Which?, the UK consumer organisation, announced on 25 February that it is bringing a claim in the Competition Appeal Tribunal against chip manufacturer Qualcomm on behalf of UK purchasers. The claim – which is supported by a litigation funder – alleges abuse of a dominant position by Qualcomm relating to the way in which it has licensed its standard essential technology to smartphone manufacturers. Which? claims that Qualcomm’s licences to its standard essential patents have resulted in the payment of unfairly high royalties by the likes of Apple and Samsung, and in consequence, by purchasers of those devices.
The claim has not yet been published by the Competition Appeal Tribunal, but based on details available from the website set up for consumers to register their potential interest in benefitting from the claim, it appears that there are likely to be a number of substantial obstacles its success. We summarise and rank those obstacles as we currently see them below:
Jurisdiction and service
This case goes to the heart of Qualcomm’s licensing operations, conducted from the USA, which will require Which? to obtain permission to serve its claim outside the UK. Claims against Qualcomm have foundered on this issue before (see our post on the jurisdictional issues faced by Apple’s 2017 claim against Qualcomm).
Which? will need to show that there is a serious issue to be tried, that England is clearly the appropriate forum and accordingly that service out should be permitted. In this case, the claim relates to damages sustained by UK consumers so in principle appears likely to meet the relevant criteria. (Contrast the recent judgment in Epic v Apple, where the CAT held that England was not the appropriate forum for what was fundamentally a dispute between two US companies, which they were already litigating in the US.) However, the cause of that damage is indirect, stemming as it does from contracts entered into by Qualcomm with non-UK manufacturers (and its failure to grant licences to other chip manufacturers, who are also largely based outside the UK). Assessment of this issue is likely to entail consideration of EU case law on extraterritorial effects on competition, and consideration of how these cases apply to breaches of UK competition law in a post-Brexit world.
Likely difficulty rating: 5/10
Collective actions have to be approved before they can proceed, through the grant of a Collective Proceedings Order (CPO). This is one hurdle that now faces somewhat lower obstacles than had until recently been the case, thanks to the December 2020 Supreme Court judgment in Merricks v Mastercard. But many details of class certification still need to be worked out in the UK, and the question can be revisited even if the initial finding is in favour of certification. And the fact that consumers often acquire handsets as part of a contract with the networks is likely to be a further complicating factor for considerations of commonality and suitability for aggregate damages.
This phase also requires the proposed class representative to be accepted. Which? as a well-known consumer organisation is unlikely to face material difficulty in being certified as the class representative, assuming no competing claims come out of the woodwork.
Likely difficulty rating: 4/10
Proving abuse of a dominant position
The claim seeks to prove that Qualcomm overcharged the smartphone manufacturers by (at least):
- Refusing to license competing chipset manufacturers
- Requiring the manufacturers to take a separate licence when it purchased chipsets from Qualcomm
Unlike most class actions to date, this claim does not follow on from a competition authority infringement finding. Instead, it comes against the background of the failed FTC action against Qualcomm, which also set out to prove that Qualcomm’s “no license, no chips” policy and its refusal to license competing chip makers contravened antitrust law. The US Court of Appeals ruled against this claim in August last year, subsequently rejecting the FTC’s subsequent request to reassess the case.
While UK competition law is not the same as US antitrust law, the question of whether there is any obligation on holders of standard essential patents (SEPs) to license their competitors, and consequently any abuse when they fail to do so, is one which arises at least in part out of the contracts which govern the use of such SEPs. The CAT would be likely to have to consider how competition law interacts with the ETSI IPR Policy (governed by French law) and the extent to which commercial practice – which suggests that licensing at the level of the OEM manufacturer is standard practice for SEPs used in the manufacture of (at least) mobile phones – is relevant. Throw into the mix the pending reference to the EU Court of Justice which directly raises questions about where in the supply chain SEP licensing should take place (see here) which adds complexity and spice to what is already a potent brew. EU law of course is no longer binding on the UK, and this reference focuses on the automotive sector, but – depending on the timing – the outcome could be highly influential.
Whatever the merits of the claim, Qualcomm will be expected to fight tooth and nail to prevail on this existential issue.
Likely difficulty rating: 9/10
If Which? overcomes all of the hurdles above, it will still need to quantify its losses. A key issue at this stage is likely to be the extent to which smartphone manufacturers such as Apple have absorbed the losses. Public sources cite Apple as making margins of around 35% on iPhones so it isn’t self-evident that all of the licensing costs will have been passed on. Indeed, Apple’s 2017 claim was predicated on the idea that they were not, or at least not entirely. Nor is it at all obvious how licence fees – which could be seen to operate like a form of sunk cost – should be attributed across Apple’s global operations. Unless the claim form reveals something not mentioned in today’s press release, it does not appear that Apple or other smartphone manufacturers have been made a party to the proceedings, so there is also a significant question mark over the evidence that will be available on this aspect.
Likely difficulty rating: 8/10
This claim brings together two hot topics of collective competition law actions and FRAND licensing, so will be closely followed across the mobile telecoms industry and beyond.