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UNITED STATES COURT REPORTERS

2095

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

FEDERAL TRADE COMMISSION,

PLAINTIFF,

VS.

QUALCOMM INCORPORATED, A

DELAWARE CORPORATION,

DEFENDANT.

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C-17-00220 LHK

SAN JOSE, CALIFORNIA

JANUARY 29, 2019

VOLUME 11

PAGES 2095-2183

TRANSCRIPT OF PROCEEDINGS

BEFORE THE HONORABLE LUCY H. KOH

UNITED STATES DISTRICT JUDGE

A P P E A R A N C E S:

FOR THE PLAINTIFF: FEDERAL TRADE COMMISSION

BY: JENNIFER MILICI

DANIEL J. MATHESON

WESLEY G. CARSON

KENT COX

NATHANIEL M. HOPKIN

PHILIP J. KEHL

MIKA IKEDA

600 PENNSYLVANIA AVENUE, NW

WASHINGTON, D.C. 20580

APPEARANCES CONTINUED ON NEXT PAGE

OFFICIAL COURT REPORTERS: LEE-ANNE SHORTRIDGE, CSR, CRR

CERTIFICATE NUMBER 9595

IRENE RODRIGUEZ, CSR, CRR, RMR

CERTIFICATE NUMBER 8074

PROCEEDINGS RECORDED BY MECHANICAL STENOGRAPHY

TRANSCRIPT PRODUCED WITH COMPUTER

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UNITED STATES COURT REPORTERS

2096

APPEARANCES (CONTINUED)

FOR THE DEFENDANT: KEKER, VAN NEST & PETERS

BY: ROBERT A. VAN NEST

JUSTINA K. SESSIONS

EUGENE M. PAIGE

CHRISTINA BLAIS

MATAN SHACHAM

CODY HARRIS

KRISTIN HUCEK

633 BATTERY STREET

SAN FRANCISCO, CALIFORNIA 94111

CRAVATH, SWAINE & MOORE

BY: GARY A. BORNSTEIN

MICHAEL BRENT BYARS

YONATAN EVEN

JORDAN D. PETERSON

MING-TOY TAYLOR

DEREK SUTTON

ANDREW HUYNH

ANTONY RYAN

825 EIGHTH AVENUE

NEW YORK, NEW YORK 10019

NORTON ROSE FULBRIGHT

BY: MARC COLLIER

TALBOT HANSUM

98 SAN JACINTO BOULEVARD, SUITE 1100

AUSTIN, TEXAS 78701

BY: ERIC B. HALL

DANIEL LEVENTHAL

1301 MCKINNEY, SUITE 5100

HOUSTON, TEXAS 77010

ALSO PRESENT: MARK SNYDER

JEFF DAHM

KEN KOTARSKI

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UNITED STATES COURT REPORTERS

2097

INDEX OF PROCEEDINGS

CLOSING ARGUMENT BY MS. MILICI P. 2102

CLOSING ARGUMENT BY MR. VAN NEST P. 2135

REBUTTAL CLOSING ARGUMENT BY MS. MILICI P. 2173

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UNITED STATES COURT REPORTERS

2098

SAN JOSE, CALIFORNIA JANUARY 29, 2019

P R O C E E D I N G S

(COURT CONVENED AT 1:27 P.M.)

THE COURT: OKAY. GOOD AFTERNOON AND WELCOME.

COULD WE PLEASE HAVE EVERYONE SQUEEZE IN ALL THE WAY TO

THE WALL SO WE CAN ACCOMMODATE MORE PEOPLE, PLEASE.

MR. VAN NEST: GOOD AFTERNOON, YOUR HONOR.

THE COURT: GOOD AFTERNOON AND WELCOME.

COULD WE GET ANY, MAYBE FOLDING CHAIRS? OR BRING IN MORE

CHAIRS?

HOW MANY MORE -- HOW MANY PEOPLE ARE OUTSIDE?

THE MARSHAL: ABOUT EIGHT, INCLUDING THE PEOPLE --

THE COURT: WE CAN FIT ONE MORE PERSON UP HERE, AND

ONE MORE PERSON UP THERE ON THE FRONT ROW. I DON'T THINK

ANYONE SHOULD SIT IN FRONT OF THE SCREEN, RIGHT, BECAUSE WE'LL

BE USING THAT? SO THERE ARE TWO SEATS UP HERE.

HOW MANY MORE SEATS DO WE NEED? SO GO AHEAD AND TAKE A

SEAT. CAN EVERYONE PLEASE SQUEEZE IN. PLEASE TAKE A SEAT.

LET'S SEE HOW MUCH ROOM WE HAVE.

HOW MANY MORE SEATS DO WE NEED?

THE MARSHAL: EIGHT.

THE COURT: EIGHT.

(PAUSE IN PROCEEDINGS.)

THE COURT: IS IT A PROBLEM IF WE ADD MORE CHAIRS

HERE? I'M GOING TO ASK THE CSO? IS THAT OKAY? IT'S OKAY?

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UNITED STATES COURT REPORTERS

2099

MAYBE WE CAN ADD A COUPLE MORE CHAIRS.

THE CLERK: SNOOKI IS GOING TO BRING UP SOME CHAIRS.

(PAUSE IN PROCEEDINGS.)

THE COURT: THAT WOULD HELP, IF WE COULD HAVE MORE

PEOPLE AT COUNSEL TABLE, IF YOUR TEAM WANTS TO JOIN YOU, IF

THAT'S ALL RIGHT.

MR. EVEN: YOUR HONOR, THE PEOPLE WHO JOINED THE JURY

BOX CAN SWITCH WITH PEOPLE FROM EITHER THE FTC OR OUR TEAM,

BECAUSE WE NEED PEOPLE UNDER THE PO ON THIS SIDE OF THE

MONITORS.

THE COURT: OH, OKAY. ALL RIGHT. COULD WE HAVE YOU

SWITCH, PLEASE.

HOW MANY MORE SEATS DO WE NEED?

THANK YOU FOR CATCHING THAT. I DIDN'T EVEN THINK OF THAT.

HOW MANY MORE SEATS DO WE NEED? HOW MANY MORE PEOPLE ARE OUT

THERE? ANYONE ELSE?

THE MARSHAL: ONE, TWO.

THE COURT: TWO. OKAY.

I DON'T WANT TO INTERFERE WITH THE PEOPLE WHO ARE

PRESENTING. IS THIS ENOUGH SPACE FOR WHOEVER IS PRESENTING?

MR. VAN NEST: YES, YOUR HONOR, IT'S FINE.

THE COURT: IS THAT OKAY?

MR. VAN NEST: FINE.

THE COURT: ALL RIGHT. BECAUSE WE COULD PUT ANOTHER

TWO CHAIRS OVER HERE, IF IT'S GETTING TOO TIGHT OVER THERE.

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UNITED STATES COURT REPORTERS

2100

HOW MANY MORE? LET'S BRING IN TWO MORE CHAIRS. IT LOOKS LIKE

WE ONLY NEED TWO MORE. LET'S BRING IN THREE, JUST IN CASE.

(PAUSE IN PROCEEDINGS.)

THE COURT: HOW MANY MORE SEATS COULD YOUR TEAM USE?

THE MARSHAL: THERE'S NOBODY OUTSIDE.

MR. VAN NEST: EVERYONE IS IN, YOUR HONOR.

THE COURT: OKAY. IS EVERYONE -- IT'S -- IT'S ONLY,

WHAT, 1:33. WE MAY GET MORE PEOPLE. SO LET'S GO AHEAD AND

BRING THAT CHAIR IN, PLEASE.

COULD WE HAVE MORE OF YOUR TEAM COME INTO THE WELL SO THAT

IF SOMEONE COMES IN LATE, THEY CAN SQUEEZE INTO A SEAT?

MR. VAN NEST: SURE.

(PAUSE IN PROCEEDINGS.)

THE COURT: IT LOOKS LIKE THERE'S ROOM ON THE FRONT

ROW, SO IF WE COULD SLIDE IN, PLEASE.

(PAUSE IN PROCEEDINGS.)

THE COURT: WE HAVE TWO EXTRA SEATS HERE IN THE WELL

IF SOMEBODY FROM THE QUALCOMM TEAM WANTS TO COME UP. COULD

ANOTHER PERSON FROM THE QUALCOMM TEAM PLEASE COME UP?

SO WHAT I'D LIKE TO DO IS TO HAVE ONE OR TWO EMPTY SEATS

IN THE BACK SO THAT IF PEOPLE COME IN LATE, THEY CAN JUST

QUIETLY TAKE THOSE WITHOUT DISRUPTING ANYTHING.

IT LOOKS LIKE WE HAVE QUITE A BIT OF ROOM NOW ON THE FRONT

ROW.

(PAUSE IN PROCEEDINGS.)

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UNITED STATES COURT REPORTERS

2101

THE COURT: SO DO WE HAVE ANY EMPTY SEATS IN THE

BACK? WE HAVE TWO?

THE MARSHAL: ONE, TWO, THREE, FOUR -- FIVE TOTAL.

THE COURT: PERFECT. OKAY. THANK YOU.

SO IF YOU'RE ON THE END, IF YOU WOULD SCOOT DOWN TO THE

END TOWARDS THE WALL IN CASE ANYONE COMES IN LATE, THEY CAN

TAKE THE SEATS ON THE END, ON THE AISLE.

THANK YOU.

OKAY. GOOD AFTERNOON AND WELCOME.

EACH SIDE HAS ONE HOUR.

HOW MUCH TIME WOULD THE FTC LIKE TO RESERVE FOR REBUTTAL?

MS. MILICI: I THINK WHATEVER I HAVE LEFT AT THE END

OF THIS PRESENTATION, WHICH PROBABLY WON'T BE VERY MUCH.

THE COURT: OKAY. AND THEN DO YOU HAVE

DEMONSTRATIVES TO HAND OUT?

MS. MILICI: I DO HAVE DEMONSTRATIVES. DOES SOMEBODY

HAVE A COPY TO HAND OUT, PLEASE.

(HANDING.)

(PAUSE IN PROCEEDINGS.)

THE COURT: DO YOU HAVE EXTRAS? DO YOU HAVE TWO

EXTRAS?

MR. ANSALDO: YES.

THE COURT: OKAY. CAN YOU PASS THEM BACK, PLEASE?

MR. ANSALDO: (HANDING.)

THE COURT: THANK YOU.

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2102

ALL RIGHT. LET ME KNOW WHEN YOU'RE READY TO BEGIN.

MS. MILICI: I'M READY.

THE COURT: ARE WE ALL SET? OKAY.

LET ME JUST MAKE SURE. ALL RIGHT. TIME IS 1:36. GO

AHEAD, PLEASE.

(MS. MILICI GAVE HER CLOSING ARGUMENT ON BEHALF OF THE

FTC.)

MS. MILICI: GOOD AFTERNOON, YOUR HONOR. WE ARE HERE

TODAY BECAUSE QUALCOMM VIOLATED THE FTC ACT. IT ACQUIRED

MONOPOLY POWER IN MODEM CHIP MARKETS AND RATHER THAN SIMPLY

COMPETING ON THE MERITS, QUALCOMM USED ITS POWER TO THROW UP

ROADBLOCKS THAT MADE IT HARD FOR RIVALS TO CATCH UP.

QUALCOMM SHOULD BE ENJOINED FROM CONTINUING THE CORPORATE

POLICY THAT HARMED COMPETITION IN 3G AND 4G AND ARE LIKELY TO

HARM COMPETITION IN 5G.

AT THE BEGINNING OF THIS TRIAL I SAID THAT THE CONDUCT AT

ISSUE WOULD BE UNDISPUTED, AND IT HAS BEEN. THAT CONDUCT

INCLUDES REFUSING TO SELL MODEM CHIPS UNLESS THE BUYER SIGNS A

LICENSE THAT REQUIRES, OFTEN OVER MANY, MANY YEARS, PAYMENTS ON

PHONES THAT USE RIVAL CHIPS.

THOSE PAYMENTS ARE NOT A FAIR REFLECTION OF THE VALUE OF

QUALCOMM'S PATENTS. THEY CAN'T BE BECAUSE THE NEGOTIATIONS

WERE UNFAIR.

AND THE CONDUCT INCLUDES THE USE OF STRATEGIC FUNDS, NOT

SIMPLY TO SERVE A MARKETING OR OTHER LEGITIMATE BUSINESS

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2103

PURPOSE, BUT INSTEAD TO SHORE UP THE HIGH ROYALTY THAT IS PAID

ON HANDSETS USING RIVAL CHIPS.

AND THE UNDISPUTED CONDUCT AT ISSUE IN THIS CASE INCLUDES

REFUSING TO MAKE LICENSES AVAILABLE TO RIVAL CHIP MAKERS.

QUALCOMM DOES NOT DENY THIS POLICY, AND IT DOES NOT DENY

THAT IT RECEIVED VALUABLE LICENSES FOR ITS OWN CHIP BUSINESS.

AND WITH APPLE, QUALCOMM AGREED TO MAKE PAYMENTS

OFFSETTING SOME OF THE BURDEN OF THE HIGH ROYALTIES PAID BY

APPLE'S CONTRACT MANUFACTURERS IN EXCHANGE FOR EXCLUSIVITY.

THAT FORECLOSED AN IMPORTANT POINT OF ENTRY FOR

COMPETITORS.

SO MOST OF THE FACTS ARE UNDISPUTED.

WHERE THERE ARE DISPUTES, THE COURT WILL HAVE THAT MAKE

CREDIBILITY DETERMINATIONS. ON ONE SIDE IS THE CONSISTENT

TESTIMONY OF WITNESSES FROM LENOVO, MOTOROLA, SAMSUNG,

BLACKBERRY, PEGATRON, HUAWEI, WISTRON, APPLE, AND LG THAT

QUALCOMM USED ITS CHIP MONOPOLY POWER TO OBTAIN LICENSING TERMS

THAT THE OEM'S CONSIDER HORRIBLE, EXCESSIVE, AND UNFAIR.

THAT TESTIMONY IS SUPPORTED BY CONTEMPORANEOUS DOCUMENTS

PRODUCED BY THIRD PARTIES AND BY QUALCOMM'S OWN INTERNAL

DOCUMENTS.

ON THE OTHER HAND, THERE IS THE SELF-SERVING TESTIMONY OF

QUALCOMM'S EXECUTIVES WHO INCREDIBLY CLAIM THAT TYING CHIPS AND

LICENSES ALLOWS QUALCOMM TO CREATE CLOSE PARTNERSHIPS WITH ITS

CUSTOMERS.

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2104

NEEDLESS TO SAY, THOSE CUSTOMERS DISAGREE. NOT A SINGLE

THIRD PARTY HAS COME TO COURT AND TESTIFIED IN FAVOR OF

QUALCOMM'S NO LICENSE, NO CHIPS POLICY, THE FAIRNESS OF ITS

ROYALTY RATES, OR THE PROCOMPETITIVE EFFECTS OF ITS BUSINESS

MODEL.

AND DESPITE ARGUING TO THE COURT REPEATEDLY ABOUT EXHIBIT

LIMITS, QUALCOMM INTRODUCED FROM ITS LIST ONLY 53 EXHIBITS, 7

OF WHICH WERE NOT ADMITTED FOR THEIR TRUTH.

QUALCOMM'S ARGUMENTS IN THIS CASE SIMPLY LACK EVIDENTIARY

SUPPORT.

QUALCOMM'S DEFENSE THAT THE FTC HAS NOT PRECISELY

QUANTIFIED THE IMPACT OF ITS CONDUCT WIDELY MISSES THE MARK AND

IT MISREPRESENTS THE SUPREME COURT'S HOLDING IN THE

AMERICAN EXPRESS CASE, WHICH WAS A SECTION 1 CASE IN WHICH

THERE WAS NO PROOF OF MONOPOLY POWER.

AND NO GOVERNMENT ANTITRUST CASE REQUIRES THE TYPE OF

PROOF THAT QUALCOMM DEMANDS HERE, NOR SHOULD IT.

TO THE CONTRARY. THE EVIDENCE IN THIS CASE IS MORE THAN

ENOUGH TO ESTABLISH THE ANTICOMPETITIVE EFFECTS OF QUALCOMM'S

CONDUCT.

NOW, QUALCOMM SPENT A LOT OF ITS TRIAL TIME ESTABLISHING

THAT IT IS AN INNOVATIVE COMPANY THAT HAS MADE SOME GREAT

PRODUCTS. MANY MONOPOLISTS COULD SAY THE SAME.

AS I SAID IN THE OPENING, NO ONE EVER CLAIMED THAT

MICROSOFT HAD BAD TECHNOLOGY.

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2105

QUALCOMM WORKED HARD TO DEVELOP THE USE OF CDMA TECHNOLOGY

IN CELLULAR COMMUNICATIONS. THAT'S CERTAINLY ADMIRABLE.

BUT THAT DOESN'T GIVE QUALCOMM THE RIGHT TO IMPEDE

COMPETITORS.

AND AS DR. JACOBS TESTIFIED, QUALCOMM CHOSE TO STANDARDIZE

CDMA TECHNOLOGY THROUGH TIA IN ORDER TO MONETIZE ITS PRODUCTS.

STANDARDIZATION BROUGHT IT A WIDER CUSTOMER BASE FOR ITS

PRODUCTS AND MORE LICENSED UNITS.

BUT IN EXCHANGE FOR THAT WIDER CUSTOMER BASE, QUALCOMM

MADE A FRAND COMMITMENT, FIRST TO TIA AND THEN TO OTHERS. AND

THAT WAS THE BARGAIN THAT QUALCOMM VOLUNTARILY STRUCK. MORE

CHIP CUSTOMERS AND MORE LICENSED UNITS, BUT CONSTRAINED

LICENSING TERMS.

NOW, OVER THE YEARS, QUALCOMM CONTINUED TO CONTRIBUTE

TECHNOLOGY TO STANDARDIZATION. AND IT'S STRONG PRESENCE IN THE

STANDARD SETTING PROCESS HAS GIVEN ITS CHIP BUSINESS A

SIGNIFICANT TIME TO MARKET ADVANTAGE, AS YOU CAN SEE ON THIS

SLIDE.

QUALCOMM HAS ENJOYED AN ESPECIALLY STRONG CHIP POSITION AT

THE EARLY STAGE OF THE NEW STANDARDS, AND THIS IS THE EVIDENCE

THAT WE ARE SEEING AGAIN IN 5G.

BUT OVER THE PAST 25 YEARS, AS QUALCOMM HAS CONTINUED

PARTICIPATING IN STANDARDIZATION, ITS SHARE OF STANDARD

ESSENTIAL PATENTS HAS DECLINED.

AS YOU CAN SEE IN THIS INTERNAL DOCUMENT, ITS SHARE OF 2G

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2106

CDMA STANDARD ESSENTIAL PATENTS WAS FAR HIGHER THAN ITS SHARE

OF 3G STANDARD ESSENTIAL PATENTS, OR LTE.

UNLIKE THE EARLY DAYS OF CDMA, OTHER FIRMS HAVE COMPARABLE

SET PORTFOLIOS OF LTE.

AT THE SAME TIME, CELLULAR HANDSETS HAVE CHANGED AS WELL.

THE FEATURE PHONES SOLD 20 YEARS AGO DID LITTLE MORE THAN

PROVIDE CELLULAR CONNECTIVITY.

SMARTPHONES TODAY PROVIDE A HOST OF OUR STATE OF THE ART

FEATURES, MANY OF WHICH DON'T REQUIRE CELLULAR CONNECTIVITY AT

ALL.

AND SMARTPHONE USERS HAVE BEGUN RELYING MORE HEAVILY ON

WI-FI TO TRANSMIT DATA, DIMINISHING THE RELATIVE IMPORTANCE OF

CELLULAR TECHNOLOGY OVERALL.

AND SEVERAL EXPERTS IN THIS CASE TESTIFIED ABOUT THIS,

INCLUDING SEVERAL OF QUALCOMM'S EXPERTS.

BUT QUALCOMM'S ROYALTIES DO NOT REFLECT THESE CHANGES AND

QUALCOMM'S ROYALTIES DO NOT REFLECT CHANGES IN PATENT LAW OVER

THE SAME PERIOD OF TIME.

INSTEAD, THROUGHOUT ALL OF THESE CHANGES IN THE INDUSTRY,

IN ITS PORTFOLIO, AND IN THE LAW, QUALCOMM HAS MAINTAINED HIGH

RATES. INDEED, ACCORDING TO THEIR OWN EXPERT, THEIR RATES

HAVEN'T CHANGED AT ALL IN MORE THAN 25 YEARS.

THIS DEMONSTRATES ITS CHIP MARKET POWER.

NOW, PROFESSOR SHAPIRO PERFORMED A REASONED ANALYSIS OF

QUALCOMM'S CHIP MARKET POWER. HE USED A HYPOTHETICAL

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2107

MONOPOLIST TEST, A STANDARD TOOL USED BY ANTITRUST ECONOMISTS

TO DEFINE MARKETS, AND PROFESSOR SHAPIRO EXPLAINED THAT THESE

MARKETS, GLOBAL MARKETS FOR CDMA AND PREMIUM LTE CHIPS SATISFY

THAT TEST.

