9th Circuit Considers “Qualcomm”: Will “Fake Facts” Overcome Legitimate State Interests?

(The Recorder)  Joseph Saveri Law Firm partner Steven Williams and antitrust attorney Gayatri Raghunandran today authored the following article re Stromberg v. Qualcomm (a follow-on to Federal Trade Commission v. Qualcomm), which was argued before the Ninth Circuit Court of Appeals on December 2, 2019:

Antitrust laws serve vital government interests by promoting free competition and innovation and protecting consumer welfare. The language of the Sherman Act and Clayton Act and their law analogues, as well as their legislative histories, make that clear. See, Northern Pacific Railway v. United States, 356 U.S. 1, 4-5 (1958) (“The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.”); Clayworth v. Pfizer, 49 Cal. 4th 758, 233 P.3d 1066, 1083 (Cal. 2010) (“The main purpose of the antitrust laws is to protect the public from monopolies and restraints of trade.”). Private civil enforcement of the antitrust laws is integral to the accomplishment of these governmental interests, see Brunswick v. Pueblo Bowl-O-Mat, 429 U.S. 477, 485 n. 10 (1977); see also Hawaii v. Standard Oil, 405 U.S. 251, 262 (1972) (“By offering potential litigants the prospect of a recovery in three times the amount of their damages, Congress encouraged these persons to serve as ‘private attorneys general.’”); see also Cal. Bus. & Prof. Code Section 16750(a), which gives the right to any person in any state to bring claims against California defendants for violations of the Cartwright Act. As a matter of federalism under the Constitution, the regulation of monopolies and unfair competition is “an area traditionally regulated by the states,” see California v. ARC America, 490 U.S. 93, 101 n. 4 (1989) and for which federal law, absent explicit congressional authorization, has no preemptive power. Indeed, 21 states had enacted antitrust laws before the Sherman Act became law, and the laws of those states differ from federal law in many regards. See Aryeh v. Canon Business Solutions, 55 Cal. 4th 1185, 1195 (2013) (“Interpretations of federal antitrust law are at most instructive, not conclusive, when construing the Cartwright Act, given that the Cartwright Act was modeled not on federal antitrust statutes but instead on statutes enacted by California’s sister states around the turn of the 20th century.”).

In certifying a class under California law, the district court ruled that California has a strong public policy in the application of the Cartwright Act to alleged antitrust violations by Qualcomm, which is based in and makes its business decisions in San Diego, see In re Qualcomm Antitrust Litigation, 328 F.R.D. 280 (N.D. Cal. 2018). Qualcomm is alleged to be a monopolist. Qualcomm’s chips are essential for smartphones and tablets, among other products. Qualcomm agreed to license its chips to others on fair, reasonable, and nondiscriminatory terms (FRAND). Plaintiffs allege that Qualcomm abused its monopoly power, including its FRAND commitments, and that those actions violate California’s Cartwright Act. The class includes nearly 250 million American consumers asserting that Qualcomm’s policies in licensing its chips to companies like Apple and Samsung—and in refusing to license them to potential competitors like Intel—give rise to damage claims under California law. Whether or not the plaintiffs are correct is not at issue in the appeal of the class certification order.

The material difference between California law and certain other states is that California, like 33 other states and the District of Columbia, permits indirect purchasers—typically consumers who do not have privity with manufacturers—to recover damages for violations of their antitrust laws. States like California are known as “repealer” states, as they have, as a matter of state law, chosen a different path than did the U.S. Supreme Court when it ruled that only direct purchasers could bring damage claims under the Sherman Act. Illinois Brick v. Illinois, 431 U.S. 720 (1977). Those states whose antitrust laws have remained consistent with federal law on this issue are known as “nonrepealer” states. Justice Byron White, writing for a unanimous Supreme Court in ARC America, held that Congress had not preempted the field of antitrust law. Instead, state antitrust statutes are a separate, independent body of law that is consistent with the broad purpose of the federal antitrust laws of deterring antitrust conduct and insuring the compensation of victims. These laws do not interfere with congressional purposes in avoiding unnecessarily complicated proceedings on federal antitrust claims.

The legal principles described above seemed to be beyond challenge until Dec. 2, when the U.S. Court of Appeals for the Ninth Circuit heard arguments on Qualcomm’s Rule 23(f) appeal from the class certification order. While there are other legal issues at play in the appeal, it is most likely that the decision will turn on the district court’s choice of law analysis, and further that the focus of this analysis will be on competing state interests. The district court properly recognized California’s compelling state interests in enforcing its antitrust laws to address conduct occurring within California, and ruled that the nonrepealer states had no state interest in play. Qualcomm—and the U.S. Department of Justice—hypothesize an alternative world, one with no support in the record, in which  the nonrepealer states have an affirmative state interest in denying their citizens the right to recover against a California corporation, in a California court, for violations of California law.

This argument, and the potential for an adverse ruling, is greatly concerning to anyone interested in antitrust enforcement, consumer welfare, and the long-recognized right of states to regulate conduct occurring within their borders. The choice of law analysis should turn on facts. This is why it was jarring to see plaintiffs counsel repeatedly cut off when trying to describe those facts, and asked to answer hypotheticals about other “facts” caveated with the expression “I’m not saying it’s true or not true.” For example, it was suggested that a state may have chosen not to permit indirect purchaser suits because doing so would encourage more products to enter that state, and more vibrant competition within that state, or that Qualcomm may have considered not letting its chips be included in phones sold in certain states based upon their position on indirect purchaser antitrust suits. While it is virtually implausible that anything like this ever happened––i.e., that Qualcomm made business and strategy decisions based on whether or not indirect purchasers in states other than California have the right to bring claims in California under California law––the fact is that there are no record facts to support this hypothesis, or any of the other hypotheses suggested by Qualcomm or its supporters. It may be that the underlying rationale for the distance between the questions asked by the panel and the long-standing law described in this article is an underlying belief that the case is too big, as reflected in the comment that “the size of the class renders the use of structural analysis a violation of due process”—an emphatic proposition lacking any support in the law. This proposition, as well as the proposition that the nonrepealer states have an interest in denying their residents recovery against Qualcomm under California law that is stronger than California’s interest in enforcing its laws, is not correct. Those who care about economic and consumer welfare should hope that the Ninth Circuit applies long-standing law to uphold the class certification order.