
a practice “raises the price secured by a seller” or otherwise

     20
        Qualcomm and several amici additionally argue that the district
court committed reversible legal error by failing to apply the governing
legal standard for determining whether a royalty is reasonable—that is,
by “using the claimant’s established royalties.” Appellant’s Reply Br.
at 16–17 (quoting U.S. Nat’l Bank of Portland v. Fabri-Valve Co. of Am.,
235 F.2d 565, 568 (9th Cir. 1956)); see also, e.g., Amicus Curiae Br. of
The Honorable Paul R. Michel (Ret.) at 18–22 (discussing a long line of
Federal Circuit cases emphasizing the “established royalty” rule and
criticizing the district court’s failure to even acknowledge this body of
case law). Because our holding does not depend on the “reasonableness”
of a licensor’s royalties, a determination that sounds in patent law and
not antitrust law, we need not decide whether the method the district
court used to assess reasonableness in this case was erroneous.
                    FTC V. QUALCOMM                        45

harms customers, “but does so without harming competition,
it is beyond the antitrust laws’ reach”); accord NYNEX Corp.
v. Discon, Inc., 525 U.S. 128, 136 (1998) (no Sherman Act
violation where “consumer injury naturally flowed not so
much from a less competitive market . . . as from the
exercise of market power that is lawfully in the hands of a
monopolist . . . combined with a deception worked upon the
regulatory agency that prevented the agency from
controlling [the monopolist’s] exercise of its monopoly
power”).

                              2

    Regardless of the “reasonableness” of Qualcomm’s
royalty rates, the district court erred in finding that these
royalties constitute an “artificial surcharge” on rivals’ chip
sales. In Caldera, Inc. v. Microsoft Corp., 87 F. Supp. 2d
1244 (D. Utah 1999), the primary case relied upon by the
district court for its surcharging theory, Microsoft required
OEMs “to pay [it] a royalty on every machine the OEM
shipped regardless of whether the machine contained MS
DOS or another operating system.” Id. at 1249–50. This
resulted in OEMs having to pay two royalties instead of one
for a portion of their product base unless they chose to
exclusively install Microsoft’s operating system in their
products. Id. at 1250. Microsoft’s policy thus had “the
practical effect of exclusivity,” as it imposed a naked tax on
rivals’ software even when the end-product—an individual
computer installed with a non-Microsoft operating system—
contained no added value from Microsoft. Id. The Caldera
court held that this hidden surcharge, combined with
Microsoft’s related practices that were designed to secure
exclusivity, were sufficient to defeat Microsoft’s motion for
summary judgment on the question of whether its policy
46                    FTC V. QUALCOMM

amounted to anticompetitive conduct in violation of § 2. Id.
at 1250–51.

    Qualcomm’s licensing royalties are qualitatively
different from the per-unit operating-system royalties at
issue in Caldera. When Qualcomm licenses its SEPs to an
OEM, those patent licenses have value—indeed, they are
necessary to the OEM’s ability to market and sell its cellular
products to consumers—regardless of whether the OEM
uses Qualcomm’s modem chips or chips manufactured and
sold by one of Qualcomm’s rivals. And unlike Caldera,
where OEMs who installed non-Microsoft operating
systems in some of their products were required to pay
royalties for both the actual operating system and MS DOS
(which was not installed), here OEMs do not pay twice for
SEP licenses when they use non-Qualcomm modem chips.
Thus, unlike Microsoft’s practice, Qualcomm’s practice
does not have the “practical effect of exclusivity.” Even the
FTC concedes that “this case differs from Caldera in [that]
Qualcomm holds patents practiced by its rivals’ chips, and
no one disputes that Qualcomm is entitled to collect a royalty
equal to the reasonable value of those patents.” Appellee’s
Br. at 39.

    In its complaint and in its briefing, the FTC suggests that
Qualcomm’s royalty rates impose an anticompetitive
surcharge on its rivals’ sales not for the reasons at play in
Caldera, but rather because Qualcomm uses its licensing
royalties to charge anticompetitive, ultralow prices on its
own modem chips—pushing out rivals by squeezing their
profit margins and preventing them from making necessary
investments in research and development. 21 But this type of

     21
      One of Qualcomm’s main competitors, Intel, shares this theory.
See Br. of Intel Corporation as Amicus Curiae at 3–4 (arguing that
                        FTC V. QUALCOMM                              47

“margin squeeze” was rejected as a basis for antitrust
liability in linkLine. 555 U.S. at 451–52, 457. There,
multiple digital subscriber line (“DSL”) high-speed internet
service providers complained that AT&T was selling them
access to AT&T’s must-have telephone lines and facilities at
inflated wholesale rates and then shifting those increased
profits to charge ultra-low rates for DSL services at retail,
effectively squeezing these DSL competitors out of the
market. Id. at 442–44. The Court rejected the plaintiffs’
assertion of anticompetitive harm, holding that AT&T was
under no antitrust duty to deal with its competitors on the
wholesale level, and that the plaintiffs failed to introduce
evidence of predatory pricing (that is, charging below cost)
at the retail level. 22 Id. at 450–51.