DR. CHIPTY AGREES THAT THE HYPOTHETICAL MONOPOLIST TEST IS

A REASONABLE APPROACH TO DEFINING A MARKET, BUT SHE DIDN'T

APPLY IT AND SHE DIDN'T ARGUE WITH THE WAY PROFESSOR SHAPIRO

APPLIED IT.

DR. CHIPTY QUIBBLED AT THE MARGINS. SHE ARGUED THAT

PREMIUM LTE COULD BE DEFINED TO INCLUDE MORE OR DIFFERENT

CHIPS.

BUT DR. CHIPTY AGREES THAT THERE IS COMPETITION FOR

PREMIUM SOCKETS THAT IS DISTINCT FROM COMPETITION FOR LOWER

TIER SOCKETS. SHE AFFIRMATIVELY TESTIFIED ABOUT THAT MARKET.

SHE JUST DIDN'T DEFINE IT.

AND THE OTHER SET OF TOOLS USED TO DEFINE RELEVANT MARKETS

ARE THE SO-CALLED BROWN SHOE FACTORS TAKEN FROM THE SUPREME

COURT CASE. HERE THESE FACTORS CONFIRM THAT THERE ARE RELEVANT

GLOBAL MARKETS FOR CDMA MODEM CHIPS AND PREMIUM LTE MODEM

CHIPS. INDUSTRY PARTICIPANTS, INCLUDING QUALCOMM, RECOGNIZED

DISTINCT CDMA AND PREMIUM LTE MODEM CHIP MARKETS AND DISTINCT

PRICING, COMPETITORS AND COMPETITIVE CONDITIONS FOR THESE

MARKETS.

UNDER THE CASE LAW, MARKET POWER CAN BE SHOWN EITHER

THROUGH THE DIRECT EVIDENCE OR INDIRECTLY THROUGH HIGH MARKET

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2108

SHARES AND DEFINED MARKETS. HERE BOTH KINDS OF EVIDENCE PROVE

MARKET POWER.

AS TO BOTH PREMIUM LTE AND CDMA MODEM CHIPS, THERE IS A

VERY LARGE VOLUME OF ADMITTED EVIDENCE THAT CUSTOMERS DID NOT

HAVE GOOD ALTERNATIVES TO QUALCOMM, INCLUDING MOTOROLA AND

BLACKBERRY WHO ARE QUOTED ON THIS SLIDE.

CUSTOMERS RECOGNIZED QUALCOMM'S MARKET POWER AND TESTIFIED

ABOUT IT IN THIS CASE. QUALCOMM RECOGNIZED IT AND COMPETITORS

RECOGNIZED IT, AND THERE'S SIGNIFICANT EVIDENCE OF THIS IN THE

RECORD.

HIGH MARKET SHARES IN THE CDMA AND PREMIUM LTE MARKETS

ALSO SUPPORT A FINDING OF MONOPOLY POWER. PROFESSOR SHAPIRO

CALCULATED MARKET SHARES AND QUALCOMM CALCULATED EQUALLY HIGH

OR HIGHER SHARES IN ITS ORDINARY COURSE DOCUMENTS.

THE SHARES ON THIS SLIDE ARE QUALCOMM'S OWN CALCULATIONS,

AND THESE SHARES, AS CALCULATED BY QUALCOMM, SUPPORT A FINDING

OF MONOPOLY POWER.

NOW, QUALCOMM HAS POINTED OUT THAT ITS MARKET SHARE HAS

BEEN DECREASING AND THAT ITS SHARE IN 2016 WAS LOWER THAN IT

WAS IN PREVIOUS YEARS.

BUT EVEN QUALCOMM'S LOWER SHARE IS VERY HIGH. THAT SHARE

IS SUFFICIENT TO SUPPORT A FINDING OF MONOPOLY POWER IN LIGHT

OF NINTH CIRCUIT PRECEDENCE AND THE FACTUAL EVIDENCE IN THIS

CASE.

AND WHILE QUALCOMM CLAIMS THAT ITS SHARE HAS DROPPED EVEN

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2109

MORE AFTER THIS LITIGATION WAS FILED IN JANUARY OF 2017, ITS

INTERNAL -- IN ITS INTERNAL DOCUMENTS, QUALCOMM SHOWS THAT IT

REMAINS THE DOMINANT PRODUCER OF PREMIUM CHIPS AND IS, IN FACT,

THE ONLY MERCHANT SUPPLIER OF PREMIUM SOC'S, AND THIS IS IN

CX 8191 AND CX 8190, WHICH WERE INTRODUCED THROUGH THE

TESTIMONY OF MR. MOLLENKOPF.

NOW, UNDER THE CASE LAW, MONOPOLIZATION REQUIRES TWO

ELEMENTS: FIRST, THE POSSESSION OF MONOPOLY POWER IN A

RELEVANT MARKET; AND, SECOND, ANTICOMPETITIVE CONDUCT.

DIRECT EVIDENCE THAT OEM'S LACKED GOOD ALTERNATIVES TO

QUALCOMM'S CDMA AND PREMIUM LTE MODEM CHIPS AND QUALCOMM'S HIGH

MARKET SHARES IN THESE MARKETS SATISFY THE FIRST ELEMENT.

BUT NOW LET'S TURN TO THE SECOND ELEMENT. THAT'S

ANTICOMPETITIVE CONDUCT.

WHILE THERE'S NOTHING WRONG WITH A COMPANY GAINING

MONOPOLY POWER BY HAVING BETTER PRODUCTS, AND THE FTC DOES NOT

ALLEGE THAT QUALCOMM CAME BY ITS MONOPOLY POWER IN CDMA

UNLAWFULLY. IT PRODUCED THE FIRST CDMA MODEM CHIP, AND THAT'S

EARNED MONOPOLY POWER, AND QUALCOMM WAS ENTITLED TO USE THAT

POWER TO CHARGE A MONOPOLY PRICE FOR ITS CHIPS.

WHAT QUALCOMM WAS NOT ENTITLED TO DO WAS TO USE ITS

MONOPOLY POWER TO PUT UP ROADBLOCKS THAT INHIBITED THE ABILITY

OF OTHERS TO CATCH UP AND CHALLENGE QUALCOMM'S DOMINANCE.

AND THAT'S WHAT QUALCOMM DID WITH NO LICENSE, NO CHIPS,

REFUSING TO LICENSE ITS RIVALS AND ENTERING EXCLUSIVE DEALS.

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2110

IT PUT UP ROADBLOCKS FOR COMPETITORS.

NOW, THIS COURT HAS HEARD A LOT ABOUT NO LICENSE, NO CHIPS

OVER THE COURSE OF THIS TRIAL AND THE FACTS ABOUT IT ARE

LARGELY UNDISPUTED.

IT IS UNDISPUTED THAT QUALCOMM WOULD NOT SELL MODEM CHIPS

TO AN OEM BEFORE IT ENTERED A LICENSE. AND IT IS ALSO

UNDISPUTED THAT THE POLICY WAS LONGSTANDING AND WIDELY KNOWN IN

THE INDUSTRY.

IT WAS WIDELY KNOWN, IN PART BECAUSE QUALCOMM TOLD

POTENTIAL CUSTOMERS THAT THEY NEEDED A LICENSE BEFORE ENGAGING

ON CHIP SUPPLY.

WHEN CUSTOMERS ASKED FOR CHIPS, THEY GOT LETTERS LIKE THE

ONE ON THIS SLIDE, EXPLAINING THAT THEY NEEDED A LICENSE BEFORE

THEY WOULD, QUOTE, "HAVE THE RIGHT TO PURCHASE CHIPS."

NOW, QUALCOMM WOULD NOT ENTER INTO SUPPLY AGREEMENTS WITH

CUSTOMERS UNTIL THEY SIGNED A LICENSE, AND ONCE THEY BECAME

LICENSED, QUALCOMM REQUIRED AGREEMENT TO SUPPLY CONTRACTS THAT

INCORPORATED NO LICENSE, NO CHIPS.

AND YOU CAN SEE THAT IN THIS EXAMPLE. THE CONTRACT STATES

QUALCOMM'S CUSTOMERS CANNOT USE A MODEM CHIP WITHOUT A SEPARATE

PATENT LICENSE.

AND THE COURT HEARD SUBSTANTIAL TESTIMONY ABOUT THAT

REQUIREMENT. AND, AGAIN, THIS IS UNDISPUTED.

AND IT IS THESE CONTRACTS AND THE LICENSE AGREEMENTS THAT

THE FTC ALLEGES ARE UNLAWFUL.

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THERE IS ALSO NO DISPUTE IN THIS CASE THAT QUALCOMM

REMINDED EXISTING CUSTOMERS THAT THEY WOULD NO LONGER BE ABLE

TO PURCHASE CHIPS IF THEY FAILED TO REACH AGREEMENT ON LICENSE

RENEWAL OR EXPANSION TERMS OR IF THEY EXERCISED CONTRACTUAL

RIGHTS TO TERMINATE EXISTING LICENSES.

THE EXAMPLE ON THIS SLIDE IS FROM QUALCOMM'S NEGOTIATIONS

WITH ZTE, BUT THERE ARE MANY, MANY EXAMPLES IN THE RECORD.

NOW, QUALCOMM HAS STATED UNAMBIGUOUSLY THAT IT NEVER

THREATENED CHIP SUPPLY.

ALEX ROGERS TESTIFIED ABOUT THAT LAST WEEK.

BUT THIS IS JUST A SEMANTIC TRICK. IN EXAMPLE AFTER

EXAMPLE, WE SAW THAT QUALCOMM DEMANDED CERTAIN ROYALTY TERMS

FROM A CUSTOMER, THE CUSTOMER RELISTED, AND QUALCOMM, WHICH WAS

THE ONLY COMMERCIALLY VIABLE SUPPLIER OF CDMA AND/OR PREMIUM

LTE MODEM CHIPS, SAID, "IF WE DON'T REACH AGREEMENT, THEN YOU

WON'T BE ABLE TO BUY CHIPS ANYMORE."

THE CUSTOMERS WHO HEARD THESE STATEMENTS CERTAINLY VIEWED

THEM AS THREATS. SONY, LENOVO, AND OTHERS ALL CALLED THEM

THREATS. THIS LABEL WAS NOT MANUFACTURED FOR LITIGATION.

AS YOU CAN SEE HERE ON THE SLIDE, WHICH IS SEALED AND NOT

IN THE COURTROOM, BUT IN THE DEMONSTRATIVES, THAT VERY PHRASE

WAS USED IN CONTEMPORANEOUS COMMUNICATIONS.

AND CONTRARY TO ITS SUGGESTIONS IN COURT AND TO INVESTORS,

INTERNAL QUALCOMM DOCUMENTS SHOW THAT QUALCOMM EXECUTIVES KNEW

THAT THEIR COMMENTS WOULD BE TAKEN AS THREATS AND INTENDED THAT

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2112

THEY BE TAKEN THAT WAY.

QUALCOMM KNEW THAT THE THREAT OF CUTTING OFF CHIP SUPPLY

MAY BE WHAT IS NEEDED TO RESOLVE LICENSING DISPUTE AS

STEVE ALTMAN WROTE IN THE E-MAIL IN THE MIDDLE HERE, WHICH IS

CX 8281.

NOW, QUALCOMM WITNESSES ALSO REPEATEDLY TESTIFIED THAT

QUALCOMM HASN'T CUT OFF CHIP SUPPLY IN ANY NEGOTIATION, AND WE

THINK THAT THAT'S NOT ACCURATE AND THAT THE RECORD CONTAINS

EVIDENCE OF ACTUAL CHIP SUPPLY CUTOFFS.

BUT WHETHER QUALCOMM ACTUALLY CUT OFF CHIP SUPPLY IS ALSO

JUST BESIDE THE POINT. NO PART OF THE FTC'S CASE DEPENDS ON AN

ACTUAL CUTOFF OF CHIP SUPPLY. QUALCOMM REFUSED TO SELL CHIPS

TO A COMPANY BEFORE IT SIGNED A LICENSE AND ITS POLICY THAT WAS

WRITTEN INTO ITS CONTRACT AND COMMUNICATED TO CUSTOMERS WAS TO

CUT OFF SUPPLY IF THE CUSTOMER BREACHED OR BECAME UNLICENSED.

THE FACT THAT IT GENERALLY DID NOT HAVE TO CUT OFF CHIP

SUPPLY IS PROOF OF ITS MARKET POWER. NO CUSTOMER WAS WILLING

TO RISK LOSING QUALCOMM'S CHIPS. THEY GAVE IN INSTEAD, AS THE

SAMSUNG EXAMPLE SHOWN HERE REFLECTS.

NOW, QUALCOMM HAS POINTED TO A COUPLE OF EXAMPLES OF TIMES

WHERE THEY CONTINUED SHIPPING CHIPS TO CUSTOMERS THAT HAD

STOPPED PAYING ROYALTIES. BUT QUALCOMM HAS RECOGNIZED,

INCLUDING IN THIS INTERNAL DOCUMENT, THAT CUTTING OFF CHIP

SUPPLY COULD CREATE ANTITRUST PROBLEMS FOR IT. AND IN EACH OF

THE EXAMPLES THAT QUALCOMM HAS PROVIDED TO THE COURT, IT WAS

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2113

UNDER ACTIVE ANTITRUST INVESTIGATION WHEN THE CUSTOMER

SUSPENDED PAYMENTS.

THAT QUALCOMM CONTINUED SHIPPING UNDER THOSE CIRCUMSTANCES

IS NOT SURPRISING. NOR DOES IT CHANGE THE FACT THAT DESPITE

THE RECOGNIZED ANTITRUST RISK, QUALCOMM AFFIRMATIVELY CHOSE, AS

A CORPORATE STRATEGY, TO KEEP THE OPTION OF CEASING SUPPLY ON

THE TABLE AND TO USE IT WHEN NECESSARY TO PROTECT ITS LICENSING

BUSINESS.

SO THE POLICY'S UNDISPUTED AND CUSTOMER AFTER CUSTOMER HAS

TESTIFIED UNDER OATH THAT THE POLICY GAVE QUALCOMM ADDITIONAL

LEVERAGE IN NEGOTIATIONS.

THIS SLIDE HIGHLIGHTS SOME OF THAT TESTIMONY.

AND THIS WAS CONSISTENT TESTIMONY ACROSS MAJOR OEM'S.

AND IMPORTANTLY, IT IS THE POLICY ALONE THAT CREATES THIS

LEVERAGE. CUSTOMERS KNEW THAT QUALCOMM COULD CUT OFF CHIP

SUPPLY, THAT IT HAD A POLICY OF DOING SO, AND THE CONTRACTUAL

RIGHT TO BACK IT UP. WHETHER QUALCOMM MADE AN EXPLICIT THREAT

OR NOT, THAT LEVERAGE EXISTS.

IN DOCUMENT AFTER DOCUMENT ADMITTED DURING TRIAL, QUALCOMM

ACKNOWLEDGED THAT ITS CHIP LEVERAGE ALLOWS IT TO CHARGE HIGHER

ROYALTY RATES, AND THAT'S IN THE TESTIMONY OF DAVID WISE,

DR. PAUL JACOBS, STEVE ALTMAN, AND OTHERS.

AND THE EVIDENCE HERE ABOUT PROJECT BERLIN AND

PROJECT PHOENIX IS JUST A SMALL SAMPLE OF THE EVIDENCE THAT

PROVES THIS POINT.

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2114

NOW, DR. JACOBS AND MR. MOLLENKOPF BOTH TESTIFIED,

INCREDIBLY, THAT QCT HELPS QTL IN LICENSING NEGOTIATIONS

BECAUSE THE CHIP SUPPLY RELATIONSHIP CREATES SUCH GREAT

PARTNERSHIPS BETWEEN QUALCOMM AND ITS CUSTOMERS.

BUT THAT IS NOT HOW THE CUSTOMERS SEE IT. AND WHEN THE

COURT CONSIDERS CREDIBILITY, TO THE EXTENT THAT IT HAS TO AT

ALL, IT SHOULD CONSIDER THE VAST GULF BETWEEN HOW QUALCOMM

EXECUTIVES SAY THAT YOU SHOULD VIEW ITS RELATIONSHIP WITH ITS

CUSTOMERS AND HOW THOSE CUSTOMERS ACTUALLY VIEW IT.

NOW, IN ITS PROPOSED FINDINGS OF FACT, QUALCOMM OFFERED

SEVERAL BUSINESS JUSTIFICATIONS FOR ITS NO LICENSE, NO CHIPS

POLICY. QUALCOMM SUGGESTS THAT THE POLICY IS NECESSARY TO EARN

A FAIR RETURN ON ITS INVESTMENTS OR TO PROTECT ITS INTELLECTUAL

PROPERTY RIGHTS.

BUT IT BEARS REPEATING THAT THIS POLICY IS UNIQUE. THERE

ARE MANY SUCCESSFUL TECHNOLOGY FIRMS, INCLUDING SEMICONDUCTOR

FIRMS, THAT INVENT GREAT THINGS AND ARE PROFITABLE.

THOSE COMPANIES SELL PRODUCTS EXHAUSTIVELY OR THEY LICENSE

PORTFOLIOS WITHOUT EXERCISING PRODUCT LEVERAGE TO DRIVE UP THE

RATES.

ONLY QUALCOMM HAS THIS POLICY, AS NUMEROUS WITNESSES HAVE

TESTIFIED.

AND EVEN WITHIN QUALCOMM, THE POLICY IS UNIQUE. QUALCOMM

SELLS LOTS OF PRODUCTS, INCLUDING WI-FI CHIPS, EXHAUSTIVELY AS

THIS SLIDE SHOWS.

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2115

NOW, QUALCOMM HAS SPENT A LOT OF TRIAL TIME DISCUSSING THE

SCOPE OF ITS PATENT PORTFOLIO WITHOUT PROVIDING ANY VALUATION

OR VALUATION METHODOLOGY TO JUSTIFY ITS ROYALTIES.

INSTEAD, ITS EXECUTIVES TESTIFIED THAT IT KNOWS THAT ITS

ROYALTY RATES ARE FAIR BECAUSE LICENSEES AGREED TO THEM.

BUT THAT ARGUMENT DOESN'T HOLD UP. EVEN QUALCOMM'S

EXECUTIVES ADMIT THAT WHETHER THE RESULT OF A NEGOTIATION IS

FAIR OR UNFAIR DEPENDS ON THE CIRCUMSTANCES OF THE NEGOTIATIONS

AND THE TERMS OF THE AGREEMENT.

MR. GONELL'S TESTIMONY HIGHLIGHTED ON THIS SLIDE

CONTRADICTS OTHER ASPECTS OF HIS TESTIMONY IN THIS CASE. IN

THE TESTIMONY PRODUCED HERE, HE SAID THAT THE TERMS IN

QUALCOMM'S HANDSET LICENSES MUST REFLECT A FAIR VALUE BECAUSE

OF THE LICENSEES AGREED TO IT.

BUT MR. GONELL ALSO SAID THAT THE AVANCI AGREEMENT DOES

NOT REFLECT THE FAIR VALUE FOR QUALCOMM'S PATENTS, EVEN THOUGH

IT WAS A NEGOTIATED AGREEMENT. AND THAT'S AT PAGE 1471 OF THE

TRIAL TRANSCRIPT.

BUT MR. GONELL HAS IT BACKWARDS. THERE'S NO SUGGESTION

THAT THE AVANCI AGREEMENT WAS THE RESULT OF AN UNFAIR PROCESS

OR WAS TAINTED BY ANTICOMPETITIVE CONDUCT.

QUALCOMM'S LICENSES WITH HANDSET MANUFACTURERS, HOWEVER,

REFLECT QUALCOMM'S EXPERT OF ITS CHIP MONOPOLY POWER AS A

TREMENDOUS AMOUNT OF EVIDENCE SHOWS.

AND ALSO, THE ROYALTY RATES WE'RE TALKING ABOUT HERE HAVE

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2116

BEEN LARGELY NONNEGOTIABLE. ACCORDING TO DR. NEVO, LOOKING AT

JUST THE CONTRACT RATES, QUALCOMM'S ROYALTY RATES HAVE BEEN

CONSISTENT FOR DECADES. AND AS THE EVIDENCE SHOWS, THAT'S

BECAUSE QUALCOMM REFUSED TO NEGOTIATE ROYALTIES. THERE'S

SUBSTANTIAL EVIDENCE REGARDING QUALCOMM'S INFLEXIBILITY ON

ROYALTIES, INCLUDING THE EVIDENCE CITED HERE.

AND ONE WAY QUALCOMM HAS FOUND TO AVOID REDUCING ROYALTIES

HAS BEEN TO COMBINE THE STICK OF ITS NO LICENSE, NO CHIPS

POLICY WITH THE CARROTS OF INCENTIVE FUNDS.

THROUGH INCENTIVE FUNDS, QUALCOMM EFFECTIVELY OFFERS A

CHIP DISCOUNT TO CUSTOMERS WHEN THEY BUY QUALCOMM CHIPS, BUT

ONLY IF THEY AGREE TO PAY THE ELEVATED FEE TO QUALCOMM WHEN

THEY PURCHASE FROM OTHER CHIP MAKERS.

AND THAT CARROTS AND STICKS STRATEGY IS LAID OUT ON THIS

SLIDE AND IN MR. REIFSCHNEIDER'S TESTIMONY.

