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Meyer v. Qualcomm Inc.

March 3, 2009


The opinion of the court was delivered by: Hayes, Judge


The matter before the Court is the Motion to Dismiss (Doc. # 23) filed by Defendant Qualcomm Incorporated.

Factual Allegations in the Complaint

A. The Parties

On April 10, 2008, Plaintiff Jesse Meyer initiated this action by filing the Class Action Complaint (Doc. # 1). Plaintiff is a resident of Oakland, CA. Complaint, ¶ 8. Plaintiff purchased a subsidized Motorola Razr V3xx from AT&T and receives cellular phone service from AT&T. Id., ¶ 9. Defendant Qualcomm Incorporated ("Qualcomm") is a Delaware corporation headquartered in San Diego, California. Id., ¶ 10. Qualcomm "commercializes technology involved in cellular communications and applications," and owns patents significant in the wireless communications industry. Id. Qualcomm generates billions of dollars in revenues by licensing its patents. Id.

B. The Wireless Industry

The wireless communications industry consists of many components, including wireless carriers providing cell phone service to consumers, cell phone manufacturers manufacturing cell phones, and cell phone component manufacturers manufacturing parts of cell phones. Id., ¶¶ 14-16. In order "[f]or a carrier's wireless system to function properly, all of the system's components (e.g. base stations in various geographic locations and consumers' cell phones) must seamlessly interface with each other." Id., ¶ 17. This means that "regardless of which manufacturer makes a cell phone, regardless of which chipset manufacturer supplies the components for the cell phone, and regardless of which company manufacturers the system's components, each cell phone must be capable of interfacing with all of the other components in a carrier's wireless system." Id.

Because of this "demand for interoperability," telecommunication standards determining organizations ("SDOs") have created industry and global-wide standards for wireless carriers, cell phone manufacturers and component makers. Id., ¶ 18. "Two technology paths, or families of standards, are in widespread use today: 'CDMA,' which stands for 'code division multiple access;' and 'GSM,' which stands for 'global system for mobility.'" Id., ¶ 23. The CDMA and GSM paths have evolved through four generations, and carriers are in the process of deploying "newer technologies that cannot neatly be characterized as either [second generation] or [third generation]." Id., ¶ 24-26. "The CDMA and GSM standards are mutually incompatible." Id., ¶ 37. Thus, the transition from second generation to third generation standards is "path-dependent." Id., ¶ 38.

The Universal Mobile Telecommunications System ("UMTS") standard was "designed to permit economical transition from [second generation] GSM-based systems to a [third generation] standard." Id., ¶ 31. An industry-wide standard, such as the UMTS, "necessarily eliminates previously available alternative technologies," and "confers monopoly power on the holders of patents essential to implementing that standard." Id., ¶ 32.

When telecommunication SDOs consider implementing new standards, "[t]he ownership of relevant intellectual property (IP) and related IP licensing practices are critical issues." Id., ¶ 22. "If the implementation of a standard requires the use of particular [intellectual property], such as a patent, the [intellectual property] owner may have the ability to prevent, delay or distort the development of technology implementing that standard (sometimes referred to as 'patent hold-up') and thereby undermine the purpose of the SDO." Id. "Accordingly, SDOs typically require that their members declare whether they believe they hold patents necessary for compliance with a particular standard, and if so whether they are willing to license such patents on fair, reasonable, and non-discriminatory (FRAND) terms." Id. "Patents necessary to implement a particular standard are known as 'essential patents' for the standard to which they relate," and "[e]ach SDO relevant to this action requires that owners of essential patents agree to FRAND licensing before the SDO will agree to include the technology that depends upon those patents in any industry standard." Id.

C. Qualcomm's Patents and Licensing Practices

Qualcomm holds certain patents that are "essential" to Wideband Code Division Multiple Access ("WCDMA") technology. Id., ¶¶ 1, 3. WCDMA is a third generation technology that is implemented through the UMTS standard. Id., ¶ 3. Qualcomm's "WCDMA patents are essential to the manufacture of UMTS-compliant cell phones and other UMTS-compliant devices, and are also essential for the implementation of the UMTS standard." Id., ¶ 36. "The licensing of Qualcomm's patents therefore is a barrier to entry into the relevant product market." Id.

Before the relevant SDOs included Qualcomm's technology and intellectual property in the UMTS standard, "Qualcomm made repeated and express written representations to SDOs . . . that Qualcomm would license any of its essential WCDMA patents on FRAND terms prior to the adoption of the UMTS standard." Id., ¶ 42. Qualcomm's WCDMA technology was incorporated into the UMTS standard only after, and in reliance on Qualcomm's commitment to license its patents on FRAND terms. Id., ¶ 43.

After the relevant SDOs adopted the UMTS standard, Qualcomm did not license its UMTS-related patents in a fair, reasonable, and non-discriminatory manner. Id., ¶ 46. Qualcomm used "its monopoly power in the WCDMA market, as well as its false commitment to license its WCDMA patents on FRAND terms, to force industry participants into accepting Qualcomm's UMTS Licensing Practices." Id., ¶ 47. In doing so, Qualcomm "has unnaturally prolonged high prices for UMTS chipsets and UMTS devices, and has significantly deterred non-price competition (improved products and functionality). Consequently, prices for UMTS chipsets are supracompetitive, and innovation in, e.g., enhanced functionality has been undermined." Id. Qualcomm's anticompetitive licensing practices include, but are not limited to discrimination against non-Qualcomm UMTS chipsets with regard to royalties, requiring unfair grant-back provisions, and requiring unfair pricing data exchange. Id., ¶¶ 45-67.

D. Relevant Markets

"The relevant product market . . . is the global market for UMTS-capable devices." Id., ¶ 68.

Both UMTS chipset and UMTS device manufacturers suffer direct anticompetitive harm from Qualcomm's UMTS Licensing Practices. This anticompetitive harm includes supracompetitive prices and impaired non-price competition in innovation of UMTS functionality. Because the entire UMTS chipset and device industries are uniformly subject to the effects of UMTS Licensing, no individual competitor in those markets has any economic incentive to absorb these costs. Instead, UMTS chipset manufacturers pass UMTS Licensing costs down to UMTS device ...

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