    Here, not only did the FTC offer no evidence that
Qualcomm engaged in predatory pricing, the district court’s
entire antitrust analysis is premised on the opposite
proposition: that Qualcomm “charge[s] monopoly prices on
modem chips.” Qualcomm, 411 F. Supp. 3d at 800. Indeed,
the district court faulted Qualcomm for lowering its prices
only when other companies introduced CDMA modem chips
to the market to effectively compete. Id. at 688–89. We

Qualcomm “shift[s] part of its chip revenues into its royalty rates,
overcharging on the patent royalty, while undercharging for chips . . .
[which] destroys the normal competitive process in the chip market”).
     22
        The Court explained in linkLine that “to prevail on a predatory
pricing claim, a plaintiff must demonstrate that: (1) ‘the prices
complained of are below an appropriate measure of its rival’s costs’; and
(2) there is a ‘dangerous probability’ that the defendant will be able to
recoup its ‘investment’ in below-cost prices.” 555 U.S. at 451 (quoting
Brooke Grp. Ltd., 509 U.S. at 222–24); see also Atl. Richfield Co. v. USA
Petroleum Co., 495 U.S. 328, 340 (1990) (“Low prices benefit
consumers regardless of how those prices are set, and so long as they are
above predatory levels, they do not threaten competition.”).
48                  FTC V. QUALCOMM

agree with Qualcomm that this is exactly the type of
“garden-variety price competition that the law encourages,”
Appellant’s Reply Br. at 43, and are aware of no authority
holding that a monopolist may not lower its rates in response
to a competitor’s entry into the market with a lower-priced
product.

                             D

    As with its critique of Qualcomm’s royalty rates, the
district court’s analysis of Qualcomm’s “no license, no
chips” policy focuses almost exclusively on alleged
“anticompetitive harms” to OEMs—that is, impacts outside
the relevant antitrust market. The district court labeled
Qualcomm’s policy “anticompetitive conduct against
OEMs” and an “anticompetitive practice[] in patent license
negotiations.” Qualcomm, 411 F. Supp. 3d at 697–98. But
the district court failed to identify how the policy directly
impacted Qualcomm’s competitors or distorted “the area of
effective competition.” Am. Express, 138 S. Ct. at 2285.
Although OEMs consistently described Qualcomm’s “no
license, no chips” policy as “unique in the industry,” none
articulated a cogent theory of anticompetitive harm. Instead,
they objected to Qualcomm’s licensing royalty rates, which
they have to pay regardless of whether they chose to
purchase their chips from Qualcomm or a competitor (or else
risk a patent infringement suit from Qualcomm).

     Furthermore, it appears that OEMs have been somewhat
successful in “disciplining” Qualcomm’s pricing through
arbitration claims, negotiations, threatening to move to
different chip suppliers, and threatened or actual antitrust
litigation.    These maneuvers generally resulted in
settlements and renegotiated licensing and chip-supply
agreements with Qualcomm, even as OEMs continued to
look elsewhere for cheaper modem chip options. A good
                        FTC V. QUALCOMM                               49

example of this is Apple’s 2014 decision to switch to Intel
as its main chip supplier, demonstrating that Qualcomm’s
“no license, no chips” policy did not foreclose competition
in the modem chip markets.

    According to the FTC, the problem with “no license, no
chips” is that, under the policy, “Qualcomm will not sell
chips to a cellphone [OEM] like Apple or Samsung unless
the OEM agrees to a license that requires it to pay a
substantial per-phone surcharge even on phones that use
rivals’ chips.” Appellee’s Br. at 1 (emphasis in original).23
But this argument is self-defeating: if the condition imposed
on gaining access to Qualcomm’s chip supply applies
regardless of whether the OEM chooses Qualcomm or a
competitor (in fact, this appears to be the essence of
Qualcomm’s policy), then the condition by definition does
not distort the “area of effective competition” or impact
competitors. At worst, the policy raises the “all-in” price
that an OEM must pay for modem chips (chipset + licensing
royalties) regardless of which chip supplier the OEM
chooses to source its chips from. As we have already
discussed, whether that all-in price is reasonable or
unreasonable is an issue that sounds in patent law, not
antitrust law. Additionally, it involves potential harms to
Qualcomm’s customers, not its competitors, and thus falls
outside the relevant antitrust markets.