NOW, THE ADMITTED EVIDENCE SHOWS THAT QUALCOMM PROVIDED

THESE INCENTIVE FUNDS, TIED TO LICENSING AGREEMENTS AND

ACCRUING ON CHIP PURCHASES, TO MULTIPLE CUSTOMERS.

NOW, THAT QUALCOMM HAS HAD TO USE -- HAS USED CARROTS, AS

WELL AS STICKS, TO ACHIEVE SUPRA-FRAND ROYALTIES IS ENTIRELY

CONSISTENT. MONOPOLISTS OFTEN COMBINE THREATS WITH INCENTIVES

IN ORDER TO EXCLUDE COMPETITION, AND THIS COURT RECOGNIZED THAT

IN ITS MOTION TO DISMISS DECISION.

AND QUALCOMM'S INTERNAL DOCUMENTS INDICATE THAT INCENTIVE

FUNDS ARE JUST ANOTHER END RUN AROUND FRAND.

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CLOSING ARGUMENT BY MS. MILICI

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2117

QUALCOMM ITSELF RECOGNIZED THAT IT WOULD VIOLATE FRAND TO

DIRECTLY PROVIDE LICENSING DISCOUNTS TO ITS CUSTOMERS WHO BUY

THEIR CHIPS.

BUT IT COULD, AND DOES, ACHIEVE THE SAME RESULT BY

CREATING INCENTIVE FUNDS THAT IT OFFERS TO LICENSEES IN

EXCHANGE FOR AGREEMENT TO LICENSE TERMS.

AS THIS DOCUMENT SHOWS, QUALCOMM CONSIDERED FRAND

COMPLIANCE, QUOTE, "NOT AN OBSTACLE TO THIS PRACTICE IF THE

FUNDS ARE KEPT SEPARATE FROM LICENSING AGREEMENTS."

BUT AS THE EVIDENCE SHOWS, THESE INCENTIVE FUND AGREEMENTS

ARE NOT SEPARATE FROM LICENSE AGREEMENTS. THEY WORK TOGETHER

WITH QUALCOMM'S OTHER ANTICOMPETITIVE CONDUCT TO RAISE RIVALS'

COSTS AND HARM COMPETITION.

AS WITH OTHER POINTS IN THIS CASE, THE PROOF ON INCENTIVE

FUNDS IS IN QUALCOMM'S INTERNAL DOCUMENTS. THIS IS ONE OF

THOSE DOCUMENTS. IT'S AN INTERNAL ACCOUNTING MEMO.

IN THESE MEMOS, IT SHOWS THAT QUALCOMM HAS CONSISTENTLY

ATTRIBUTED THE COST OF THE INCENTIVE FUNDS TO QTL, AND THIS IS

THE CASE EVEN WHERE THE FUNDS HAVE BEEN DESIGNATED AS MARKETING

OR OTHER BUSINESS DEVELOPMENT FUNDS, AND EVEN WHERE THE FUNDS

ARE PAID ON PURCHASES OF QUALCOMM CHIPS.

NOW, EVEN QUALCOMM RECOGNIZES THAT THE CORE PURPOSE OF

THESE FUNDS IS TO MAINTAIN ITS ROYALTY RATES.

AS WITH OTHER ALLEGED CONDUCT, QUALCOMM HAS CARRIED THIS

PRACTICE ON EVEN AFTER THIS LAWSUIT WAS FILED.

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CLOSING ARGUMENT BY MS. MILICI

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2118

IN JANUARY OF 2018, JUST BEFORE THE CLOSE OF DISCOVERY,

QUALCOMM ENTERED INTO AN AMENDED LICENSE AGREEMENT WITH

SAMSUNG. QUALCOMM HAS SUGGESTED THAT THE EVIDENCE SHOWS THAT

THIS AGREEMENT WAS UNAFFECTED BY QUALCOMM'S CHIP MARKET POWER.

BUT THE EVIDENCE IS CLEAR THAT THE AGREEMENT INVOLVED

SUBSTANTIAL INCENTIVE FUNDS PAID BY QUALCOMM TO SAMSUNG,

INCLUDING FUNDS TIED TO SAMSUNG'S USE OF QUALCOMM'S MODEM

CHIPS.

NOW, QUALCOMM'S ALEX ROGERS, WHO WAS HERE LAST WEEK,

CLAIMED NOT TO KNOW ANYTHING ABOUT A NUMBER OF THE

QUALCOMM/SAMSUNG AGREEMENTS THAT WERE ENTERED AT THE SAME TIME.

BUT WHETHER HE REMEMBERS THEM OR NOT, THESE AGREEMENTS

EXIST. SOME ARE ADMITTED INTO EVIDENCE IN THIS CASE AND

THEY'VE BEEN ANNOUNCED PUBLICLY.

SO QUALCOMM RAISES RIVALS' COST THROUGH NO LICENSE, NO

CHIPS AND IT BUTTRESSES THAT THROUGH THE USE OF INCENTIVE

FUNDS.

AND QUALCOMM HAS ALSO REFUSED TO LICENSE ITS STANDARD

ESSENTIAL PATENTS TO ITS COMPETITORS, AND IT IS UNDISPUTED THAT

RIVALS HAVE ASKED FOR LICENSES AND THAT QUALCOMM HAS REFUSED.

AS YOUR HONOR RULED ON SUMMARY JUDGMENT, QUALCOMM'S FRAND

COMMITMENTS TO TIA AND ATIS REQUIRE LICENSING RIVAL MODEM CHIP

SUPPLIERS, AND THAT REQUIREMENT WAS PART OF THE BARGAIN THAT

QUALCOMM MADE TO EXPAND THE MARKET FOR ITS TECHNOLOGY AND FOR

ITS PRODUCTS.

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CLOSING ARGUMENT BY MS. MILICI

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2119

NOW, QUALCOMM'S REFUSAL TO LICENSE RIVALS IS NOT REQUIRED

BY FRAND OR COMMON IN THE INDUSTRY. INSTEAD, QUALCOMM CHOSE

THIS BUSINESS MODEL BECAUSE IT DETERMINED THAT LICENSING ONLY

AT THE HANDSET LEVEL LED TO ROYALTIES THAT WERE HUMONGOUSLY

MORE LUCRATIVE THAN LICENSING CHIP MAKERS, AND THAT'S WHAT THEY

SAID TO THE IRS.

AND QUALCOMM'S POSITION ON COMPONENT LEVEL LICENSING HAS

NOT BEEN CONSISTENT OVER TIME. QUALCOMM USED TO CALL, OFFER

WHAT IT CALLED LICENSES TO CHIP MAKERS AND COLLECT THE

ROYALTIES UNDER THOSE AGREEMENTS.

BUT AS MR. BLECKER ALSO EXPLAINED DURING THE IRS MEETING

SHOWN HERE IN THE MIDDLE OF THE SLIDE, THE AGREEMENTS THAT

QUALCOMM ENTERED WITH OTHER CHIP MANUFACTURERS GENERALLY

CONTAINED AUTHORIZED PURCHASER REQUIREMENTS.

UNDER AN AUTHORIZED PURCHASER REQUIREMENT, QUALCOMM

PROMISED NOT TO SUE THE COMPETITOR FOR PATENT INFRINGEMENT IN

EXCHANGE FOR A PROMISE FROM THE COMPETITOR THAT IT WOULD ONLY

SELL CHIPS TO QUALCOMM'S LICENSEES.

IN FACT, WHAT THAT MEANT WAS THAT WHEN THESE AGREEMENTS

WERE IN EFFECT, QUALCOMM SENT TO ITS CUSTOMERS -- TO ITS

COMPETITORS LISTS OF THE CUSTOMERS THAT THEY COULD SELL TO.

AND QUALCOMM'S STORY THAT THE INDUSTRY HAS HAD A UNIFORM

PRACTICE OF NOT LICENSING AT THE CHIP LEVEL IS SIMPLY NOT

SUPPORTED BY THE RECORD. QUALCOMM'S INTERNAL DOCUMENTS, LIKE

THE ONE CITED ON THIS SLIDE, REVEAL QUALCOMM'S OWN

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2120

LONG-STANDING PRACTICE OF PROACTIVELY SEEKING LICENSES FOR THE

BENEFIT OF ITS CHIP BUSINESS FROM ITS LICENSEES AND FROM

OTHERS. AND THAT'S WHAT IT SAYS IN THE LOWER RIGHT CORNER

THERE.

QUALCOMM RECOGNIZED THAT SUCH LICENSES HELP QCT GAIN

MARKET SHARE, AND THAT'S WHAT DR. PAUL JACOBS TESTIFIED. YOU

CAN SEE THAT IN THE LOWER LEFT.

AND QUALCOMM OBTAINED RIGHTS FOR ITS OWN CHIPS FROM EVERY

MAJOR LICENSOR, INCLUDING ERICSSON, SIEMENS, INTERDIGITAL,

MOTOROLA, PHILIPS, SAMSUNG, LG.

AND IT USED THOSE RIGHTS TO MARKET ITS CHIPS TO CUSTOMERS.

AND THAT'S IN THE DOCUMENT IN THE UPPER RIGHT CORNER HERE.

QUALCOMM'S REFUSAL TO LICENSE NOT ONLY SUPPORTED ITS NO

LICENSE, NO CHIPS STRATEGY, IT HURT COMPETITORS IN OTHER WAYS,

TOO. FOR EXAMPLE, SAMSUNG AND OTHERS TRIED TO FORM A MODEM

CHIP JOINT VENTURE CALLED DRAGONFLY, BUT ONE OF THE CONDITIONS

OF THAT JOINT VENTURE WAS A LICENSE FROM QUALCOMM. WHEN THE

JOINT VENTURE COULDN'T GET ONE, IT NEVER GOT OFF THE GROUND.

AND THERE'S ALSO EVIDENCE THAT HANDSET MANUFACTURERS

WANTED TO BUY LICENSED CHIPS, AND MEDIATEK'S FINBARR MOYNIHAN

TESTIFIED THAT CUSTOMERS REPEATEDLY ASKED ABOUT WHETHER IT HAD

A LICENSE TO QUALCOMM'S PATENTS, BUT WHEN MEDIATEK TRIED TO GET

A LICENSE TO ADDRESS THOSE CUSTOMER CONCERNS, IT COULDN'T GET

ONE.

NOW, QUALCOMM'S AGREEMENTS WITH APPLE BOTH GREW OUT OF AND

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UNITED STATES COURT REPORTERS

2121

PERPETUATED ITS DOMINANT CHIP POSITION, IT'S UNREASONABLE

ROYALTIES, AND ITS REFUSAL TO LICENSE RIVALS. THERE ARE THREE

KEY DEALS BETWEEN THE COMPANIES, THE 2007 MARKETING INCENTIVE

AGREEMENT, THE 2011 TRANSITION AGREEMENT, AND THE 2013 AMENDED

TRANSITION AGREEMENT.

IN THESE AGREEMENTS, QUALCOMM TRADED ROYALTY RELIEF FOR

COMPETITIVE ADVANTAGES FOR ITS CHIP BUSINESS. THE AGREEMENTS

ALLOWED QUALCOMM TO PRESERVE AND STRENGTHEN ITS BUSINESS MODEL

FOR OVER TEN YEARS.

AND THE EVIDENCE ON THIS SLIDE DEMONSTRATES HOW IN THE

CASE OF APPLE, QUALCOMM SET ABOUT CONVERTING ITS ESTABLISHED

SUPRA-FRAND ROYALTIES DIRECTLY INTO THE EXCLUSION OF

COMPETITORS. EACH TIME APPLE SOUGHT RELIEF FROM ITS QUALCOMM

ROYALTY BURDEN, QUALCOMM RESPONDED BY DEMANDING CHIP BUSINESS

CONCESSIONS IN EXCHANGE.

AS SHOWN ON THIS SLIDE, QUALCOMM EXECUTIVES REPEATEDLY

OFFERED ROYALTY RELIEF ONLY IN THE CONTEXT OF A LARGER BUSINESS

DEAL AND ONLY IF APPLE BROUGHT ADDITIONAL VALUE IN TERMS OF

CHIP BUSINESS TO QUALCOMM.

NOW, PROFESSOR CHIPTY ARGUES THAT THE COURT MUST EVALUATE

THE EXCLUSIVE DEAL FROM QUALCOMM'S PERSPECTIVE ON THE EVE OF

THE NEGOTIATION.

PROFESSOR SHAPIRO EMPLOYED THIS TEST AND THE EVIDENCE

SHOWS THAT QUALCOMM ENTERED INTO THE 2013 TRANSITION AGREEMENTS

FOR THE PURPOSE OF EXCLUDING COMPETITORS.

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CLOSING ARGUMENT BY MS. MILICI

UNITED STATES COURT REPORTERS

2122

STEVE MOLLENKOPF PERCEIVED COMPETITIVE THREATS AND HE

SPECIFICALLY RECOGNIZED APPLE'S ABILITY TO MAKE COMPETITORS

STRONGER. AVOIDING THAT OUTCOME WAS HIGHLIGHTED AS ONE OF THE

STRATEGIC BENEFITS OF THE EXCLUSIVITY DEAL.

AND TO BE CLEAR, THE EVIDENCE ESTABLISHES THAT QUALCOMM

DID CONSIDER THE TRANSITION AGREEMENT TO BE AN EXCLUSIVITY

AGREEMENT. AND IF IT MATTERS AT ALL, THE EVIDENCE ESTABLISHES

THAT QUALCOMM IS THE ONE THAT SOUGHT OUT THE EXCLUSIVITY TERM.

THE TRANSITION AGREEMENT HAD THE INTENDED EFFECT. AS

APPLE WITNESSES TESTIFIED AT TRIAL, EVEN THOUGH THEY HAD AN

INTEREST IN DEVELOPING AND MAINTAINING ADDITIONAL SOURCE

SUPPLIERS, THE AGREEMENTS PROVIDED STRONG INCENTIVES NOT TO

WORK WITH ANYONE BUT QUALCOMM.

WHEN THE 2013 AGREEMENT WAS SIGNED, APPLE WAS INTENSIVELY

ENGAGED WITH INTEL AND POISED TO BEGIN USING INTEL IN LESS

RISKY IPAD MODELS.

THE RENEWAL OF THE TRANSITION AGREEMENT CAUSED APPLE TO

TERMINATE THAT ENGAGEMENT. AS APPLE AND INTEL WITNESSES MADE

CLEAR, INTEL'S LOSS AT APPLE WAS NOT DUE TO ITS OWN TECHNICAL

DEFICIENCY, BUT RATHER WAS A DIRECT RESULT OF APPLE'S 2013

AGREEMENTS WITH QUALCOMM.

QUALCOMM'S INTENDED ANTICOMPETITIVE EFFECTS CAME TO

FRUITION. THE EXCLUSIVE CONTRACTS DEPRIVED INTEL OF THE

BENEFITS OF ENGAGEMENT WITH APPLE, DELAYED INTEL'S DEVELOPMENT,

AND HARMED INTEL'S ABILITY TO WIN BUSINESS BOTH AT APPLE AND

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UNITED STATES COURT REPORTERS

2123

ELSEWHERE.

THE RECORD DOES NOT CONTAIN ANY SUPPORT FOR ANY

PROCOMPETITIVE JUSTIFICATION FOR QUALCOMM'S 100 PERCENT

EXCLUSIVE DEALS.

QUALCOMM'S THIN MODEM BUSINESS INVOLVES RESEARCH AND

DEVELOPMENT COSTS THAT ARE LARGELY SHARED ACROSS PRODUCTS, SO

INVESTMENTS WERE NOT TRULY CUSTOMER SPECIFIC TO APPLE.

MR. THOMPSON'S TESTIMONY, CITED HERE, SHOWS THAT.

AND ADDITIONALLY, THE THIN MODEMS RETURN ON R&D IS

SUBSTANTIALLY HIGHER THAN QUALCOMM'S OTHER SOC'S AND EXCEEDS

THE BENCHMARKS THAT WERE PROPOSED BY DR. CHIPTY IN HER REPORT,

WHICH IS REPRODUCED HERE ON THE RIGHT.

AND SINCE INTEL'S ENTRY AT APPLE IN 2016, INTEL HAS NOT

REQUIRED ANY, MUCH LESS 100 PERCENT, VOLUME OR EXCLUSIVITY

COMMITMENTS TO RECOUP ITS INVESTMENT.

ALL RIGHT. THE NEXT SLIDE IS SEALED.

NOW, LOOKING AT THE EFFECT OF ALL OF THIS CONDUCT,

QUALCOMM'S OWN DOCUMENTS SHOW THAT IT EARNED MANY TIMES THE

LICENSING REVENUE OF OTHER MAJOR LICENSORS, LIKE ERICSSON.

QUALCOMM HAS NOT EXPLAINED HOW THIS CAN BE SQUARED WITH

THE TESTIMONY CONCERNING ROYALTY DISTRIBUTIONS IN THE AVANCI

POOL, THE DETAILS OF WHICH ARE UNDER SEAL.

MR. LASINSKI ANALYZED WHETHER THIS ENORMOUS DIFFERENCE IN

ROYALTIES COULD BE EXPLAINED BY THE RELATIVE QUALITY AND SIZE

OF QUALCOMM'S PORTFOLIO, BUT THAT MASSIVE DISPARITY WAS NOT

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EXPLAINED.

QUALCOMM'S ROYALTIES ARE DISPROPORTIONATE TO THOSE OF

OTHER SEP LICENSORS AND MANY TIMES HIGHER THAN ANY PLAUSIBLE

CALCULATION OF A FRAND RATE.

NOW, MR. LASINSKI EMPLOYED WELL ACCEPTED PORTFOLIO

VALUATION METHODS. IN HIS INPUTS INTO THESE ANALYSES, HE

RELIED ON PORTFOLIO STRENGTH METRICS COMMONLY USED IN THE

INDUSTRY, INCLUDING BY QUALCOMM.

HE LOOKED AT DEEMED SEP STUDIES, INCLUDING DEEMED SEP

STUDIES THAT WERE ACTUALLY CITED BY QUALCOMM IN ITS OWN

LICENSING NEGOTIATIONS, INCLUDING A DOCUMENT THAT WAS

INTRODUCED AS CX 7128.

AND MR. LASINSKI ALSO LOOKED AT APPROVED CONTRIBUTIONS,

AND THAT'S A METRIC THAT IS FREQUENTLY USED BY LICENSORS AND

CHRISTINA PETERSSON OF ERICSSON TESTIFIED ABOUT THAT IN THE

DEPOSITION PLAYED IN TRIAL.

NOW, MR. LASINSKI EXPLAINED HOW THE METRICS HE RELIED ON

RELATE TO QUALCOMM'S OWN LICENSING PRACTICES AND INTERNAL

DOCUMENTS AND USING THOSE METRICS, QUALCOMM'S HUMONGOUS

ROYALTIES ARE NOWHERE CLOSE TO JUSTIFIED BY ITS PORTFOLIO

STRENGTH.

NOW, PROFESSOR SHAPIRO REACHED THE SAME CONCLUSION, THAT

QUALCOMM'S ROYALTIES ARE SIGNIFICANTLY HIGHER THAN ANY MEASURE

OF REASONABLE ROYALTIES BY LOOKING AT THE SUBSTANTIAL DIRECT

EVIDENCE IN THIS CASE OF QUALCOMM'S CONDUCT AND HOW THAT

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CONDUCT AFFECTED NEGOTIATIONS.

THE OVERWHELMING DIRECT EVIDENCE, SOME OF WHICH IS CITED

HERE, SHOWS THAT QUALCOMM'S CONDUCT LED LICENSEES TO PAY HIGHER

ROYALTIES THAN THEY WOULD HAVE IN FAIR NEGOTIATIONS.

THE DOCUMENTS OFFERED BY QUALCOMM IN THIS CASE SHOW THAT

IT EARNS 25 PERCENT OF GLOBAL PATENT LICENSING REVENUE. THAT

IS NOT A REFERENCE TO THE MODEM CHIP INDUSTRY. THAT IS A

REFERENCE TO ALL OF THE PATENTS IN THE WORLD.

NOW, QUALCOMM SPENT A LOT OF TIME TOUTING ITS RESEARCH AND

DEVELOPMENT ACTIVITIES AND STATING THAT IT OWNS IMPORTANT

PATENTS.

BUT NOT ONE OF ITS WITNESSES, SOME OF WHOSE TESTIMONY IS

SHOWN ON THIS SLIDE, COMPARED QUALCOMM TO OTHER MAJOR PLAYERS

IN THE CELLULAR INDUSTRY WHO ALSO ENGAGE IN EXTENSIVE RESEARCH

AND DEVELOPMENT. NOT ONE OF QUALCOMM'S WITNESSES TESTIFIED

ABOUT HOW MUCH QUALCOMM'S PATENTS ARE WORTH. NO QUALCOMM

EXPERT ATTEMPTED TO VALUE QUALCOMM'S PORTFOLIO OR PROPOSED A

METHODOLOGY FOR DOING SO.

DR. ANDREWS TESTIFIED THAT QUALCOMM'S PORTFOLIO INCLUDED

SOME FUNDAMENTAL PATENTS, BUT HE DID NOT COMPARE THEM TO ANYONE

ELSE'S PATENTS.

DR. ANDREWS'S OPINION WAS BASED ON SIMPLY READING 34 OF

QUALCOMM'S PATENTS AND REPORTING ABOUT HIS GUT FEELING, AND

THAT'S AT TRANSCRIPT PAGE 1616.

