-
Ninth Circuit Affirms District Court’s Rejection Of Private State Law Claims Against Qualcomm
03/11/2025On February 25, 2025, the Ninth Circuit Court of Appeals affirmed the United States District Court for the Northern District of California’s rejection of unlawful tying, exclusive dealing, and unfair competition claims brought under California state law by cellphone purchasers against cellular modem chip producer Qualcomm over policies related to patent licensing.[1] The Ninth Circuit previously reversed the FTC’s victory in a parallel lawsuit alleging federal antitrust violations over the same conduct. In rejecting the private plaintiffs’ appeal, the Ninth Circuit affirmed that defendant’s challenged conduct is not anticompetitive and therefore no more violative of California antitrust law than it is of federal antitrust law.
In addition to manufacturing and selling modem chips, defendant licenses patents covering its cellular system technological innovations to original equipment manufacturers (OEMs), a practice necessary to comply with standards determined by international standard-setting organizations. Defendant maintains a “no license, no chips” policy, under which it exclusively sells modem chips to OEMs that also purchase its licenses. Defendant had exclusive supplier agreements with major OEMs, including Apple and Samsung, under this policy. In 2017, these practices were challenged by the FTC as violative of Sections 1 and 2 of the Sherman Act. This action prompted multiple follow-on private class action lawsuits bringing claims under Section 1, as well as under California’s Cartwright Act and Unfair Competition Law (UCL).
The FTC won its challenge following a bench trial in district court. On appeal, the Ninth Circuit reversed, holding that the district court failed to identify how defendant’s “no license, no chips” policy or exclusive dealings distorted competition in any relevant market.[2]
Following this decision rejecting the FTC’s federal antitrust claims, the Ninth Circuit vacated the consolidated private action’s class certification and remanded to the district court to determine whether the private claims could survive the ruling against the FTC. In doing so, the Ninth Circuit instructed the district court that “extraordinary differences would need to exist” between the two cases for the private action to remain viable.[3] Plaintiffs filed an amended complaint that excised their Sherman Act claims and focused on California state law.
The district court ruled for defendant, holding that, for the purpose of evaluating the conduct challenged in this case, the Cartwright Act provided no stronger claim than the Sherman Act. The court dismissed plaintiffs’ Cartwright Act tying claims and ultimately granted summary judgment on plaintiffs’ Cartwright Act exclusive dealing claims and UCL claims.
On appeal, the Ninth Circuit affirmed the dismissal of plaintiffs’ Cartwright Act tying claim, reiterating that defendant’s “no license, no chips” policy resulted in no harm to competition because defendant has no rival sellers of the tied product. The Cartwright Act, like federal law, requires an unlawful tying claim to demonstrate harm to competition in the sale of the tied product. In this case, the tying product is defendant’s modem chips, and the tied product is defendant’s patent portfolio. The court reasoned that these patents are, by law, only available from defendant, and plaintiffs could not show that purchasers would acquire the licenses elsewhere but for defendant’s policy. Therefore, the court determined that as no market exists for the tied product, there is no relevant competition to foreclose.
Exclusive dealing claims under the Cartwright Act are, as under federal law, analyzed through the rule of reason, and plaintiffs must show that the challenged arrangement both (i) significantly forecloses a market to competitors and (ii) causes injury. The Ninth Circuit held that, as plaintiffs had not defined a clear market, no finder of fact could conclude that a substantial portion of any market had been foreclosed by OEMs’ agreements to exclusively source modem chips from defendant. In addition, the Ninth Circuit agreed with the district court that the alleged exclusive dealings could not have had the anticompetitive effect of exacerbating the consequences of the “no license, no chips” policy, since the policy did not cause injury.
Finally, the Ninth Circuit agreed that plaintiffs raised no cognizable claim under the UCL, which proscribes “any unlawful, unfair, or fraudulent business practice,” as defendant’s challenged conduct is not fraudulent or unfair under any federal or state-law based theory.[4] As for the exclusive dealings, the UCL only authorizes equitable relief, and the challenged arrangements had expired prior to the litigation.
The Ninth Circuit affirmed nearly the entirety of the district court’s opinion but vacated the summary judgment order with respect to the UCL exclusive dealing claim and instructed the district court to dismiss that claim without prejudice so that plaintiffs may refile in state court.
[1]Key v. Qualcomm, Inc., No. 23-3354 (9th Cir. 2025).
[2]FTC v. Qualcomm, Inc., 969 F. 3d 974 (9th Cir. 2020).
[3]Key, No. 23-3354 supra note 1.
[4] Cal. Bus. & Prof. Code § 17200.