    The district court stopped short of holding that the “no
license, no chips” policy itself violates antitrust law. For

    23
       See also Appellee’s Br. at 9 (“Qualcomm uses its chip monopoly
to force OEMs to pay Qualcomm a surcharge even when they use its
rivals’ chips.”) (emphasis in original); id. at 35 (“[Qualcomm] forced
customers to accept terms that raised the costs of using rivals’ chips, as
a condition of access to its own must-have chips.”).
50                    FTC V. QUALCOMM

good reason: neither the Sherman Act nor any other law
prohibits companies like Qualcomm from (1) licensing their
SEPs independently from their chip sales and collecting
royalties, and/or (2) limiting their chip customer base to
licensed OEMs. As we have noted, “[a]s a general rule,
businesses are free to choose the parties with whom they will
deal, as well as the prices, terms, and conditions of that
dealing.” linkLine, 555 U.S. at 448 (2009) (citing Colgate,
250 U.S. at 307); cf. Am. Express, 138 S. Ct. at 2289–90
(holding that Amex’s antisteering provisions did not unduly
restrain trade). Indeed, the FTC accepts that this is the state
of the law when it concedes that “Qualcomm holds patents
practiced by its rivals’ chips, and . . . is entitled to collect a
royalty” on them. Appellee’s Br. at 39.

    In addition, the district court’s criticism of “no license,
no chips” treats that policy as if Qualcomm is making SEP
licenses contingent upon chip purchases, instead of the other
way around. If Qualcomm were to refuse to license its SEPs
to OEMs unless they first agreed to purchase Qualcomm’s
chips (“no chips, no license”), then rival chip suppliers
indeed might have an antitrust claim under both §§ 1 and 2
of the Sherman Act based on exclusionary conduct. This is
because OEMs cannot sell their products without obtaining
Qualcomm’s SEP licenses, so a “no chips, no license” policy
would essentially force OEMs to either purchase
Qualcomm’s chips or pay for both Qualcomm’s and a
competitor’s chips (similar to the no-win situation faced by
OEMs in the Caldera case). But unlike a hypothetical “no
chips, no license” policy, “no license, no chips” is chip-
neutral: it makes no difference whether an OEM buys
Qualcomm’s chip or a rival’s chips. The policy only insists
that, whatever chip source an OEM chooses, the OEM pay
Qualcomm for the right to practice the patented technologies
                      FTC V. QUALCOMM                          51

embodied in the chip, as well as in other parts of the phone
or other cellular device.

    This is not to say that Qualcomm’s “no license, no chips”
policy is not “unique in the industry” (it is), or that the policy
is not designed to maximize Qualcomm’s profits
(Qualcomm has admitted as much). But profit-seeking
behavior alone is insufficient to establish antitrust liability.
As the Supreme Court stated in Trinko, the opportunity to
charge monopoly prices “is an important element of the free-
market system” and “is what attracts ‘business acumen’ in
the first place; it induces risk taking that produces innovation
and economic growth.” Trinko, 540 U.S. at 407. The record
suggests that this case is more like Am. Express, where a
company’s novel business practice at first appeared to be
anticompetitive, but in fact was disruptive in a manner that
was beneficial to consumers in the long run because it forced
rival credit card companies to adapt and innovate. 138 S. Ct.
at 2290. Similarly here, companies like Nokia and Ericsson
are now “[f]ollowing Qualcomm’s lead” with respect to
OEM-level licensing, and beginning in 2015 rival
chipmakers began to successfully compete against
Qualcomm in the modem chip markets. We decline to
ascribe antitrust liability in these dynamic and rapidly
changing technology markets without clearer proof of
anticompetitive effect.

                                E

    Having addressed the primary components of the district
court’s antitrust ruling with respect to Qualcomm’s general
business practices, we now address the district court’s more
specific finding that from 2011 to 2015, Qualcomm violated
both sections of the Sherman Act by signing “exclusive
deals” with Apple that “foreclosed a ‘substantial share’ of
the [CDMA] modem chip market.” Qualcomm, 411 F.
52                    FTC V. QUALCOMM

Supp. 3d at 771–72 (quoting Tampa Elec. Co. v. Nashville
Coal Co., 365 U.S. 320, 327 (1961)).