AND AS SHOWN ON THE BOTTOM OF THIS SLIDE, DR. ANDREWS WAS

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QUITE CLEAR THAT HE WAS NOT OFFERING ANY OPINION ON WHAT A

REASONABLE ROYALTY WOULD BE OR WHETHER THE MONETARY VALUE OF

QUALCOMM'S PATENT PORTFOLIO CHANGED OVER TIME.

AND THERE HAS BEEN NO TESTIMONY, NO PROOF IN THIS CASE

THAT ANY OF THE PATENTS THAT LIREN CHEN TESTIFIED ABOUT, IN HIS

PATENT COUNTING EXERCISE, ARE VALID OR ARE ACTUALLY USED OR

INFRINGED BY ANYONE.

QUALCOMM'S ONLY ARGUMENT IN SUPPORT OF ITS ROYALTIES IS

THAT ITS RATES WERE NEGOTIATED IN THE MARKET, BUT AS I

MENTIONED BEFORE, EVEN MR. GONELL AGREES THAT NEGOTIATIONS CAN

BE UNFAIR AND LEAD TO UNFAIR OUTCOMES IF SUFFICIENT ECONOMIC

PRESSURE IS BROUGHT TO BEAR, AS QUALCOMM DID WITH ITS HANDSET

CUSTOMERS.

NOW, THE FTC EXPERT, RICHARD DONALDSON, EXPLAINED HOW

QUALCOMM GOT THESE HIGH ROYALTIES BE EXERTING TREMENDOUS

BARGAINING POWER USING NO LICENSE, NO CHIPS. IN A TYPICAL

NEGOTIATION, THE PARTIES HAVE TO CONSIDER WHAT WOULD HAPPEN IF

NEGOTIATIONS FAIL, AND THAT'S PATENT LITIGATION WHERE A COURT

WOULD DETERMINE WHETHER THE PATENTS AT ISSUE ARE VALID AND

INFRINGED AND WHAT A REASONABLE ROYALTY RATE WOULD BE.

THE RISK OF THAT LITIGATION INFORMS NEGOTIATIONS, AND

MR. DONALDSON EXPLAINED THIS, AS DID MR. BLUMBERG OF LENOVO

WHOSE TESTIMONY IS CITED HERE.

BUT IN NEGOTIATIONS WITH QUALCOMM, ABILITY TO WITHHOLD

CHIP SUPPLY PROTECTED QUALCOMM FROM LEGAL CHALLENGES. BECAUSE

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CLOSING ARGUMENT BY MS. MILICI

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2127

OF THEIR NEED FOR CHIPS, LICENSEES COULD NOT AFFORD TO RISK

SUPPLY BY FORCING LITIGATION WITH QUALCOMM. THAT'S WHAT

QUALCOMM SAID IN ITS OWN DOCUMENTS, INCLUDING DOCUMENTS WE

LOOKED AT EARLIER IN CONNECTION WITH PROJECT BERLIN.

SO IT IS NOT SURPRISING TO SEE, AS MR. DONALDSON OBSERVES

HERE, THAT QUALCOMM HAS BEEN INVOLVED IN MUCH LESS PATENT

LITIGATION THAN OTHER SEP HOLDERS OVER TIME.

THE FACT THAT QUALCOMM HAS RARELY HAD TO GO TO COURT AND

SUBJECT ITS PORTFOLIO TO COURT DETERMINATION OF VALIDITY,

INFRINGEMENT, OR REASONABLE ROYALTY HAS LED TO SNOWBALLING

EFFECTS OVER TIME. QUALCOMM USES CHIP LEVERAGE TO OBTAIN

LICENSE TERMS AND THEN ASSERTS THAT THE RESULTING TERMS PROVE

THE VALUE OF ITS PORTFOLIO.

AND ALL THIS LEADS, OF COURSE, TO THE TAX THAT WE'VE BEEN

TALKING ABOUT AND THE INCREASE IN RIVALS' COSTS, AND

PROFESSOR SHAPIRO, IN HIS TESTIMONY, EXPLAINED HOW QUALCOMM'S

ROYALTY SURCHARGE HARMS COMPETITION AND CONSUMERS.

THE ROYALTY SURCHARGE OPERATES AS A TAX, AND THAT TAX

REDUCES WHAT QUALCOMM'S RIVALS AND THEIR CUSTOMERS CAN GAIN BY

TRADING WITH ONE ANOTHER.

AS A MATTER OF TEXTBOOK ECONOMICS, IT DOESN'T MATTER

WHETHER THE OEM OR THE RIVAL PAYS THE TAX. NO MATTER WHO

WRITES THE CHECK, THE TAX REDUCES THE GAINS FROM TRADE AND

MAKES RIVALS' CHIPS LESS ATTRACTIVE.

AND AS DR. SHAPIRO EXPLAINS ON RIGHT PART OF THIS SLIDE,

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CLOSING ARGUMENT BY MS. MILICI

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2128

QUALCOMM'S ROYALTY SURCHARGE IS NOT CHIP NEUTRAL. THIS IS

BECAUSE WHEN AN OEM BUYS QUALCOMM CHIPS, THE GAINS FROM TRADE

ARE NOT REDUCED BECAUSE THE ROYALTY IS PAID TO QUALCOMM.

QUALCOMM IS THE TAX COLLECTOR.

NOW, PROFESSOR NEVO CLAIMED THAT THIS IS -- THAT THIS

ISN'T ANY DIFFERENT FROM THE EFFECT THAT A REASONABLE ROYALTY

RATE WOULD HAVE. BUT HE MISSED THE POINT ENTIRELY.

IT IS TRUE THAT EVEN A REASONABLE ROYALTY GIVES QUALCOMM A

COST ADVANTAGE OVER ITS RIVALS. BUT THAT COST ADVANTAGE IS

JUSTIFIED. IT'S THE REWARD THAT QUALCOMM IS ENTITLED TO FOR

ITS PATENTED INNOVATION.

BUT WHEN QUALCOMM USES ITS CHIP MONOPOLY POWER TO IMPOSE A

ROYALTY SURCHARGE, THAT IMPOSES AN ADDITIONAL COST DISADVANTAGE

THAT HAS NOTHING TO DO WITH QUALCOMM'S PATENTS AND THAT CANNOT

BE JUSTIFIED.

AS PROFESSOR SHAPIRO EXPLAINED, THE EFFECTS OF QUALCOMM'S

CONDUCT IS TO RAISE RIVALS' COSTS, REDUCE RIVALS' MARGINS, AND

RAISE THE ALL-IN PRICES OF MODEM CHIPS AND HANDSETS.

BUT YOU DON'T HAVE TO TAKE PROFESSOR SHAPIRO'S WORD FOR

IT. THE BUSINESS JUSTIFICATIONS THAT QUALCOMM HAS OFFERED ARE

SIMPLY ANTICOMPETITIVE HARM BY ANOTHER NAME.

ASKED TO EXPLAIN THE BUSINESS RATIONAL FOR QUALCOMM'S NO

LICENSE, NO CHIPS POLICY, FABIAN GONELL BASICALLY LAID OUT

PROFESSOR SHAPIRO'S THEORY. AS MR. GONELL EXPLAINED IN THE

TESTIMONY REPRODUCED ON THE RIGHT SIDE OF THIS SLIDE, QUALCOMM

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CLOSING ARGUMENT BY MS. MILICI

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2129

CHARGES FOR ITS CHIPS AN AMOUNT THAT IS X PLUS Y WHERE X IS THE

CHIP PRICE AND Y IS THE ROYALTY.

THANKS TO QUALCOMM'S NO LICENSE, NO CHIPS POLICY, OEM'S

HAVE TO ACCEPT LICENSES THAT REQUIRE THEM TO PAY THAT SAME

ROYALTY, Y, WHEN THEY USE SOMEBODY ELSE'S CHIP.

BUT WHAT IF AN OEM DIDN'T HAVE TO ACCEPT A LICENSE TO BUY

QUALCOMM'S CHIPS? THEN, AS MR. GONELL TESTIFIES, THEY COULD GO

TO A COURT WHICH WOULD NOT MAKE THEM PAY QUALCOMM MORE THAN Y

AND MIGHT WELL MAKE THE OEM PAY LESS THAN Y.

AS A RESULT, QUALCOMM'S MODEM CHIP RIVALS WOULD BENEFIT,

AND AS MR. GONELL PUT IT, ALL OTHER THINGS BEING EQUAL, THE

OTHER OFFERING IS GOING TO BE MORE ATTRACTIVE AND SO QUALCOMM'S

GOING TO HAVE TO ADJUST ITS PRICE.

NOW, QUALCOMM HAS ATTACKED PROFESSOR SHAPIRO FOR NOT DOING

SOME KIND OF LARGE DATA ANALYSIS.

BUT PROFESSOR SHAPIRO CONDUCTED A THOROUGH AND EXACTING

ANALYSIS OF THE CONDUCT ALLEGED OF QUALCOMM'S MARKET POWER AND

THE EFFECT ON COMPETITION. NONE OF QUALCOMM'S EXPERTS DID

THAT. DR. CHIPTY ATTACKED DR. SHAPIRO'S MARKET DEFINITION, BUT

DID NOT REACH HER OWN OPINION AND DID NOT CONSIDER QUALCOMM'S

CONDUCT.

DR. SNYDER PURPORTED TO LOOK AT MARKET OUTCOMES, BUT HE

DIDN'T CONSIDER QUALCOMM'S CONDUCT AT ALL. HE NEVER REACHED

THAT POINT IN HIS ANALYSIS.

AND DR. NEVO PURPORTED TO TEST THE EFFECTS OF THE CONDUCT,

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CLOSING ARGUMENT BY MS. MILICI

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2130

BUT HE MADE UNSUPPORTABLE ASSUMPTIONS ABOUT MARKET POWER. HE

ASSUMES THAT IF THE FTC DID NOT BRING A LAWSUIT ABOUT A

PARTICULAR PRODUCT OR A PARTICULAR TIME PERIOD, THAT THAT MEANS

THAT CONDITIONS MUST HAVE BEEN COMPETITIVE.

THERE'S NO BASIS FOR THAT ASSUMPTION.

HE ALSO USED FAULTY AND INCOMPLETE DATA, EXCLUDED A

SIGNIFICANT PORTION OF THE MARKET FROM HIS ANALYSIS, AND DID

REGRESSIONS THAT DIDN'T EVEN TRY TO CONTROL FOR OBVIOUS

VARIABLES.

AND THAT'S WHAT THE COURT SHOULD CONSIDER, THE FULL

PICTURE. THAT'S WHAT DR. SHAPIRO CONSIDERED, NOT

COMPARTMENTALIZED PIECES AND UNINFORMATIVE REGRESSIONS.

AND THE DIRECT EVIDENCE SUPPORTS ANTICOMPETITIVE EFFECTS

IN THIS CASE. QUALCOMM'S RIVALS, INCLUDING INTEL AND MEDIATEK

AND BROADCOM, ALL TESTIFIED THAT QUALCOMM'S LICENSING PRACTICES

AFFECT THEM PRECISELY AS DR. SHAPIRO PREDICTED.

AND IF YOU LOOK AT THE TOP RIGHT OF THIS SLIDE, QUALCOMM'S

OWN DOCUMENTS SHOW THAT IT UNDERSTOOD HOW ITS PRACTICES WOULD

AFFECT RIVALS. ITS STRATEGY DOCUMENTS REVEAL A PLAN TO DESTROY

MEDIATEK'S MARGIN AND PROFIT TO LIMIT ITS ABILITY TO INVEST IN

3G.

QUALCOMM'S ROYALTY SURCHARGE IMPLEMENTS EXACTLY THIS TYPE

OF STRATEGY ACROSS THE ENTIRE INDUSTRY.

AND QUALCOMM'S CONDUCT HAS HARMED COMPETITION EXACTLY AS

ONE WOULD EXPECT. RIVALS HAVE OBTAINED THIN MARGINS, AND

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CLOSING ARGUMENT BY MS. MILICI

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2131

DESPITE INTEL'S GROWING BUSINESS AT APPLE, IT HAS NOT YET BEEN

PROFITABLE.

BROADCOM SHUT DOWN ITS BUSINESS DUE TO ITS LACK OF SCALE

AND THIN MARGINS.

COMPANIES LIKE NVIDIA, TEXAS INSTRUMENTS, ST-ERICSSON AND

FREE SCALE HAVE ALL EXITED THE MODEM CHIP BUSINESS ENTIRELY.

EVEN MEDIATEK, WHICH HAS BEEN DESCRIBED AS ONE OF THE SUCCESS

STORIES, PAUSED ITS DEVELOPMENT OF PREMIUM TIER CHIPS.

SO WHEN CONSIDERED TOGETHER, I THINK THE EVIDENCE IS

OVERWHELMING THAT QUALCOMM ENGAGED IN EXCLUSIONARY CONDUCT AND

THAT THE EFFECTS OF QUALCOMM'S CONDUCT, WHEN CONSIDERED

TOGETHER, ARE ANTICOMPETITIVE. QUALCOMM'S POLICIES HAVE HARMED

COMPETITION AND COMPETITIVE PROCESS.

UNDER THE ANTITRUST RULE OF REASON, WHICH APPLIES IN THIS

CASE, QUALCOMM HAS THE OPPORTUNITY TO PROVIDE VALID BUSINESS

JUSTIFICATIONS FOR ITS CONDUCT. BUT QUALCOMM HAS NOT

ESTABLISHED THESE JUSTIFICATIONS THROUGH EVIDENCE.

FIRST, WE HEARD A LOT FROM QUALCOMM WITNESSES ABOUT PATENT

EXHAUSTION, THAT IF QUALCOMM HAD TO ABANDON ITS POLICY, IT

WOULD FACE THE RISK THAT ITS PATENTS WOULD BE FOUND TO BE

EXHAUSTED, AND WE SEE THAT IN CONTEMPORANEOUS BUSINESS

DOCUMENTS, AS WELL AS IN THE IRS AUDIO.

BUT AVOIDING EXHAUSTION IS NOT A VALID BUSINESS

JUSTIFICATION. PATENT EXHAUSTION IS A DOCTRINE RECOGNIZED BY

THE SUPREME COURT. IT PROMOTES IMPORTANT PUBLIC POLICIES,

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CLOSING ARGUMENT BY MS. MILICI

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2132

INCLUDING THE FREE MOVEMENT OF GOODS THROUGH THE ECONOMY.

AND QUALCOMM CASE, ITS EXHAUSTION DEFENSE BOILS DOWN TO A

DESIRE TO AVOID THE RISK OF NEGOTIATING IN THE SHADOW OF THE

LAW. IN AVOIDANCE OF ARM'S LENGTH NEGOTIATIONS WITH THE

POSSIBILITY OF PATENT SCRUTINY IS NOT COGNIZABLE AS AN

ANTITRUST DEFENSE.

QUALCOMM HAS ALSO TALKED A LOT IN THIS TRIAL ABOUT ITS

RESEARCH AND DEVELOPMENT EFFORTS, AND IT IS IMPORTANT THAT

PARTICIPANTS IN THIS INDUSTRY, NOT JUST QUALCOMM, BUT OTHERS,

TOO, INVEST IN RESEARCH AND DEVELOPMENT TO IDENTIFY AND DEVELOP

TOMORROW'S TECHNOLOGIES. THE FTC IS NOT INTERESTED IN

DISCOURAGING OR DETERRING INNOVATION.

BUT FAIR MARKET BASED RETURNS OF QUALCOMM'S PATENT

PORTFOLIO AND MODEM CHIP SALES WOULD INCENTIVIZE INNOVATION.

AS EVIDENCE IN THIS CASE HAS SHOWN, MANY COMPANIES INVEST IN

R&D WITHOUT EMPLOYING THE ANTICOMPETITIVE SALES AND LICENSING

PRACTICES THAT QUALCOMM RELIES ON.

AND COLLECTING A SURCHARGE ON COMPETITORS' PRODUCTS DOES

NOT PROMOTE INNOVATION. IT DETERS INNOVATION BY INHIBITING

COMPETITION.

AND IT IS WORTH LOOKING AT QUALCOMM'S R&D EXPENDITURES IN

THE BROADER CONTEXT OF ITS BUSINESS. QUALCOMM MAKES

SUBSTANTIAL R&D EXPENDITURES, BUT AS YOU CAN SEE ON THIS SLIDE,

QUALCOMM HISTORICALLY HAS SPENT EVEN MORE ON STOCK BUYBACKS AND

DIVIDENDS.

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CLOSING ARGUMENT BY MS. MILICI

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2133

NOW, THERE'S NOTHING WRONG WITH THAT. BUT QUALCOMM'S

ASSERTED JUSTIFICATIONS OF NEEDING TO FUND R&D SHOULD BE

EVALUATED IN THAT CONTEXT.

FINALLY, QUALCOMM HAS ASSERTED THAT IF IT HAD TO LICENSE

ITS COMPETITORS, IT WOULD STILL HAVE TO LICENSE TO OEM'S.

FIRST, IT ISN'T OBVIOUS THAT THIS IS TRUE. IN THE IRS

AUDIO, MR. BLECKER CONFIRMED THAT ALL OF QUALCOMM'S STANDARD

ESSENTIAL PATENTS WERE PRACTICED BY CHIPS. AND QUALCOMM HAS

NOT INTRODUCED ANY EVIDENCE THAT ITS DEVICE LEVEL PATENTS ARE

VALID AND INFRINGED BY ANY HANDSETS.

BUT ASSUMING THAT QUALCOMM HAS VALID PATENTS THAT WOULD

NOT BE EXHAUSTED BY THE CHIP SALE, THAT DOESN'T MEAN THAT THERE

WOULD HAVE TO BE MULTI LEVEL LICENSING. YOU CAN SEE

PROFESSOR SHAPIRO'S TESTIMONY ON THIS POINT AT THE TOP OF THE

SLIDE.

IT COULD BE THAT THE MARKET BASED OUTCOME WOULD BE MULTI

LEVEL LICENSING, AND IF THAT'S THE CASE, QUALCOMM HAS NOT

ESTABLISHED THAT IT WOULD BE INEFFICIENT.

BUT IF TURNED OUT THAT IT WAS MORE EFFICIENT FOR OEM'S AND

QUALCOMM TO LICENSE AT THE DEVICE LEVEL WITHOUT ANY SUPPLY

LEVERAGE INVOLVED, THEN THAT'S WHAT WOULD HAPPEN. THE FTC

WOULD NOT STAND IN THE WAY OF THAT.

THIS CASE IS ALL ABOUT PROMOTING FAIR MARKET BASED

NEGOTIATIONS.

NOW, BECAUSE QUALCOMM'S CONDUCT VIOLATES THE FTC ACT,

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CLOSING ARGUMENT BY MS. MILICI

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2134

COURT SHOULD FIND FOR THE FTC ON LIABILITY, AND IT SHOULD GRANT

INJUNCTIVE RELIEF. AS YOUR HONOR RECOGNIZED IN A PRETRIAL

ORDER, THE LEGAL STANDARD FOR IMPOSING EQUITABLE RELIEF IN THIS

CASE REQUIRES THE FTC TO SHOW THAT THE ANTICOMPETITIVE CONDUCT

IS ONGOING OR LIKELY TO RECUR.

THE EVIDENCE EASILY MEETS THIS STANDARD. IT IS BEYOND

DISPUTE THAT THE CONDUCT IS ONGOING.

AND QUALCOMM'S CONDUCT HAS BEEN ONGOING DESPITE RECENT LAW

ENFORCEMENT ACTIONS BY FOREIGN ANTITRUST AGENCIES THAT LED TO

BILLIONS OF DOLLARS IN FINES. THOSE ACTIONS ARE DETAILED IN

THE QUALCOMM ANNUAL REPORT THAT ARE CITED HERE ON THE RIGHT,

CX 7257.

AND WHILE THAT'S ENOUGH TO JUSTIFY A REMEDY, THE EVIDENCE

ALSO SHOWS A RISK OF RECURRENCE. EVIDENCE FROM QUALCOMM AND

THIRD PARTIES ALIKE SHOW QUALCOMM'S LEAD IN 5G CHIP

DEVELOPMENT.

AND AS YOU CAN SEE IN CX 8197, CITED HERE ON THE RIGHT,

QUALCOMM EXPECTS TECHNOLOGY TRANSITION TO AGAIN CREATE

SIGNIFICANT RETURNS FOR QUALCOMM AS IN THE TRANSITION FROM 3G

TO 4G WHEN IT CAPTURED 80 PERCENT SHARE OF THE UNITS.

IN OTHER WORDS, THERE'S A SIGNIFICANT RISK THAT THE STORY

THAT THE INDUSTRY SAW PLAY OUT FIRST IN 3G AND THEN IN 4G WILL

RUN AGAIN IN 5G. QUALCOMM WILL HAVE A TIME TO MARKET ADVANTAGE

AND WILL USE THAT ADVANTAGE AND THE CORPORATE POLICIES

CHALLENGED HERE TO PUT UP ROADBLOCKS THAT SLOWS ITS COMPETITORS

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CLOSING ARGUMENT BY MR. VAN NEST

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2135

DOWN. THE COURT SHOULD PREVENT THAT FROM HAPPENING BY ORDERING

QUALCOMM TO ABANDON ITS ANTICOMPETITIVE POLICIES AND PRACTICES.

THANK YOU, YOUR HONOR.

THE COURT: OKAY. TIME IS 2:26.

ALL RIGHT. LET'S GO AHEAD AND TAKE A TEN MINUTE BREAK

NOW. THANK YOU.

(RECESS FROM 2:26 P.M. UNTIL 2:38 P.M.)

THE COURT: OKAY. WELCOME BACK. GOOD AFTERNOON.

PLEASE TAKE A SEAT.

OKAY. DO WE HAVE ROOM FOR EVERYONE? IF EVERYONE COULD

PLEASE SQUEEZE IN AND SIT AS CLOSE TO THE WALL AS POSSIBLE?

THANK YOU.

ALL RIGHT. LET ME KNOW WHEN YOU'RE READY.

THE FTC HAS 9 MINUTES.

OKAY. LET ME KNOW WHEN YOU'RE READY, MR. VAN NEST.

MR. VAN NEST: I WILL, YOUR HONOR. I THINK WE PASSED

UP BINDERS.

THE COURT: I HAVE IT.

MR. VAN NEST: THERE IT IS. I'M READY TO GO.

THE COURT: ALL RIGHT. 2:38. GO AHEAD, PLEASE.

(MR. VAN NEST GAVE HIS CLOSING ARGUMENT ON BEHALF OF

QUALCOMM.)

MR. VAN NEST: GOOD AFTERNOON, YOUR HONOR.

THE EVIDENCE YOU'VE HEARD DURING TRIAL ABOUT WHAT ACTUALLY

TOOK PLACE IN THE MARKET SIMPLY WILL NOT SUPPORT A FINDING OF

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CLOSING ARGUMENT BY MR. VAN NEST

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2136

ANY VIOLATION.

THE FTC FAILED TO SHOW ACTUAL HARM TO COMPETITION. THEY

FAILED TO SHOW THAT QUALCOMM'S LICENSING PRACTICES HAVE BEEN

ANTICOMPETITIVE, AND THE EVIDENCE IS SIMPLY OVERWHELMING THAT

QUALCOMM EARNED ITS POSITION AND SUCCESS THROUGH SUPERIOR

INNOVATION AND BETTER PRODUCTS.

TO ESTABLISH A VIOLATION, IT WAS THEIR BURDEN TO SHOW

SUBSTANTIAL HARM TO COMPETITION RESULTING FROM QUALCOMM'S

CONDUCT.

THEY HAVE ABSOLUTELY FAILED TO DO THAT. THE MARKET IS

THRIVING. EVERYONE AGREES THIS IS A DYNAMIC AND HIGHLY

INNOVATIVE MARKET.

PARTICIPANTS ARE THRIVING. COMPETITION IS GROWING AND

INTENSE.

INTEL IS NOW THE SOLE SUPPLIER FOR NEW IPHONES FROM APPLE.

MEDIATEK IS THE NUMBER 2 SUPPLIER IN THE WORLD.

SAMSUNG AND HUAWEI ARE NOW SUPPLYING MANY OF THEIR OWN

CHIPS.

AND CONSUMERS ARE BENEFITING, TOO, YOUR HONOR. AS YOU

HEARD YESTERDAY FROM PROFESSOR SHAPIRO, QUALITY IS UP,

PERFORMANCE IS UP, AVERAGE SMARTPHONE PRICES ARE DOWN, AND ALL

THE EXPERTS AGREE.

THE FTC HAS PRESENTED EVIDENCE OF A HANDFUL OF OEM'S

CLAIMING THEY FELT THREATENED DURING LICENSING NEGOTIATIONS. I

WANT TO PUT THAT IN CONTEXT, AND I WILL.

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THESE ARE ALL LARGE, SOPHISTICATED COMPANIES, ALL WITH

THEIR OWN LEVERAGE, WHO NO DOUBT WANT TO PAY LESS FOR

QUALCOMM'S TECHNOLOGY. THE WITNESSES WERE LAWYERS. THE

TESTIMONY WAS COMPLETELY SELF-SERVING.

THE FULL PICTURE IS THAT QUALCOMM HAS NEVER CUT OFF

COMMERCIAL CHIP SUPPLY TO ANY CUSTOMER DURING ANY LICENSING

NEGOTIATION, EVER. AND THEY MADE NO ATTEMPT, THE FTC DID, TO

SHOW THAT EVEN IN THIS HANDFUL OF EXAMPLES, THE NEGOTIATED

OUTCOMES, WHICH OFTEN TOOK MONTHS, WOULD HAVE BEEN ANY

DIFFERENT IN A BUT FOR WORLD.

THE EXPERT TESTIMONY THEY PRESENTED WAS WEAK.

MR. LASINSKI CAME IN HERE WITH A MADE-FOR-LITIGATION MODEL THAT

NO COURT HAS ACCEPTED OR ENDORSED.

HIS TOP-DOWN APPROACH IS ARBITRARY AND CONTRADICTED BY

EMPIRICAL ANALYSIS OF HUNDREDS OF LICENSES SIGNED BY QUALCOMM

AND INDUSTRY PLAYERS FOR MORE THAN 25 YEARS.

AND AS I SAID REPEATEDLY, PROFESSOR SHAPIRO IS ALL ABOUT

THEORY, BUT NO EMPIRICAL FACTS TO BACK IT UP. HE SIMPLY

IGNORES WHAT HAPPENED IN THE MARKET. HE PREDICTS INEVITABLE

HARM, BUT HE DIDN'T LOOK AT ANY ACTUAL OUTCOME OR CONSIDER ANY

ALTERNATIVE EXPLANATION.

A THEORY OF HARM IS NOT ACTUAL HARM, AND IT'S NOT ENOUGH

TO CARRY THEIR BURDEN.

QUALCOMM'S ROYALTY RATES CAME INTO EXISTENCE, AS YOUR

HONOR KNOWS, BEFORE ITS TECHNOLOGY WAS IN ANY STANDARD AND

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BEFORE IT HAD A CHIP BUSINESS OF ANY KIND.

AND QUALCOMM'S COMPETITORS HAVE COME AND GONE AND

SUCCEEDED AND FAILED FOR A HOST OF REASONS THAT HAVE ABSOLUTELY

NOTHING TO DO WITH QUALCOMM.

NOR ARE QUALCOMM'S LICENSING PRACTICES ANTICOMPETITIVE.

DEVICE LEVEL LICENSING IS ABSOLUTELY INDUSTRY STANDARD.

WITNESS AFTER WITNESS, INCLUDING FROM OUR COMPETITORS AND FROM

THE FTC, AGREED THAT DEVICE LEVEL LICENSING IS INDUSTRY

STANDARD AND HAS BEEN AROUND FOREVER.

THEY ALSO AGREE TO THE COROLLARY OF THAT. IT FLOWS JUST

LIKE ANYTHING ELSE. CHIP LEVEL LICENSING IS NOT CUSTOMARY WHEN

DEVICE LEVEL LICENSING IS PREVALENT. THAT'S THE WAY THE

INDUSTRY HAS OPERATED FOR YEARS AND QUALCOMM IS WITHIN THAT

TRADITION.

NOW, QUALCOMM'S PRACTICE OF SELLING CHIPS ONLY TO LICENSED

OEM'S, THAT IS UNIQUE, BUT THAT'S BECAUSE QUALCOMM'S BUSINESS

IS UNIQUE. IT HAS CREATED END-TO-END SYSTEM TECHNOLOGY, AND

POPULAR CHIPS, AND IT'S ENTITLED TO A FAIR RETURN ON BOTH.

AND FINALLY, YOUR HONOR, IT'S NOW UNDISPUTED THAT QUALCOMM

ACHIEVED ITS SUCCESS THROUGH INNOVATION, BETTER ENGINEERING,

AND BETTER PRODUCTS. QUALCOMM'S TECHNOLOGY HAS DRIVEN THE

INDUSTRY FORWARD FROM 3G, 4G, AND 5G.

AND I WELCOME THE FTC'S ADMISSION, NOW FOR THE FIRST TIME

AFTER TWO YEARS OF LITIGATION, THAT QUALCOMM EARNED ITS MARKET

SHARE THROUGH INNOVATION.

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THEY CAN'T HAVE IT BOTH WAYS. IT CAN'T BE TRUE THAT OUR

TECHNOLOGY IS WASHED UP AND NOT WORTH THE ROYALTY RATES, AND

YET SO STRONG AND POWERFUL IN 5G THAT QUALCOMM MUST BE STOPPED.

ITS PRODUCTS ARE SIMPLY BETTER THAN ANYBODY ELSE'S, AS ALL

THE CUSTOMERS AND CHIP MAKERS ADMITTED, AND YEAR AFTER YEAR

THEY'RE WINNING BASED ON THAT TECHNOLOGY.

NOW, I APPRECIATE THE OPPORTUNITY, YOUR HONOR, TO

SUMMARIZE THE EVIDENCE IN MORE DETAIL, AND I WANT TO START WITH

THE FTC'S FAILURE OF PROOF OF ANTICOMPETITIVE HARM.

THEY HAVE THE BURDEN TO PROVE THAT THE CHALLENGED

RESTRAINT -- THAT'S THE CONDUCT OF QUALCOMM -- HAS A

SUBSTANTIAL ANTICOMPETITIVE EFFECT.

TO ESTABLISH A VIOLATION OF EITHER THE SHERMAN ACT OR

SECTION 5 OF THE FTC ACT, THEY MUST PROVE THAT QUALCOMM'S

PRACTICES HAD A SUBSTANTIAL ANTICOMPETITIVE EFFECT.

POTENTIAL HARM, CAPABILITY OF HARM, A THEORY OF HARM,

THOSE AREN'T ENOUGH, YOUR HONOR. THEY HAVE TO SHOW ACTUAL

HARM.

THEY HAVEN'T DONE IT.

THE INDUSTRY IS THRIVING, AS YOU HEARD FROM EVERY EXPERT

THAT APPEARED BEFORE YOU. THESE CHARTS WERE PRESENTED BY

PROFESSOR SNYDER AND NEVO.

CHIP PRICES ARE FALLING. HANDSET PRICES ARE FALLING.

DATA SPEEDS ARE ROCKETING UP. AND COST OF DATA HAS DROPPED TO

ALMOST NOTHING FOR CONSUMERS.

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WHEN PROFESSOR SHAPIRO WAS HERE YESTERDAY, HE CALLED THIS

AN IMPRESSIVE PACE OF INNOVATION, AND IT'S A CRITICAL SIGN,

YOUR HONOR, OF A HEALTHY, COMPETITIVE MARKET.

AND THE MARKET IS DYNAMIC, AS THE EXPERTS ALSO AGREED,

INCLUDING PROFESSOR SHAPIRO.

MR. MOYNIHAN FROM MEDIATEK SAYS, COMPETITION WAS VERY,

VERY HIGH.

MR. MCGREGOR, WHOSE FACE I COULDN'T FIT ON THE SLIDE,

TESTIFIED THAT BROADCOM LEFT BECAUSE THE MARKET WAS INTENSELY

COMPETITIVE.

ALL THE EXPERTS AGREE, THIS IS FAST MOVING, HIGHLY

COMPETITIVE, DYNAMIC MARKET.

AND COMPETITION IS INCREASING, NOT DECREASING. QUALCOMM'S

SHARE, ACCORDING TO PROFESSOR SHAPIRO, OF WHAT HE CALLS THE

PREMIUM LTE MARKET FELL IN 2015 AND 2016 AS SAMSUNG, INTEL, AND

MEDIATEK CAME INTO THE MARKET.

BY DEFINITION, IF QUALCOMM'S MARKET SHARE IS FALLING,

COMPETITION FROM OTHERS IS ON THE RISE, ANOTHER KEY ELEMENT OF

A HEALTHY MARKET.

NOW, BOTH DR. SNYDER AND PROFESSOR SHAPIRO TESTIFIED THAT

IN A MARKET LIKE THIS WHERE RESEARCH AND DEVELOPMENT IS KEY,

YOU'D ONLY EXPECT TO HAVE A FEW COMPETITORS, EXACTLY WHAT WE

HAVE TODAY.

NOW, COMPETITION IS ESPECIALLY STRONG IN THE PREMIUM

MARKET. MR. WYATT TESTIFIED THAT 90 PERCENT OF THE PREMIUM

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2141

HANDSET TIER -- HANDSET TIER IS PROVIDED BY THREE OEM'S,

SAMSUNG, HUAWEI, AND APPLE.

TAKE A LOOK, YOUR HONOR, AT WHERE QUALCOMM SITS AS OF THE

END OF 2017, EARLY 2018. THEIR SHARE OF PREMIUM TIER SHIPS AT

SAMSUNG IS DOWN TO 35 PERCENT BECAUSE SAMSUNG CAN NOW

SELF-SUPPLY.

HUAWEI IS SELF-SUPPLYING AND BUYING FROM OTHERS ENTIRELY

FOR PREMIUM DEVICES.

AND AT APPLE, AS YOUR HONOR HAS HEARD, INTEL HAS 100

PERCENT OF THE NEW DESIGN.

FOLKS ARE MOVING AWAY FROM QUALCOMM IN THE PREMIUM TIER.

I HEARD THE FTC CLAIM THAT PROFESSOR SNYDER DIDN'T DO

ANYTHING EMPIRICAL. THAT'S CERTAINLY NOT WHAT I HEARD.

HE EXPLAINED THAT INDEPENDENT FACTORS EXPLAIN WHAT

HAPPENED IN THE MARKET, AND HE IDENTIFIED THREE: FORESIGHT,

INVESTMENT, AND EXECUTION.

AND YOUR HONOR WILL RECALL THAT HE DID 14 CASE STUDIES,

THAT'S 14 MORE THAN SHAPIRO DID, AND HE LOOKED AT EVERY

COMPETITOR IN THE MARKET FOR THE LAST DECADE OR SO.

HE TESTIFIED HERE ABOUT TWO OR THREE OF THEM. INTEL WAS

LATE. THEY DIDN'T TAKE MS. EVANS'S ADVICE TO GET INTO CDMA.

MEDIATEK DID FINE FOLLOWING A FAST FOLLOWER STRATEGY.

BROADCOM LACKED FORESIGHT AND MISSED THE CDMA MARKET.

AND THAT'S WHAT TOOK PLACE.

THEY HAVE MADE NO EFFORT, NONE, TO SHOW THAT QUALCOMM'S

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CONDUCT CAUSED THE RESULTS FOR ANY OF THE CHIP MAKER

COMPETITORS. NOT ONE.

AND IT'S ALSO TRUE THAT THESE COMPETITORS MADE THEIR OWN

BUSINESS DECISIONS. YOUR HONOR HEARD FROM A NUMBER OF THEM.

MR. MOYNIHAN TESTIFIED THAT MEDIATEK CHOSE TO ENTER THE

WCDMA MARKET, WHICH IS MUCH BIGGER, AND THEY DECIDED NOT TO

ENTER CDMA BECAUSE CDMA WAS PERCEIVED BY MANY TO BE A NICHE

MARKET WITH A LIMITED FUTURE.

THAT'S WHY, ALTHOUGH MS. EVANS WAS PRESSING INTEL TO GET

CDMA TECHNOLOGY, IT TOOK HER FOUR YEARS TO DO IT. PEOPLE

DIDN'T PERCEIVE IT AS A LUCRATIVE MARKET, AND ONLY QUALCOMM

INVESTED, WHICH, AS THE FTC ADMITTED THIS THEIR CLOSING,

QUALCOMM IS THE ONE RESPONSIBLE FOR CDMA, AND THEY EARNED THEIR

POSITION THROUGH HARD WORK AND INVESTMENT.

AND PROFESSOR NEVO IS THE ONLY ONE TO HAVE PERFORMED ANY

EMPIRICAL TESTS ON RATES. WHAT HE SHOWED US WAS THAT

QUALCOMM'S ROYALTY RATES HAVE REMAINED CONSISTENT ACROSS TIME,

ACROSS STANDARDS, AND ACROSS MARKETS.

THAT MEANS WHETHER YOU'RE IN A MARKET WHERE THEY CLAIM

MARKET POWER OR NOT, RATES ARE THE SAME. THEY DON'T GO UP WHEN

QUALCOMM'S ALLEGED TO HAVE MARKET POWER, THEY DON'T GO DOWN

WHEN QUALCOMM IS ALLEGED TO HAVE NO MARKET POWER.

NOW, HE LOOKED AT RATES, UPFRONT PAYMENTS, PERIODS BEFORE

THE STANDARDS, PERIODS BEFORE CHIPS EXISTED, AND I THINK, YOUR

HONOR, THE MOST IMPORTANT THING HE LOOKED AT IS THIS THAT'S ON

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THE SCREEN NOW.

THIS IS A BUT FOR WORLD. NOBODY IS CONTENDING THAT

QUALCOMM HAS MARKET POWER. THEY'VE GOT THE BURDEN OF PROOF.

IF PROFESSOR SHAPIRO THOUGHT QUALCOMM HAD MARKET POWER IN

WCDMA, HE HAD EVERY CHANCE TO PROVE IT.

THEY DON'T, AND NOT A SINGLE WITNESS HAS SAID SO.

AND IN THAT MARKET, WHICH IS THE BUT FOR WORLD WE OFTEN

LOOK FOR IN CASES LIKE THIS, QUALCOMM'S RATES ARE CONSISTENT

AND THE SAME, WHICH DEMONSTRATES THAT THOSE RATES ARE BASED ON

THE QUALITY OF QUALCOMM'S TECHNOLOGY AND THE QUALITY OF ITS

PATENTS AND NOT ANYTHING ELSE.

NOW, PROFESSOR SHAPIRO CAME IN FOR THE FIRST TIME

YESTERDAY AND LOBBIED SOME CRITIQUES AT PROFESSOR NEVO. HE

CRITICIZED HIM FOR LOOKING AT THE 5 PERCENT CONTRACT RATE.

WELL, YOUR HONOR, THAT'S BEEN THEIR CASE THEORY FROM DAY

ONE. THE COMPLAINT, PARAGRAPH 58, ALLEGES THAT OUR 5 PERCENT

RATE IS ABOVE FRAND. THAT'S WHAT THEY'RE RELYING ON. THAT'S

WHAT THEY'VE BASED THEIR CLAIM ON.

AND PROFESSOR SHAPIRO HASN'T SHOWN THAT LOOKING AT THE

CONTRACT RATE IS ANY DIFFERENT THAN LOOKING AT EFFECTIVE RATES

OR ANYTHING ELSE. HE'S DONE NO EMPIRICAL WORK WHATSOEVER.

NOW, PROFESSOR NEVO TESTIFIED THAT SOME LICENSES WERE

REMOVED FROM HIS ANALYSIS BECAUSE THEY JUST DON'T FIT THE

CLAIM.

LICENSES NEGOTIATED UNDER THE EYE OF FOREIGN GOVERNMENTS

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CAN'T POSSIBLY BE INFLUENCED BY CHIP LEVERAGE. HE TOOK THOSE

OUT.

AND PROFESSOR SHAPIRO DOESN'T CLAIM THEY SHOULD COME BACK

IN.

AND THE ONLY OTHER LICENSES THAT HE REMOVED WERE LICENSES

WHERE EVERYTHING WAS PAID UPFRONT AND THERE'S VIRTUALLY NO WAY

TO DETERMINE AN EFFECTIVE RATE UNTIL YEARS LATER WHEN YOUR

SALES ARE DONE.

YOUR HONOR HAS AN EXHIBIT, I THINK IT'S A DEMONSTRATIVE,

CDX 204. CDX 204 HAS ALL THE COMPANIES THAT ARE IN NEVO'S

ANALYSIS AND A LOT OF THEM ARE THERE, HUAWEI, ALL THE CONTRACT

MANUFACTURERS, THE BIG PLAYERS IN CHINA, THEY'RE ALL THERE.

THERE ARE DOZENS OF THEM. AND THEY'RE -- AND THIS ANALYSIS

SHOWS, AND IT'S THE ONLY EMPIRICAL ANALYSIS IN THE CASE, THAT

MARKET POWER PLAYS NO ROLE IN QUALCOMM'S ROYALTY RATES.

NOW, WHAT DID THEY BRING YOU?

MICHAEL LASINSKI. NO FINDING OF A ROYALTY OVERCHARGE

COULD POSSIBLY REST ON THIS TESTIMONY.

BY HIS OWN ADMISSION ON THE SCREEN, HE'S NOT AWARE OF

ANYBODY ELSE WHO APPROACHES IT THIS WAY AND NO ONE ELSE HAS

APPROVED IT.

HE TOOK TWO FLAWED INPUTS, SO-CALLED DEEMED SEPS, AND

APPROVED CONTRIBUTIONS, HE BLENDS THEM IN A FORMULA THAT EVEN

HE COULDN'T EXPLAIN TO US, AND HE CLAIMED HERE, RIGHT IN FRONT

OF YOUR HONOR, THAT EVEN IF BOTH INPUTS WERE WRONG AND

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INCORRECT, THE OUTPUT WAS JUST FINE.

LET'S CONSIDER HIS INPUTS.