      “Exclusive dealing involves an agreement between a
vendor and a buyer that prevents the buyer from purchasing
a given good from any other vendor.” Allied Orthopedic,
592 F.3d at 996. Because “[t]here are ‘well-recognized
economic benefits to exclusive dealing arrangements,
including the enhancement of interbrand competition,’” an
exclusive dealing arrangement is not per se illegal. Id.
(quoting Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157,
1162 (9th Cir. 1997)). Instead, such an arrangement violates
the Sherman Act under the rule of reason only if “its effect
is to ‘foreclose competition in a substantial share of the line
of commerce affected.’” Id. (quoting Omega Envtl.,
127 F.3d at 1162); see also Caldera, 87 F. Supp. 2d at 1251
(“[T]he competition foreclosed by the contract must be
found to constitute a substantial share of the relevant market
. . . [t]hat is to say, the opportunities for other traders to enter
into or remain in that market must be significantly limited”)
(quoting Tampa Elec., 365 U.S. at 328).

    Qualcomm argues that its agreements with Apple were
“volume discount contracts, not exclusive dealings
contracts.” Unlike exclusive dealing arrangements, “volume
discount contracts are legal under antitrust law . . . [b]ecause
the contracts do not preclude consumers from using other . . .
services.” W. Parcel Express v. United Parcel Serv. of Am.,
Inc., 190 F.3d 974, 976 (9th Cir. 1999) (citing Fedway
Assocs., Inc. v. United States Treasury, 976 F.2d 1416, 1418
(D.C. Cir. 1992)). Likewise, conditional agreements that
provide “substantial discounts to customers that actually
purchase[] a high percentage of their . . . requirements from”
a firm are not exclusive dealing arrangements, de facto or
actual, unless they “prevent[] the buyer from purchasing a
                         FTC V. QUALCOMM                               53

given good from any other vendor.” Allied Orthopedic, 592
F.3d at 996–97; see also XI Philip E. Areeda & Herbert
Hovenkamp, Antitrust Law, ¶ 1807a at 129 (2d ed. 2000)
(noting that “[d]iscounts conditioned on exclusivity in
relatively short-term contracts are rarely problematic”).

    The district court concluded that the Apple agreements
were not volume discount contracts, but rather “de facto
exclusive deals” that “coerced ‘[Apple] into purchasing a
substantial amount of [its] needs from [Qualcomm]’” and
thereby “‘substantially foreclosed competition’ in the
[CDMA modem chip] market.” Qualcomm, 411 F. Supp. 3d
at 763, 766 (some alterations in original) (quoting Aerotec
Int’l, 836 F.3d at 1182; Tampa Elec., 365 U.S. at 334). The
FTC argues that these agreements “‘easily’ qualified as de
facto exclusive-dealing agreements under Tampa Electric’s
‘practical effect’ test.” Appellee’s Br. at 87; see Tampa
Elec., 365 U.S. at 326 (holding that a contract is exclusive,
even though it does not contain specific agreements not to
use the goods of a competitor, if its “practical effect” is to
prevent such use) (citation omitted).

    There is some merit in the district court’s conclusion that
the Apple agreements were structured more like exclusive
dealing contracts than volume discount contracts. 24

    24
         Of note, the agreements did not just provide substantial discounts
to Apple in exchange for Apple “purchas[ing] a high percentage of [its]
. . . requirements from” Qualcomm. Allied Orthopedic, 592 F.3d at 996.
Instead, they sought to “prevent[] the buyer [Apple] from purchasing a
given good [CDMA modem chips] from any other vendor,” id., by
making volume discounts (or “incentive funds”) contingent on
exclusivity. Nor were these agreements “easily terminable,” even
though Apple did, in fact, terminate them. See id. at 997 (noting that
“[t]he ‘easy terminability’ of an exclusive dealing arrangement
‘negate[s] substantially [its] potential to foreclose competition’”
54                       FTC V. QUALCOMM

However, we do not agree that these agreements had the
actual or practical effect of substantially foreclosing
competition in the CDMA modem chip market, or that
injunctive relief is warranted.