APPROVED CONTRIBUTIONS DON'T MEASURE VALUE OF ANYTHING, AS

MR. CASACCIA EXPLAINED IN GREAT DETAIL. THE HARD WORK IN

STANDARD SETTING HAPPENS, YOUR HONOR, IN THE SUBSTANTIVE WORK

PHASE. THE DOCUMENTS SUBMITTED THERE ARE ACTUAL INVENTIONS.

THAT'S WHERE THE VALUE IS.

ONCE THE SPECIFICATION IS STABLE, THOSE DOCUMENTS ARE PUT

AWAY, IN MR. CASACCIA'S WORDS. THEY'RE GONE. AND WE'RE

LOOKING AT APPROVED T DOCS WHICH CAN BE ANYTHING FROM CHANGING

A HYPHEN OR A PERIOD TO CHANGING AN EDITORIAL COMMENT TO MAKING

A MINOR REVISION. THAT'S WHAT IS BEING, QUOTE, "COUNTED" IN

APPROVED DOCS. NOBODY BELIEVES THAT CREATES VALUE AND IT

IGNORES THE KEY DOCUMENTS THAT CREATED THE INVENTIONS IN THE

FIRST PLACE.

WHAT'S HIS OTHER INPUT? PATENT COUNTING.

WELL, EVEN MR. DONALDSON ADMITTED THAT NOT ALL PATENTS ARE

CREATED EQUAL, AND A SINGLE PATENT CAN DOMINATE AN INDUSTRY,

AND THAT'S WHAT MR. LASINSKI AGREED TO AS WELL.

AND MR. LASINSKI GAVE ABSOLUTELY NO WEIGHT, NONE, ZERO, TO

QUALCOMM'S PORTFOLIO OF NON-STANDARD ESSENTIAL PATENTS, WHICH

IS VERY, VERY SIGNIFICANT.

AND HIS TOP-DOWN APPROACH IS SIMPLY, "I PICKED OUT A

STATEMENT MADE BY INDUSTRY REPRESENTATIVES WITH AN ARBITRARY

CAP, AN ARBITRARY CAP ON ALL ROYALTIES, AND I WENT FROM THERE."

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WELL, THAT'S BEEN REJECTED BY COURTS. IT'S BEEN REJECTED

BY ETSI. THERE'S NO EMPIRICAL BASIS FOR IT.

BUT THAT'S THE WAY HE ARRIVES AT WHAT HE SAYS IS A

SUPRA-FRAND ROYALTY. IT'S ABSOLUTE NONSENSE.

AND THEIR ONLY ANSWER TO THIS THAT I HEARD WAS AVANCI.

AVANCI.

WELL, YOU KNOW FROM THE TESTIMONY OF MR. GONELL THAT

AVANCI IS AN EXPERIMENTAL PROGRAM THAT DOESN'T AFFECT HANDSETS,

THAT COVERS SMART METERS AND AUTOMOTIVE USE, AND THAT QUALCOMM

HAS NOT ADOPTED IT IN ANY OTHER AREA OF ITS BUSINESS.

NOW, LET'S LOOK AT PROFESSOR SHAPIRO.

IT'S NOT JUST, YOUR HONOR, THAT HE HASN'T QUANTIFIED

THINGS. IT'S THAT HE IGNORES COMPLETELY WHAT'S OUT THERE IN

THE MARKET STARING HIM IN THE FACE.

HE'S NOW CONCEDED, AND THEY'VE CONCEDED, THAT HIS

SO-CALLED TAX APPLIES WHETHER THE FRAND IS REASONABLE, THE

ROYALTY IS REASONABLE OR NOT.

WELL, IF THAT'S TRUE, YOU'D HAVE TO MAKE SOME EFFORT TO

MEASURE THE THING TO KNOW WHERE THE IMPACT IS COMING FROM

BECAUSE IF THE IMPACT IS COMING FROM A LEGITIMATE FRAND

ROYALTY, ACCORDING TO SHAPIRO AND WHAT I HEARD MS. MILICI SAY,

YOU HAVE THE SAME IMPACT ON CHIP MAKERS.

WHAT HAPPENED HERE?

HE HASN'T QUANTIFIED THE EFFECTS OF QUALCOMM'S PRACTICES

ON ANY OTHER CHIP MAKER.

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AND REMEMBER, YOUR HONOR, IT'S NOT HIGH PRICES THEY'RE

COMPLAINING ABOUT. THEIR THEORY OF HARM IS THAT THE CHIP

MAKERS WERE HARMED THROUGH THE TAX THEORY.

SO IF YOU HAVEN'T QUANTIFIED THE EFFECTS OF QUALCOMM'S

BUSINESS PRACTICES ON THE CHIP MAKERS, YOU HAVEN'T EVEN STARTED

THE EVALUATION.

HE DID NOTHING TO ANALYZE WHETHER RIVALS' R&D SPENDING AND

RESEARCH WERE UP, DOWN, OR SIDEWAYS. AND MY POINT IS THIS IS

NOTHING MORE THAN A THEORY.

FURTHERMORE, HE JUST ASSUMES THERE'S AN OVERCHARGE WITHOUT

HAVING MADE ANY EFFORT TO QUANTIFY IT.

WELL, IF THE -- IF THE FRAND ROYALTY IS A TAX, TOO, THEN

YOU'VE GOT TO FIGURE OUT WHAT AMOUNT OF THAT, WHAT AMOUNT OF

THE ROYALTY IS ACTUALLY AN OVERCHARGE?

HE MADE NO EFFORT TO DO THAT OR TO QUANTIFY THE EFFECTS OF

CONDUCT ON HANDSET PRICES.

YOU CANNOT ESTABLISH ACTUAL HARM UNDER THE LAW WITH A

THEORY OF HARM THAT IGNORES WHAT HAPPENED IN THE MARKET.

THE ONLY PERSON TO DO THE KIND OF EMPIRICAL WORK THAT IS

NECESSARY ON MARKET PARTICIPANTS WAS PROFESSOR SNYDER. HE USED

INDUSTRIAL ORGANIZATION TECHNIQUES, HE DISCERNED THAT

INVESTMENT, EXECUTION AND FORESIGHT ARE THE FACTORS IMPORTANT

TO THIS INDUSTRY, AND HE LOOKED AT THAT AND APPLIED IT ACROSS

ALL OF THE COMPETITORS AND TESTIFIED THAT IN EVERY CASE,

INDEPENDENT FACTORS THAT HAVE NOTHING TO DO WITH QUALCOMM,

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EXPLAINED OUTCOMES.

AND NO ONE ON THE FTC SIDE HAS EVEN LOOKED AT THIS ISSUE

WHERE THEIR MAIN CLAIM IS HARM TO CHIP MAKERS.

NOW, LET'S PUT ASIDE THAT PROFESSOR SHAPIRO DIDN'T

ACTUALLY DO THE WORK.

EVEN HIS THEORY WAS UNABLE TO PREDICT WHAT'S HAPPENED IN

THE MARKET. HE PREDICTED THAT THROUGH THE EXERCISE OF MONOPOLY

POWER, QUALCOMM'S MARKET SHARE WOULD RISE AND INTEL'S WOULD

FALL.

WELL, WE KNOW THAT THE OPPOSITE HAS OCCURRED. QUALCOMM'S

MARKET SHARE IS FALLING AND INTEL'S IS RISING.

HE ALSO PREDICTED THAT PRICES WOULD RISE AND OUTPUT WOULD

FALL.

AGAIN, THE OPPOSITE'S HAPPENED. PRICES HAVE FALLEN AND

OUTPUT HAS SOARED.

HE HASN'T BEEN ABLE TO PREDICT WHAT HAPPENED. HIS THEORY

IS SIMPLY DIVORCED FROM WHAT'S GOING ON IN THE REAL WORLD.

ANOTHER KEY FLAW IS THAT HE ASSUMES SOME SORT OF A

NEGOTIATION BETWEEN QUALCOMM, CHIP MAKERS, AND OEM'S THAT NEVER

TAKES PLACE. LICENSE AGREEMENTS ARE NEGOTIATED FOR A PERIOD OF

YEARS AND CHIP PRICES, THEY'RE NEGOTIATED OVER A PERIOD OF

MONTHS.

THE ROYALTY THAT QUALCOMM SEEKS FOR ITS I.P. IS CHIP

AGNOSTIC. EVERYBODY PAYS THE SAME AMOUNT. IT'S TRANSPARENT.

AND THEN THE OEM'S HAVE A CHOICE. THEY CAN BUY A QUALCOMM

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CHIP OR A COMPETITOR CHIP. AND AS MR. MADDEROM FROM MOTOROLA

SAYS, WE DON'T LOOK AT THE ROYALTY. WE LOOK AT THE CHIP PRICE,

THE AVAILABILITY, AND THE PERFORMANCE, WHICH IS WHAT YOU'D

EXPECT.

AND PROFESSOR NEVO STUDIED WHAT'S GOING ON IN THIS MARKET

AND HOW IT PLAYS OUT, AND, AGAIN, SINCE THE ROYALTY IS CHIP

AGNOSTIC, IT DOESN'T AFFECT PURCHASE DECISIONS ON CHIPS.

SIMILARLY, THEY MAKE A BIG DEAL OUT OF THE FACT THAT CHIP

MAKERS DON'T HAVE EXHAUSTIVE LICENSES FROM QUALCOMM.

THAT HASN'T MADE ANY DIFFERENCE AT ALL. SAMSUNG, HUAWEI,

SPREADTRUM, MEDIATEK, THEY'RE ALL DOING WELL. THEY'RE THRIVING

WITHOUT ANY LICENSE AT ALL FROM QUALCOMM.

AND HERE WAS TESTIMONY FROM MR. MOYNIHAN. THEY DID IT ONE

TIME, MEDIATEK HAD A NON-EXHAUSTIVE, NON-ASSERTION AGREEMENT.

THEY CAME TO QUALCOMM, THEY SAID, WE'RE WORRIED YOU MAY SUE US,

SO QUALCOMM ENTERED INTO A NON-EXHAUSTIVE AGREEMENT. WHAT

MOYNIHAN SAID WAS IT DIDN'T MAKE ANY DIFFERENCE. ONCE IT

EXPIRED, OUR BUSINESS DIDN'T CHANGE. WE DIDN'T DO BETTER WITH

IT THAN WE DID WITHOUT IT.

AND, AGAIN, THEY HAVEN'T SHOWN ANY EVIDENCE THAT THIS

MATTERS TO ANYONE.

DRAGONFLY, VERY BRIEFLY, YOUR HONOR, MR. ABERLE TESTIFIED

ABOUT THIS. AT THE TRANSCRIPT AT PAGES 302 AND 303, HE WAS

TOLD BY DRAGONFLY THAT THEY COULDN'T AGREE AMONGST THEMSELVES

ON HOW TO SET UP THE GROUP OR WHAT TERMS WERE GOING TO BE.

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THEY ABANDON THE NEGOTIATION WITH QUALCOMM, NOT THE OTHER WAY

AROUND.

THE TESTIMONY THAT MS. MILICI CITED FROM MR. HONG WAS THAT

HE WASN'T SURE WHAT THE REASONS WERE, AND HE WASN'T INVOLVED

DIRECTLY.

MR. ABERLE TESTIFIED THAT HE SPOKE TO THE DRAGONFLY PEOPLE

AND THAT WAS IT.

NOW, EVIDENCE AT TRIAL WAS OVERWHELMING THAT RIVAL CHIP

MAKERS EXPERIENCED A WIDE RANGE OF RESULTS BASED ON FACTORS

THAT HAVE NOTHING TO DO WITH QUALCOMM'S LICENSING PRACTICES.

HERE'S MR. ZANDER, WHICH YOU SAW ON VIDEO LAST WEEK. WHAT

HAPPENED AT ST-ERICSSON? LACK OF PROCESS, ORGANIZATIONAL

STRUCTURE, MANAGEMENT TEAM, DECISION MAKING.

HE'S TALKING ABOUT HIS OWN COMPANY HERE.

THEY FAILED ON EXECUTION.

THAT HAS NOTHING TO DO WITH ANYTHING THAT QUALCOMM DID.

INTEL'S TO THE SAME EFFECT. INTEL AND BAIN TOGETHER PUT

THIS SLIDE DECK TOGETHER THAT YOUR HONOR SAW FRIDAY WITH

MR. JOHNSON, AND THEY CONCLUDED THAT ALTHOUGH INTEL WAS

SPENDING JUST AS MUCH MONEY AS QUALCOMM, THEIR OUTPUT WAS

LOUSY, LESS THAN A THIRD OF WHAT QUALCOMM GENERATED. AND THAT

THEY WERE BEHIND NOT BECAUSE OF ANYTHING QUALCOMM DID, BUT

BECAUSE THEY MADE A DECISION TO SUPPORT MULTIPLE ARCHITECTURES.

THAT'S WHAT'S HAPPENING IN THE REAL WORLD. THERE IS

SIMPLY NO EVIDENCE FROM ANY MARKET PARTICIPANT OF ANY HARM TO

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COMPETITION.

NOW, LET'S TALK ABOUT THREATS.

THE FTC PRESENTED A HANDFUL OF WITNESSES AND E-MAILS TO

SUPPORT THEIR CLAIM THAT QUALCOMM THREATENED CHIP SUPPLY TO

COERCE HIGH ROYALTIES.

EVERY ONE OF THESE LICENSEES, HUAWEI, SONY, LENOVO,

SAMSUNG, THEY'RE ALL BIG, SOPHISTICATED COMPANIES WITH THEIR

OWN LEVERAGE. EVERYONE WAS A BIG CUSTOMER OF QUALCOMM.

ALL THE WITNESSES YOU SAW, YOUR HONOR, WERE LAWYERS. NOT

EVERY ONE, BUT MOST OF THEM. GRUBBS, YU, BLUMBERG, THEY WERE

LAWYERS, AND THEIR TESTIMONY WAS, OH, YEAH, WE FELT THREATENED

AND WE HAD TO DO WHAT WE DID.

I WILL SAY THAT THIS TESTIMONY WAS PRESENTED TO THIS COURT

IN A VERY MISLEADING FASHION. THE FTC INSISTED THAT WE SAVE

OUR RESPONSES FOR OUR OWN CASE.

SO, FOR EXAMPLE, MR. GRUBBS TESTIFIED FOR 25 MINUTES ON

VIDEO. "I FELT LIKE I HAD TO DO IT, I WAS DESPERATE FOR CHIPS,

I WAS WORRIED THAT IF I COMPLAINED, MY CHIP SUPPLY WOULD BE CUT

OFF."

AND THEN, YOUR HONOR, THERE WAS THIS A WEEK LATER WHEN WE

GOT TO OUR CASE.

(THE VIDEOTAPED OF JOHN GRUBBS WAS PLAYED IN OPEN COURT

OFF THE RECORD.)

MR. VAN NEST: YOUR HONOR, TO THE SAME EFFECT WAS

MR. BLUMBERG FROM LENOVO. THE MR. BLUMBERG CAME IN AND SAID HE

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WAS THREATENED BY MR. REIFSCHNEIDER, THAT HE WAS FEARFUL FOR

HIS CHIP SUPPLY.

HE COULDN'T IDENTIFY WHERE THE CHIPS CAME FROM, WHAT CHIPS

HE NEEDED OR WHAT CHIPS THEY WERE BUYING.

HE'S ALSO A LAWYER. WE LISTENED TO HIM FOR AN HOUR.

AND THEN DURING OUR CASE, WE PLAYED THE TESTIMONY FROM

MR. MADDEROM WHO WAS ACTUALLY IN THE MEETING WHERE HIS BOSS

COMPLAINED TO QUALCOMM ABOUT CHIP SUPPLY, AND HERE'S WHAT HE

SAID.

(THE VIDEOTAPED DEPOSITION OF TODD MADDEROM WAS PLAYED IN

OPEN COURT OFF THE RECORD.)

MR. VAN NEST: YOUR HONOR, WITNESS AFTER WITNESS

PRESENTED BY THE FTC CONCEDED WHAT'S ON THIS NEXT SLIDE: THAT

QUALCOMM NEVER STOPPED SUPPLYING CHIPS DURING A LICENSING

NEGOTIATION WHEN THERE WERE COMMERCIAL QUANTITIES; THAT IN MANY

CASES, PEOPLE WHO FTC CLAIMED WERE THREATENED SAID NO. MR. LEE

IS TALKING ABOUT A NEGOTIATION HE HAD. MS. YANG FROM PEGATRON

IS TALKING ABOUT NEGOTIATIONS SHE HAD.

THEIR BIG EMPHASIS WAS ON SONY.

WELL, YOUR HONOR HAS HEARD THE SONY STORY, AND I'LL POINT

OUT THAT THERE WAS A PRODUCT HOLD. BUT MR. MOLLENKOPF

TESTIFIED THAT WITHIN HOURS OF THAT, HE REVERSED IT AND HE

COMMUNICATED IMMEDIATELY TO SONY THAT THIS IS NOT GOING TO

HAPPEN, I'M SORRY THAT IT HAPPENED, MY TEAM IS REVERSING IT.

AND YOU HEARD NO TESTIMONY FROM ANYONE WHATSOEVER FROM

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ANYONE FROM SONY, NOT ON VIDEO, NOT IN COURT. NO ONE FROM SONY

CAME TO BACK THIS UP. THIS IS ALL SOMETHING THAT THE FTC HAS

PUT TOGETHER WITH SNIPPETS FROM THIS E-MAIL AND THAT.

BUT THE TESTIMONY IS CRYSTAL CLEAR AND THE DOCUMENTS AND

THE E-MAILS BACK IT UP 100 PERCENT.

ANOTHER POINT IS THAT WHENEVER A LICENSEE ASKED FOR

ASSURANCE, THEY GOT IT. MR. MADDEROM TESTIFIED THAT THEY ASKED

AND GOT ON ASSURANCE.

MR. WILLIAMS SAID THEY HAD A CONTRACT ASSURANCE.

MR. LEE FROM SAMSUNG SAID THEY ASKED FOR IT AND IT WAS

GIVEN.

TIME AND TIME AGAIN, THE FOLKS IN THESE LICENSE

NEGOTIATIONS CONFIRM WHAT I'VE BEEN SAYING, THAT CHIP SUPPLIES

FOR COMMERCIAL PRODUCTS WERE NEVER CUT OFF AND THESE THREATS

ARE HIGHLY EXAGGERATED WHEN YOU'RE TALKING ABOUT LAWYERS.

NOW, THIS NEXT SLIDE SHOWS THAT THERE'S ABSOLUTELY NO

EVIDENCE THAT THE OUTCOMES OF ANY OF THESE WOULD HAVE BEEN

DIFFERENT. THEY PRESENTED NO EVIDENCE TO SHOW THAT ANY OF

THESE OUTCOMES WOULD HAVE BEEN DIFFERENT IN THE REAL WORLD.

AND TAKE A LOOK, YOUR HONOR. WE'VE GOT THE TRIAL CITES

AND THE EXHIBIT CITES. WHAT ACTUALLY HAPPENED IN THESE IS NOW

IN THE RECORD.

SO SONY, FOR EXAMPLE, NEGOTIATED FOR TEN MORE MONTHS AFTER

THE EVIDENCE YOU SAW. THERE WAS NO DISRUPTION, THEY AGREED ON

RATES AND A THREE YEAR TERM.

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AND EVEN THOUGH THE AGREEMENT EXPIRED IN THE INTERIM,

SUPPLY CONTINUED.

HUAWEI'S TO THE SAME EFFECT. THEY NEGOTIATED ON AN LTE

LICENSE FOR TWO YEARS AND WON AN ARBITRATION CLAUSE FOR A NEW

AGREEMENT IF THE PARTIES DIDN'T RENEW. BY THEN THEY WERE

PRODUCING THEIR OWN CHIPS ANYWAY.

SAMSUNG NEGOTIATED FOR TWO YEARS AND GOT A LOWER ROYALTY

RATE.

LENOVO TO THE SAME EFFECT.

MOST OF THESE EXAMPLES THEY PRESENTED ARE OLD. I NOTICED

ONE IN THE CLOSING OF THE FTC FROM 2001, A SAMSUNG EXAMPLE.

2001. NOBODY IS CLAIMING THAT QUALCOMM HAD ANY MARKET POWER

THEN, AND THAT NEGOTIATION HAPPENED BECAUSE SAMSUNG STOPPED

PAYING ROYALTIES AT ALL AND THEY REALIZED THEY WERE WRONG AND

PAID UP.

NOW, I WANT TO MAKE A KEY POINT HERE, YOUR HONOR, WHICH IS

HIGH ROYALTIES ALONE IS NOT THE BASIS FOR THEIR CLAIM OF HARM

BECAUSE HIGH ROYALTIES ALONE ARE NOT ANTICOMPETITIVE EFFECT OR

ANTITRUST INJURY.

THEY HAVE TO SHOW HARM TO COMPETITION, AND WHAT THEY'VE

CHOSEN TO TRY TO PROVE IS HARM TO THE RIVAL CHIP MAKERS.

THAT'S WHY THEY'RE PRESENTING THIS TAX THEORY FROM

SHAPIRO.

SO EVEN IF YOUR HONOR WERE TO FIND THAT LASINSKI IS

CREDIBLE, WHICH I DON'T THINK YOU COULD, AND EVEN IF YOU WERE

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TO FIND THAT THESE NEGOTIATIONS RESULTED IN HIGHER ROYALTIES,

THAT'S NOT THE ANTICOMPETITIVE EFFECT THEY'RE TRYING TO PROVE.

THEY'RE TRYING TO PROVE THIS TAX THEORY, AND THAT'S WHY

THIS IS IMPORTANT, WHAT WE TALKED ABOUT WITH PROFESSOR SHAPIRO.

THEY'RE SAYING THAT THERE WAS A SUPRA-FRAND TAX THAT HE

PREDICTS WOULD RAISE RIVALS' COST -- THOSE ARE CHIP MAKERS --

HE PREDICTS WOULD REDUCE RIVALS' INCOME, HE PREDICTS WOULD

REDUCE RIVALS' SPENDING IN R&D, HE PREDICTS WOULD CAUSE HARM.

THE PROBLEM FOR HIM IS THAT THE TIME FOR THEORIES AND

PREDICTIONS IS PRETRIAL, NOT TRIAL. YOU HAVE TO PROVE IT. YOU

HAVE TO HAVE EVIDENCE.

HE ADMITTED NOT LOOKING AT ANY ONE OF THESE FACTORS, YOUR

HONOR, FOR ANY PARTICIPANT IN THIS MARKET.

I DIDN'T LOOK AT ANYONE'S ACTUAL COST AND ANYONE'S ACTUAL

INCOME.

AND YOUR HONOR KNOWS WHAT HAPPENED WITH RIVALS' R&D.

INTEL HAD PLENTY OF MONEY, BUT THE RESEARCH EFFORTS WERE

FUTILE.

ST-ERICSSON HAD MORE THAN ENOUGH MONEY, BUT THEIR RESEARCH

EFFORTS WERE BUNGLED.

BROADCOM HAD PLENTY OF MONEY, BUT THEY CHOSE TO LEAVE AN

INTENSELY COMPETITIVE MARKET.

MY POINT ON PROFESSOR SHAPIRO IS YOU DON'T GET PAST THE

BURDEN BY JUST TELLING ME WHAT YOUR THEORY IS, AND HE

REPEATEDLY TREATED US LIKE IDIOTS BECAUSE WE COULDN'T

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UNDERSTAND THAT.

NOW, I HEARD SOMETHING ABOUT STRAT FUNDS, WHICH MS. MILICI

REFERRED TO AS A CHIP DISCOUNT.

THEIR THEORY OF HARM FROM STRAT FUNDS IS BAFFLING. THESE

ARE MONIES, EVEN THEIR UNDER THEORY, PAID FROM QUALCOMM BACK TO

LICENSEES.

IF QUALCOMM HAS THE MARKET POWER TO DEMAND A SUPRA-FRAND

ROYALTY, WHY IN THE WORLD WOULD THEY SPEND MILLIONS OF DOLLARS

ON STRAT FUNDS?

NOW, MR. ABERLE EXPLAINED THESE AT PAGE 297 OF THE

TRANSCRIPT, YOUR HONOR. I'M SORRY, I DON'T HAVE A SLIDE ON IT.

BUT WHAT HE SAID WAS WE CONTRIBUTE TO A STRAT FUND AND THE

LICENSEE CONTRIBUTES, AND WE DO DEVELOPMENT WORK TOGETHER TO

PROMOTE OUR TECHNOLOGY AND THEIR PRODUCTS.

NOW, THEIR THEORY IS THAT THESE STRAT FUNDS ARE ONLY USED

WITH RECALCITRANT LICENSEES WHO WEREN'T DEPENDENT ON QUALCOMM.

THAT'S BALONEY. PROFESSOR NEVO LOOKED AT THOSE STRAT

FUNDS THAT WERE NEGOTIATED, ALONG WITH LICENSING AGREEMENTS,

AND THEY'RE ALL GIVEN TO PEOPLE WHO ARE BUYING MOST OR ALL OF

THEIR CHIPS FROM QUALCOMM.

SUGGESTING THAT THESE PEOPLE ARE USING THEIR OWN LEVERAGE

TO SAY, HEY, I'M A HUGE CUSTOMER, YOU BETTER TAKE CARE OF ME

AND HELP ME OR I'M NOT GOING TO BUY YOUR CHIPS ANYMORE.

PROFESSOR NEVO DISCUSSED THIS TEST AT TRANSCRIPT PAGE

1907.

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2157

LET'S TALK ABOUT APPLE BRIEFLY.

THIS IS A SEPARATE, INDEPENDENT CLAIM, YOUR HONOR, ASIDE

FROM THE WHOLE TAX THEORY. THEY'RE CLAIMING THIS CAUSED HARM

BY EXCLUDING PEOPLE.

BUT LET'S BE CLEAR. PROFESSOR SHAPIRO IS ONLY TALKING

ABOUT INTEL, AND HE'S ONLY TALKING ABOUT A ONE YEAR DELAY, AND

HE'S ONLY TALKING ABOUT THIS ONE CONTRACT, AND HE'S NOT TALKING

ABOUT ANYTHING ELSE.

AND WE NOW KNOW, JUST LIKE MR. MOLLENKOPF SAID, THIS WHOLE

TRANSACTION WAS INITIATED BY APPLE.

MR. WILLIAMS SAID THE OTHER PIECE IS WE WERE GOING TO MOVE

OUR BUSINESS FROM INFINEON TO QUALCOMM BECAUSE WE NEEDED

QUALCOMM TECHNOLOGY. WE ASKED FOR TRANSITION FUNDS.

THIS IS COMING FROM APPLE. THEY WERE DEMANDING BIG

UPFRONT PAYMENTS IN EXCHANGE FOR MOVING THE BUSINESS, AND THEY

GOT THAT.

BUT ALONG WITH IT, THEY HAD TO MAKE A COMMITMENT THAT IF

THEY DIDN'T BUY CHIPS, THEY WOULDN'T GET THE MONEY.

AND THAT'S WHAT MR. WILLIAMS CALLED IT. THIS IS

ABSOLUTELY CONSISTENT WITH WHAT MR. MOLLENKOPF SAID. THE

TRANSITION AGREEMENT ALLOWED QUALCOMM TO PROTECT ITSELF FROM

MAKING THESE LARGE INCENTIVE PAYMENTS IF APPLE DIDN'T BUY

CHIPS.

THAT'S RIGHT.

THE FUNDS WERE A PRICE VOLUME REBATE THAT'S A STANDARD

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2158

PRACTICE.

REMEMBER, YOUR HONOR, WE'RE CALLING THIS AN EXCLUSIVE

DEAL. BUT IN REALITY, THERE WAS NO MINIMUM GUARANTEED PURCHASE

FROM QUALCOMM. THEY DIDN'T HAVE TO BUY A SINGLE CHIP. AND

THEY HAD THE RIGHT TO SELECT A SECOND SOURCE, AND THEY DID,

INTEL IN 2016.

NOW, THE IDEA THAT THIS WAS SOMEHOW EXCLUSIONARY,

MR. MOLLENKOPF TESTIFIED, AND IT'S PRETTY OBVIOUS FROM

MR. WILLIAMS, IT'S A WINNER TAKE ALL DEAL, AND IF IT'S A WINNER

TAKE ALL DEAL, THERE'S GOING TO BE ONE WINNER AND ONE LOSER,

AND QUALCOMM WANTED TO BE THE WINNER. THAT'S WHY THEY BID ON

IT, AND THAT'S WHY MR. MOLLENKOPF TOOK THIS NEXT SLIDE TO THE

BOARD.

THIS ONE IS UNDER SEAL, YOUR HONOR. IT'S JX 86.

TAKE A LOOK. THIS IS WHAT HE WAS PREDICTING UNDER THIS

DEAL. ON THE TOP, THAT'S MAVERICK DEAL. ON THE BOTTOM, THAT'S

NO DEAL. THERE'S A HUGE DIFFERENCE IN UNITS AND A HUGE

DIFFERENCE IN DOLLARS. BUT IT'S ALL PROFITABLE. THIS WAS NOT

A LOSS LEADER. THIS WAS NOT SOME SORT OF A SUNKEN FUND. THIS

WAS NOT ANYTHING LIKE WHAT THE FTC OR PROFESSOR SHAPIRO CLAIMS.

THIS WAS A STRAIGHT-UP PROFIT DEAL WITH A LOT OF OPPORTUNITY

FOR QUALCOMM, AND THEY MADE PROFIT, AND LOTS OF IT ACCORDING TO

MR. MOLLENKOPF.

NOW, THERE'S ANOTHER REASON WHY THIS IS ALL MUCH ADO ABOUT

NOTHING, AND THAT IS EVEN THE ONE YEAR PERIOD THAT SHAPIRO

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2159

CLAIMS WAS A PERIOD OF DELAY IS NOT SUPPORTED BY THE EVIDENCE

BECAUSE INTEL WASN'T READY TO PROVIDE A PRODUCT UNTIL 2016, AS

THIS SLIDE SHOWS.

HERE'S MR. SAUER, WHOM WE CALLED FROM APPLE. HE WAS

RUNNING THE PROJECT FROM THE APPLE SIDE. INTEL WAS STRUGGLING

TO MATCH QUALCOMM IN 2015. THEY WEREN'T ABLE TO DO IT. THEY

DIDN'T HAVE WHAT APPLE WANTED ON THE SCHEDULE APPLE WANTED,

WHICH IS WHY APPLE STAYED WITH QUALCOMM.

SO THERE IS NOTHING WHATSOEVER EXCLUSIONARY ABOUT THESE

SERIES OF TRANSACTIONS BECAUSE THERE WAS NOBODY ELSE TO DO IT.

AND GUESS WHAT? INTEL GOT THE BUSINESS IN 2016, BUT

THAT'S ALL THEY EVER WANTED. AS MS. EVANS SAYS, THEY DON'T

HAVE A PROGRAM TO BE IN HANDSETS MORE BROADLY. YOU'VE GOT TO

BE MAKING SYSTEM ON A CHIP TO BE A REAL COMPETITOR, AS

MS. CHIPTY'S CHART ON THE RIGHT SHOWS.

THEY'RE NOT THERE. THEY'RE NOT EVEN INTERESTED IN IT.

SO THE ONE YEAR DELAY WAS NO DELAY AT ALL. THEY GOT THE

BUSINESS THEY WANTED. THEY NOW HAVE THE BUSINESS THEY WANT.

AND THE FTC HAS MADE NO EFFORT TO SHOW WHAT PORTION OF ANY

MARKET WAS FORECLOSED BY THIS SINGLE TRANSACTION.

SO THERE'S BEEN ABSOLUTELY NO SHOWING UNDER THE TAX

THEORY, UNDER THIS THEORY, OR ANY OTHER THEORY, THAT THERE'S

BEEN ANY HARM TO COMPETITION.

AND, YOUR HONOR, UNDER THE LAW, THAT'S WHERE THE ANALYSIS

STOPS. YOU DON'T EVEN GET TO PROCOMPETITIVE REASONS OR ANY OF

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THE REST OF IT. THEY'VE GOT TO SHOW BURDEN -- THEY'VE GOT TO

SHOW HARM TO COMPETITION.

BUT LET ME TALK ABOUT QUALCOMM'S LICENSING PRACTICES

BECAUSE THAT'S THEIR OTHER BEEF.

YOUR HONOR, LICENSING AT THE HANDSET LEVEL IS INDUSTRY

STANDARD AND ALWAYS HAS BEEN. THIS IS IMPORTANT TO THE DUTY TO

DEAL THAT WE TALKED ABOUT PRETRIAL.

EVERY ONE OF THESE WITNESSES -- AND I GOT SIX ON THE

CHART -- INCLUDING MR. DONALDSON FROM THE FTC, MR. MOYNIHAN

FROM MEDIATEK, MR. WEILER FROM ETSI, PETERSSON, MCELVAINE, AND

RAHNASTO FROM NOKIA, INTERDIGITAL, ERICSSON, THEY ALL SAID THE

SAME THING. WE LICENSE AT THE HANDSET LEVEL BECAUSE IT'S MORE

EFFICIENT, YOU HAVE A SINGLE TRANSACTION, EVERYBODY IS

PROTECTED, AND THE VALUE OF OUR PATENTS IS PRACTICED AT THE

HANDSET.

NOW, THERE'S A COROLLARY TO THAT. IT'S THE OTHER SIDE OF

THE SAME COIN. IF YOU LICENSE AT THE HANDSET LEVEL, YOU DON'T

LICENSE AT THE COMPONENT LEVEL, AND THE WITNESSES ALL SAID

THAT, TOO.

MR. MOYNIHAN SAID, IPR HOLDERS GO OUT OF THEIR WAY TO MAKE

IT CLEAR THEY'RE NOT LICENSING THE CHIPSET COMPANY.

INTERDIGITAL DOES NOT ENTER INTO STANDALONE PATENT LICENSE

AGREEMENTS.

PETERSSON, ST-ERICSSON COULD RELY ON THE INDUSTRY PRACTICE

AND WAS NEVER APPROACHED BY THE PATENT HOLDERS.

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2161

THE COROLLARY IS THAT CHIPSET LEVEL LICENSING IS NOT

CUSTOMARY.

AND BY THE WAY, THE FTC DIDN'T INTRODUCE A SINGLE CHIP

LEVEL LICENSE IN THIS CASE TO BACK UP ITS CLAIM THAT QUALCOMM

IS SOMEHOW OUT OF THE MAIN STREAM. THEY'RE NOT.

THESE WITNESSES ALL EXPLAINED WHY HANDSET LEVEL LICENSING

IS IMPORTANT AND WHY QUALCOMM'S PRACTICES ARE IN LINE. THEY

ALL EXPLAIN THAT WHY WOULD YOU WANT TO HAVE TEN NEGOTIATIONS

WITH EACH OF THE COMPONENT SUPPLIERS IF YOU CAN HAVE ONE WITH

THE DEVICE LEVEL OEM AND COVER EVERYBODY? THAT'S WHAT EVERYONE

HAS DONE. THAT'S BEEN INDUSTRY PRACTICE FOR YEARS. WE'RE NOT

AN OUTLIER IN ANY RESPECT.

AND YOU HEARD FROM ETSI, YOUR HONOR. MR. WEILER CAME IN

AND TESTIFIED THAT ETSI CONSIDERS HANDSET LEVEL LICENSING

CONSISTENT WITH INDUSTRY PRACTICE AND FULLY IN LINE WITH THE

POLICY OBJECTIVES.

NOW, MR. ROGERS, AND MR. GONELL, AND MR. WEILER TESTIFIED

THAT ETSI POLICY IS THE POLICY THAT PEOPLE IN 3GPP, WHICH IS

THE CELLULAR STANDARDS ORGANIZATION, LOOK TO FOR IPR POLICY.

NO ONE MAKING A FRAND COMMITMENT IN THE PAST, YOUR HONOR,

HAS CONSIDERED IT THEIR OBLIGATION TO LICENSE A CHIP MAKER.

THAT'S NOT BEEN THE WAY PEOPLE HAVE BEHAVED IN THE INDUSTRY.

IT'S NOT BEEN THE WAY THE INDUSTRY HAS OPERATED.

THE WAY THE INDUSTRY HAS OPERATED IS THE WAY QUALCOMM HAS

OPERATED, HANDSET LEVEL LICENSING.

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CLOSING ARGUMENT BY MR. VAN NEST

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2162

AS MR. GONELL HAS SAID, QUALCOMM HAS NEVER GRANTED AN

EXHAUSTIVE LICENSE TO A CHIP MAKER. IT'S NOT A SITUATION WHERE

QUALCOMM HAD A PRACTICE THAT CHANGED OR QUALCOMM MADE A

COMMITMENT THAT THEY UNDERSTOOD REQUIRED LICENSING AT THE

COMPONENT LEVEL.

GOOD REASONS EXIST FOR DOING IT THE WAY THEY DO, AND

THAT'S THE WAY THEY'VE ALWAYS DONE IT.

SO YOU COULDN'T FIND ANTICOMPETITIVE MALICE FROM THIS IF

IT'S WHAT THE INDUSTRY DOES, AND THERE'S TESTIMONY THAT IT'S

ABSOLUTELY CONSISTENT WITH ETSI.

I UNDERSTAND THE FUTURE MAY BE DIFFERENT, MAY BE. BUT THE

PAST IS CRYSTAL CLEAR THAT THIS IS HOW FOLKS HAVE OPERATED.

AND, YOUR HONOR, THE ONLY THING I HEARD TO COUNTER THIS

WAS CROSS-LICENSING, CROSS-LICENSING.

YOU HEARD ABOUT CROSS-LICENSING FROM MR. GONELL AND

MR. WEILER, TOO. CROSS-LICENSING IS ABSOLUTELY INDUSTRY

STANDARD, BUT IT'S FUNDAMENTALLY DIFFERENT FROM COMPONENT LEVEL

LICENSING.

IF YOU ARE GIVING A PORTFOLIO LICENSE TO A LICENSEE, IT

MAKES NO SENSE NOT TO HAVE A COMPREHENSIVE AGREEMENT.

OTHERWISE YOU SIGN YOUR LICENSE WITH THE LICENSEE, YOU GIVE

THEM YOUR RIGHTS TO ALL YOUR PATENTS, AND THE NEXT DAY THEY SUE

YOU ON THEIR PORTFOLIO.

THAT MAKES ABSOLUTELY NO SENSE AND NOBODY OPERATES THAT

WAY.

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MR. GONELL TESTIFIED THAT'S COMMON, AND MR. WEILER SAID

THAT'S HOW ETSI OPERATES, TOO. YOU'RE ALLOWED TO, IN A FRAND

WORLD, YOU ARE ABSOLUTELY ALLOWED TO ASK FOR A CROSS-LICENSE IF

YOU'RE PROVIDING A FRAND LICENSE.

NOW, THAT MEANS THAT THERE IS NO ANTITRUST DUTY TO DEAL

BASED ON THE ROADMAP THAT YOUR HONOR LAID OUT IN THE MOTION TO

DISMISS. YOU LAID IT OUT. YOU GAVE THEM A CLEAR ROADMAP, AND

IT WAS CORRECT. YOU SAID THERE HAS TO BE A CHANGE OR

ABANDONMENT OF A PROFITABLE COURSE OF DEALING, AND

ANTICOMPETITIVE MALICE, NAMELY, SOMETHING NOT RATIONAL DONE FOR

AN ANTICOMPETITIVE PURPOSE.

THERE'S NO EVIDENCE OF THAT HERE. THEY FAILED TO PROVE

IT. THEY HAD THE ROADMAP, BUT THEY DIDN'T GET ON THE ROAD.

OUR REFUSAL TO LICENSE CHIP MAKERS IS INDUSTRY STANDARD,

IT'S NEVER CHANGED, IT'S BEEN CONSISTENT WITH ETSI POLICY

THROUGHOUT, AND THERE IS NOW ABSOLUTELY NO BASIS FOR A FINDING

OF A DUTY TO DEAL WITH COMPETITORS.

NOW, SOMETHING THAT IS NOT INDUSTRY STANDARD IS QUALCOMM'S

POLICY OF SELLING ONLY TO LICENSED OEM'S. I THINK IN THAT

RESPECT QUALCOMM IS UNIQUE, AND WE SAID THAT RIGHT UPFRONT.

YOU HEARD TESTIMONY ABOUT THIS FROM MR. MOLLENKOPF,

MR. GONELL, MR. NEVO, PROFESSOR NEVO.

AND THE ANSWER IS QUALCOMM'S UNIQUE. IT STARTED OFF AS A

LICENSING BUSINESS WITH SYSTEM END-TO-END TECHNOLOGY. IT NEVER

INTENDED TO GET PAID BASED ON PRODUCT SALES. FROM THE VERY

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CLOSING ARGUMENT BY MR. VAN NEST

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BEGINNING, THE VALUE IN ITS I.P. WAS RECOVERED FROM LICENSING.

SO IN EFFECT, THEY HAVE TWO BUSINESSES. THERE'S A

LICENSING BUSINESS WITH THE SYSTEM END-TO-END TECHNOLOGY THAT

READS ALL OVER THE HANDSET; AND THERE'S A CHIP BUSINESS. THE

I.P. FOR THE SYSTEM IS NOT PRICED INTO THE CHIP.

AND QUALCOMM SHOULDN'T BE AT A DISADVANTAGE JUST BECAUSE

THEY HAVE A CHIP BUSINESS. IT SHOULDN'T BE THE CASE THAT THEY

SHOULD PUT THEMSELVES AT RISK OF SOMEBODY CLAIMING, I DON'T

HAVE TO PAY FOR YOUR I.P. BECAUSE I BOUGHT A CHIP. THAT'S NOT

BEEN THE WAY THE BUSINESS HAS DEVELOPED. THAT'S NOT BEEN THE

WAY QUALCOMM HAS DEALT WITH ITS LICENSEES FOR THE LAST 30

YEARS.

IT'S ABSOLUTELY FAIR, AS PROFESSOR NEVO SAID, BECAUSE IT'S

TRANSPARENT. ALL LICENSEES PAY THE RATE. THEY KNOW THE STATED

RATE. THEY NEGOTIATE A DEAL, AND THEN EVERYBODY COMPETES ON

THE CHIPS.

THERE'S NO OVERLAP BETWEEN THOSE. FOLKS ARE COMPETING ON

CHIPS. IT DOESN'T MATTER, ONCE YOU HAVE A LICENSE, WHOSE CHIPS

YOU BUY. YOU COMPETE ON THE MERITS OF THE CHIPS.