     During the relevant time period (2011–2015), the record
suggests that the only serious competition Qualcomm faced
with respect to the Apple contracts was from Intel, a
company from whom Apple had considered purchasing
modem chips prior to signing the 2013 agreement with
Qualcomm. The district court made no finding that any
other specific competitor or potential competitor was
affected by either of Qualcomm’s agreements with Apple,
and it is undisputed that Intel won Apple’s business the very
next year, in 2014, when Apple’s engineering team
unanimously recommended that the company select Intel as
an alternative supplier of modem chips. The district court
found that “Qualcomm’s exclusive deals . . . delayed Intel’s
ability to sell modem chips to Apple until September 2016.”
Id. at 737. There is no indication in the record, however, that
Intel was a viable competitor to Qualcomm prior to 2014–
2015, or that the 2013 agreement delayed Apple’s transition
to Intel by any more than one year. 25 Given these undisputed
facts, we conclude that the 2011 and 2013 agreements did



(quoting Omega Envtl., 127 F.3d at 1163–64)). Clearly, the requirement
that Apple forfeit or reimburse Qualcomm millions of dollars in
incentive funds was a strong deterrent to termination.

     25
       See Appellant’s Opening Br. at 110 (pointing out that at trial, the
FTC itself only contended “that the [2013] agreement foreclosed Intel
from supplying chips for a mere five iPad models released over three
years and ‘perhaps’ delayed Intel’s ability to sell chips for the iPhone by
one year”).
                     FTC V. QUALCOMM                        55

not have the actual or practical effect of substantially
foreclosing competition in the CDMA modem chip market.

    Furthermore, “[a]s a general rule, ‘[p]ast wrongs are not
enough for the grant of an injunction’; [instead,] an
injunction will only issue if the wrongs are ongoing or likely
to recur.” FTC v. Evans Prods. Co., 775 F.2d 1084, 1087
(9th Cir. 1985) (quoting Enrico’s, Inc. v. Rice, 730 F.2d
1250, 1253 (9th Cir. 1984)); see also 15 U.S.C. § 53(b)
(providing that the FTC “may” seek an injunction in federal
district court only when the defendant “is violating, or is
about to violate,” one or more of the antitrust laws). Even if
we were to agree with the district court that the Apple
agreements were exclusive dealing contracts that
substantially foreclosed competition in the relevant antitrust
markets, it is undisputed that these agreements do not pose
any current or future threat of anticompetitive harm. Despite
the “clawback provisions,” Apple itself terminated the
agreements in 2015—two years before the FTC filed its
action. Thus, while we agree with the district court that these
were structured more like exclusive dealing contracts than
volume discount contracts, they do not warrant the issuance
of an injunction.

                              IV

    Anticompetitive behavior is illegal under federal
antitrust law. Hypercompetitive behavior is not. Qualcomm
has exercised market dominance in the 3G and 4G cellular
modem chip markets for many years, and its business
practices have played a powerful and disruptive role in those
markets, as well as in the broader cellular services and
technology markets. The company has asserted its economic
muscle “with vigor, imagination, devotion, and ingenuity.”
Topco Assocs., 405 U.S. at 610. It has also “acted with sharp
elbows—as businesses often do.” Tension Envelope Corp.
56                   FTC V. QUALCOMM

v. JBM Envelope Co., 876 F.3d 1112, 1122 (8th Cir. 2017).
Our job is not to condone or punish Qualcomm for its
success, but rather to assess whether the FTC has met its
burden under the rule of reason to show that Qualcomm’s
practices have crossed the line to “conduct which unfairly
tends to destroy competition itself.” Spectrum Sports, 506
U.S. at 458. We conclude that the FTC has not met its
burden.

    First, Qualcomm’s practice of licensing its SEPs
exclusively at the OEM level does not amount to
anticompetitive conduct in violation of § 2, as Qualcomm is
under no antitrust duty to license rival chip suppliers. To the
extent Qualcomm has breached any of its FRAND
commitments, a conclusion we need not and do not reach,
the remedy for such a breach lies in contract and patent law.
Second, Qualcomm’s patent-licensing royalties and “no
license, no chips” policy do not impose an anticompetitive
surcharge on rivals’ modem chip sales. Instead, these
aspects of Qualcomm’s business model are “chip-supplier
neutral” and do not undermine competition in the relevant
antitrust markets. Third, Qualcomm’s 2011 and 2013
agreements with Apple have not had the actual or practical
effect of substantially foreclosing competition in the CDMA
modem chip market.             Furthermore, because these
agreements were terminated years ago by Apple itself, there
is nothing to be enjoined.

   We therefore REVERSE the district court’s judgment
and VACATE its injunction as well as its partial grant of
summary judgment.