PERFORMANCE, PRICE, AVAILABILITY.

AND PROFESSOR NEVO SAID THAT'S A FAIR WAY TO DO IT, AND I

DIDN'T HEAR ONE WORD FROM PROFESSOR SHAPIRO IN RESPONSE.

AND ALL THIS TESTIMONY THAT YOU HEARD ABOUT THE DOCUMENTS

THAT GOOD OLD BCG PREPARED WAS ABSOLUTELY CONSISTENT WITH THIS.

BCG PROVIDED A SLIDE DECK NOT TO MR. MOLLENKOPF AND NOT TO

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MANAGEMENT AND NOT TO MR. JACOBS, THEY PRESENTED IT TO AN

INDEPENDENT COMMITTEE OF THE BOARD.

MR. MOLLENKOPF SAID CLEARLY, THE REASON WE KEPT THE

BUSINESS TOGETHER WAS BECAUSE HAVING A CHIP BUSINESS HELPS US

WITH CREDIBILITY WITH THE STANDARDS ORGANIZATIONS, IT HELPS

WITH THEIR CONFIDENCE THAT A STANDARD THAT WE'RE PROPOSING CAN

ACTUALLY BE TURNED INTO A PRODUCT, AND ON THE OTHER SIDE, THE

CHIP BUSINESS IS BETTER OFF BECAUSE WE'VE GOT AN INVENTION

MACHINE OVER HERE IN OUR CORPORATE R&D THAT ALLOWS US TO GET

PRODUCTS TO MARKET SOONER.

THERE ARE ABSOLUTELY GOOD, FAIR, LEGITIMATE REASONS TO

KEEP THE BUSINESS TOGETHER, AND THERE'S NOBODY IN MANAGEMENT OR

ANYWHERE ELSE AT QUALCOMM THAT SAYS USING STICKS AND CARROTS IS

A GREAT THING.

NOW, MY FINAL POINT MAYBE HAS BEEN CONCEDED, AND THAT IS

THAT QUALCOMM EARNED ITS PLACE THROUGH SUPERIOR INNOVATION AND

BETTER PRODUCTS.

WHY IS THAT IMPORTANT?

THIS QUOTE, YOUR HONOR, IS FROM THE FTC'S PROPOSED

CONCLUSIONS OF LAW, AND THE GIST OF IT IS THEY'VE GOT THE

BURDEN TO SHOW THAT QUALCOMM MAINTAINED ITS MARKET POSITION

THROUGH ILLEGAL CONDUCT RATHER THAN GROWTH OR DEVELOPMENT AS A

CONSEQUENCE OF A BETTER PRODUCT, BUSINESS ACUMEN, ET CETERA.

WELL, WE HAVE PROVED TO A TEE THAT QUALCOMM GOT HERE AND

STAYED HERE BASED ON THE SUCCESS OF ITS ENGINEERING PROGRAM.

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2166

AND THE EVIDENCE IS ESSENTIALLY UNDISPUTED ON THAT.

LET'S LOOK AT WHAT YOU HEARD FROM MR. JACOBS. WE'RE

LOOKING FOR A WAY TO MAKE A MAJOR STEP AND TAKE A SYSTEMS

APPROACH. WE DON'T WANT TO IMPROVE THINGS JUST A LITTLE. WE

WANT TO IMPROVE THEM A LOT.

AND THE FTC NOW ADMITS THAT CDMA IN MOBILE WAS AN

INVENTION OF QUALCOMM AND THAT WAS A HUGE STEP FORWARD FOR

VOICE COMMUNICATIONS IN THE EARLY DAYS.

BUT THAT'S NOT THE END OF IT. THAT'S NOT THE END OF IT.

YOU HEARD FROM MR. MALLADI AND FROM DR. JACOBS THAT QUALCOMM

HAS KEPT PUSHING THE INDUSTRY FORWARD.

WHAT WAS THE NEXT BIG THING? HDR, HIGH DATA RATES.

THAT'S A BREAKTHROUGH TECHNOLOGY.

WHY DO WE HAVE CELL PHONES AND SMARTPHONES NOW THAT CAN

CARRY ALL THIS DATA AND YOUTUBE AND VIDEO AND EVERYTHING ELSE?

IT'S BECAUSE OF HDR. THAT WAS A BREAKTHROUGH THAT'S MADE

BILLIONS OF DOLLARS FOR THE INDUSTRY, INCLUDING ALL OF OUR OEM

LICENSEES. THAT HAS PUSHED THE INDUSTRY FROM 2G TO 3G TO 4G.

AND PROFESSOR ANDREWS PUT A FINE POINT ON IT. HE SAID

QUALCOMM HAS BEEN INSTRUMENTAL IN TWO AREAS, FUNDAMENTAL

ESTABLISHMENT OF THE WAVEFORMS AND CONTROL THAT AFFECTS

SMARTPHONE OPERATION. THAT'S WHERE QUALCOMM HAS FOCUSSED ITS

WORK.

AND BROAD PATENT COVERAGE IN THESE NEW AREAS THAT ARE

TAKING US TO 4G AND 5G, CARRIER AGGREGATION, CELLULAR IN

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CLOSING ARGUMENT BY MR. VAN NEST

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2167

UNLICENSED SPECTRUM, HETEROGENOUS NETWORKS.

HE TESTIFIED THAT THE PORTFOLIO WAS BROAD AND DEEP AND

THAT THESE WERE ALL FUNDAMENTAL TECHNOLOGIES WITHOUT WHICH THE

INDUSTRY WOULDN'T BE ABLE TO MOVE FORWARD.

AND MR. CHEN FROM QUALCOMM EXPLAINED THAT RESEARCH GIVES

US A LOT OF PATENTS, INCLUDING IN THE NON-STANDARD ESSENTIAL

PATENT AREAS THAT READ ALL OVER THE PHONE, AREAS OUTSIDE OF

CELLULAR, AREAS THAT ARE NOT CELLULAR, AREAS THAT ARE

FUNDAMENTAL FEATURES ON YOUR SMARTPHONE THAT DON'T HAVE

ANYTHING TO DO WITH CELLULAR.

NOT ONLY HAS MR. LASINSKI IGNORED THOSE, BUT THE FTC

HASN'T PROVEN ANYTHING ABOUT ANY OTHER COMPETING PORTFOLIO,

NOTHING. THERE'S NO EVIDENCE IN THE RECORD ABOUT ANYBODY

ELSE'S PORTFOLIO.

AND I WOULD SUGGEST TO YOUR HONOR THERE'S A REASON FOR

THAT. THE REASON QUALCOMM LEADS IN ROYALTIES, AND THE REASON

QUALCOMM'S ROYALTY RATES HAVE REMAINED THE SAME, AND THE REASON

THOSE RATES HAVE BEEN THE SAME NO MATTER WHAT THEIR MARKET

SHARE IS, IS THIS, IT'S THEIR TECHNOLOGY, THEIR PORTFOLIO.

IT'S SIMPLY BETTER THAN EVERYBODY ELSE'S.

AND NO WITNESS CAME ON THE FTC SIDE TO CONTRADICT THAT.

NOTHING IN THE RECORD.

AND IT'S BACKED UP BY OUR COMPETITORS AND OUR CUSTOMERS,

TOO. HERE'S WHAT BAIN AND INTEL CAME UP WITH. THEY'RE TALKING

NOW NOT ABOUT THE FUNDAMENTAL SYSTEM TECHNOLOGY, BUT OUR CHIP

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2168

BUSINESS. INTEL RECOGNIZES QUALCOMM R&D DRIVES THE PACE OF

INNOVATION.

IT'S QUALCOMM THAT'S OUT FRONT BUILDING THE BETTER

PRODUCTS.

AND YOU MAY REMEMBER, YOUR HONOR, MR. MOYNIHAN FROM

MEDIATEK SAID WE BENCHMARK AGAINST QUALCOMM. THEY'RE THE

LEADER. THAT'S AT PAGES 325 EXAMINE 326. AGAIN, FORGIVE ME, I

DON'T HAVE A SLIDE. BUT IT'S TRANSCRIPT 325 AND 326. MOYNIHAN

SAID, FROM MEDIATEK, WE BENCHMARK.

THE CUSTOMERS ALL AGREED. THIS TESTIMONY WAS FEATURED BY

THEM. QUALCOMM HAD THE BEST CHIPSET AVAILABLE.

NOBODY ELSE WAS THERE. QUALCOMM WAS AHEAD IN LTE.

QUALCOMM'S PERFORMANCE WAS A YEAR AHEAD OF INTEL. QUALCOMM HAD

A SUPERIOR OFFERING.

OVER AND OVER AND OVER.

AND NOT ONLY THAT, YOUR HONOR, THIS IS ALL TESTIMONY THAT

WAS ELICITED BY THE FTC. PROFESSOR SHAPIRO CHIMED IN AND GAVE

US THIS HELPFUL CHART.

THIS CHART SHOWS, IN PROFESSOR SHAPIRO'S VIEW, THAT

QUALCOMM HAS BEEN FIRST TO MARKET IN EVERY SINGLE ADVANCED LTE

TECHNOLOGY CATEGORY. EVERY ONE.

THE BOXES ON THE LEFT WITH THE NICE COLORS ARE QUALCOMM,

AND THE BOXES ON THE RIGHT ARE THE REST OF THE INDUSTRY TRYING

TO CATCH UP.

SO CATEGORY 3, THEY'RE TWO YEARS AHEAD. CATEGORY 4,

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CLOSING ARGUMENT BY MR. VAN NEST

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2169

THEY'RE A YEAR AHEAD. ET CETERA, ET CETERA, ET CETERA, ET

CETERA.

SO, YOUR HONOR, IF THE TASK IS TO DECIDE WHETHER QUALCOMM

MAINTAINED ITS POSITION THROUGH INNOVATION, SKILL, TECHNOLOGY,

OR THROUGH ITS LICENSING PRACTICES, IT'S A LAY DOWN HAND. THEY

HAVEN'T PROVEN ANYTHING WITH RESPECT TO OUR LICENSING PRACTICES

THAT HAD ANY IMPACT ON THE ADVANCEMENT OF THIS TECHNOLOGY.

AND SO FOR THOSE REASONS, I THINK THE EVIDENCE IS CRYSTAL

CLEAR, THERE CAN'T BE ANY VIOLATION BASED ON WHAT THEY

PRESENTED. EVEN THOUGH YOUR HONOR GAVE THEM A ROADMAP, THEY

WERE UNABLE TO PRESENT EVIDENCE TO MEET THE BURDEN.

BUT NOW I WANT TO TALK FOR JUST A FEW MINUTES ABOUT

REMEDIES, AND I WANT TO START WITH A SLIDE FROM

PROFESSOR SHAPIRO BECAUSE THEY SAID THAT THE PRESENCE OF

EXISTING CONDUCT IS ENOUGH FOR INJUNCTIVE RELIEF, AND THAT'S

JUST NOT THE LAW.

AND PROFESSOR SHAPIRO SAID WAS IF THE COST TO AN OEM OF

LOSING ACCESS TO CHIPS WERE NIL, THEN THE NO LICENSE, NO CHIPS

POLICY WOULD HAVE NO BITE, AND, THEREFORE, QUALCOMM WOULD NOT

BE ABLE TO ELEVATE ROYALTIES AND THE REST OF THE PROGRAM FALLS

APART.

WELL, THAT MEANS IF QUALCOMM LACKS MARKET POWER, THEN ITS

PRACTICES ARE NOT CAPABLE OF ANY HARM.

AND THE LAW ISN'T THAT IT'S ENOUGH TO SHOW CONDUCT

CONTINUING. YOU HAVE TO SHOW A CONTINUING VIOLATION. A

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VIOLATION REQUIRES MARKET POWER.

AND THE FTC HASN'T PRODUCED ANY EVIDENCE OF MARKET POWER

AFTER 2016, AS THIS NEXT SLIDE SHOWS.

PROFESSOR SHAPIRO WAS CRYSTAL CLEAR. NOTHING IN 2017,

NOTHING IN 2018.

AND I'M NOT JUST QUIBBLING HERE, YOUR HONOR. IT'S NOT AS

THOUGH HE WAS SHOWING A STRAIGHT LINE UP FOR QUALCOMM WITHIN A

YEAR OF TRIAL. THAT'S NOT IT.

HE WAS SHOWING A STRAIGHT LINE DOWN, DIMINISHING MARKET

SHARE IN 2014, 2015, 2016.

AND HIS ANALYSIS STOPS COMPLETELY IN 2016.

SO THERE'S CURRENTLY NO BASIS IN THE RECORD, OR THE

EVIDENCE, FOR ANY FORM OF INJUNCTIVE RELIEF, YOUR HONOR, IF YOU

CAN'T SHOW SOME EVIDENCE OF MARKET POWER NOW OR WITHIN MONTHS

OF NOW, WHICH THEY HAVEN'T SHOWN.

AND WE KNOW THAT 5G IS GOING TO BE COMPETITIVE. YOU HEARD

A LOT OF TESTIMONY ABOUT THAT. MR. MOYNIHAN SAYS MEDIATEK HAS

A CHIP, AND IT'LL BE OUT.

MS. EVANS SAYS INTEL HAS A CHIP, AND IT'LL BE OUT.

MR. ROGERS SAW A HUAWEI CHIP DISPLAYED LAST JANUARY, A

YEAR AGO, AT THE MOBILE WORLD CONGRESS.

SO WE KNOW THAT THERE'S GOING TO BE STIFF COMPETITION FROM

WELL FUNDED ADVERSARIES, LIKE HUAWEI, IN THIS FIELD NO MATTER

WHAT.

ANOTHER POINT. THEY ARE ASKING YOUR HONOR TO THROW OUT

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2171

HUNDREDS OF LICENSE AGREEMENTS, RENDER THEM UNENFORCEABLE, THAT

HAVE BEEN NEGOTIATED WITH THIRD PARTIES OVER THE PAST 10 TO 15

YEARS.

THERE IS NO EVIDENCE OF ANY PLAUSIBLE CHIP LEVERAGE AS TO

ANY OF THE FOLLOWING CATEGORIES I'VE GOT ON THE BOARD. THEY'RE

NOT CLAIMING ANY MARKET POWER IN WCDMA.

MANY OF THE LICENSE AGREEMENTS THAT YOUR HONOR HAS BEFORE

HER ARE WCDMA.

NO CLAIM OF MARKET POWER IN LTE BEFORE 2011.

NO CLAIM OF MARKET POWER IN CDMA BEFORE 2006.

YOUR HONOR CLARIFIED THAT WHEN PROFESSOR SHAPIRO WAS HERE.

NO CLAIM OF MARKET POWER NOW OR ANY TIME AFTER 2016.

AND ALL TRENDS ARE SHOWING MARKET SHARE DIMINISHING.

THE CPLA LICENSES, YOUR HONOR, ARE THE ONES MR. ROGERS

ADDRESSED FRIDAY. THEY WERE EXECUTED UNDER THE NDRC

RECTIFICATION PLAN AND APPROVED BY THE NDRC.

THE SAMSUNG AGREEMENT IS TO THE SAME EFFECT. IT WAS

NEGOTIATED IN 2018. I'VE GOT A SLIDE ON THAT IN A MINUTE.

BUT MY POINT IS THAT EVEN IF YOUR HONOR WERE TO FIND SOME

VIOLATION OUT OF ALL THIS, WHICH I DON'T THINK YOU CAN, THERE

CLEARLY IS NO EVIDENCE AS TO ANY OF THE LICENSE AGREEMENTS IN

THESE CATEGORIES TO SUPPORT ANYTHING.

AND NOW MY SAMSUNG SLIDE, LET'S GO TO SAMSUNG, IS SIMPLY

THIS: THE TWO TOP PEOPLE, MR. AHN'S A LAWYER, MR. LEE IS NOT,

THE TWO TOP PEOPLE THAT NEGOTIATED THE SAMSUNG AGREEMENT THAT

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CLOSING ARGUMENT BY MR. VAN NEST

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2172

WAS LATER PROVIDED TO THE KOREAN GOVERNMENT SAID THERE WAS

NOTHING WRONG WITH OUR NEGOTIATION, NO PRESSURE, NO NOTHING. I

WASN'T COERCED, THERE WAS NO TALK OF CHIP SUPPLY.

AND I THINK IMPORTANT I THINK HERE TO RECOGNIZE, YOUR

HONOR, AS PROFESSOR NEVO SAID, IN A MARKET LIKE THIS THAT'S

RAPIDLY CHANGING AND THAT'S BEEN HIGHLY SUCCESSFUL, COURT

INTERVENTION -- GOD BLESS YOU --

THE COURT: THANK YOU.

MR. VAN NEST: -- COURT INTERVENTION, IF IT'S GOING

TO HAPPEN AT ALL, HAS TO BE MEASURED. IT MUST BE MEASURED.

THEY'VE PROVIDED NO EVIDENCE THAT WHAT THEY WANT WILL HAVE

ANY EFFECT ON THE MARKET THAT'S POSITIVE.

AND YOU KNOW NOW THAT SINCE THE HANDSET LEVEL LICENSING

AND COMPONENT LICENSING, THE WAY IT'S DONE NOW -- BLESS YOU

AGAIN --

THE COURT: THANK YOU.

MR. VAN NEST: -- HAS BEEN SUCCESSFUL, THAT I WOULD

URGE THE COURT TO REVIEW THE TESTIMONY OF PROFESSOR NEVO ON

THIS ISSUE BECAUSE THE FTC HAS PRESENTED ABSOLUTELY NOTHING TO

JUSTIFY THE SWEEPING ALMOST BREATHTAKING REMEDY THEY WANT BASED

ON THE PALTRY EVIDENCE THEY PROVIDED.

AND SO NOW, YOUR HONOR, FOR ALL THE REASONS I PROVIDED IN

MY DISCUSSION THIS AFTERNOON, AS WELL AS OUR PRETRIAL BRIEF,

OUR PROPOSED FINDINGS OF FACT AND CONCLUSIONS, I THINK IT'S

PRETTY CLEAR, THE FTC FAILED TO MEET ITS BURDEN ON EVERY

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2173

ELEMENT OF THE CLAIMS AND HASN'T SHOWN THAT ANY OF THE REMEDIES

IT SEEKS ARE NECESSARY, TAILORED, OR IN THE PUBLIC INTEREST AT

ALL.

AND SO FOR THOSE REASONS, WE MOVE FOR THE JUDGMENT OF

DISMISSAL UNDER FEDERAL RULE OF CIVIL PROCEDURE 52(C).

AND I THANK YOUR HONOR FOR YOUR ATTENTION THIS AFTERNOON

AND THROUGHOUT THE TRIAL. I HOPE I'VE BEEN HELPFUL.

THE COURT: ALL RIGHT. THANK YOU. THANK YOU VERY

MUCH.

IT'S 3:35.

(PAUSE IN PROCEEDINGS.)

THE COURT: ALL RIGHT. YOU HAVE 9 MINUTES. LET ME

KNOW WHEN YOU'RE READY TO START.

MS. MILICI: OKAY. I'M READY.

THE COURT: OKAY. 3:35. GO AHEAD, PLEASE.

REBUTTAL.

(MS. MILICI GAVE HER REBUTTAL CLOSING ARGUMENT ON BEHALF

OF THE FTC.)

MS. MILICI: THANK YOU, YOUR HONOR.

I WANT TO JUST TAKE A FEW MINUTES TO CLARIFY SOME OF THE

THINGS THAT MY OPPONENT JUST SAID.

FIRST, MR. VAN NEST SAID THAT THERE HAS BEEN NO EVIDENCE

OF ANTICOMPETITIVE EFFECT, AND THAT'S JUST WRONG.

THE EVIDENCE IS -- THE RECORD IS FULL OF SUCH EVIDENCE,

AND I SAID SO IN CLOSING. AND THESE INCLUDE DELAYED ENTRY BY

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2174

INTEL AND MEDIATEK, FORECLOSURE OF INTEL AND RIVALS BY

EXCLUSIVE DEALS, THE EXITS OF RIVALS BECAUSE THE PROFITS IN

SCALE ARE SUCKED OUT OF THE INDUSTRY BY A QUALCOMM TAX, REDUCED

INDUSTRY PROFITS TO INVEST R&D, HIGHER PRICES IN THE FORM OF

PREMIUM PRICES FOR QUALCOMM CHIPS THAT ARE PAID FOR BY

CUSTOMERS, AND THEN BY HANDSET CONSUMERS. CHIP PRICE ADDERS

FOR CDMA CHIPS, WE SAW THAT EVIDENCE DURING TRIAL.

DENIAL OF LEARNING OPPORTUNITIES FOR RIVALS LEADING TO

INEFFICIENT INNOVATION, AND SUPER COMPETITIVE QUALCOMM CHIPSET

MARGINS. THESE ARE ALL ANTICOMPETITIVE EFFECTS, AND THE RECORD

IS FULL OF THEM.

NOW, THERE ARE A COUPLE OF OTHER THINGS THAT MY COLLEAGUE

SAID THAT ARE A LITTLE BAFFLING TO ME. HE ATTACKS THE

WITNESSES WHO APPEARED ON BEHALF OF THIRD PARTIES AS BEING

LAWYERS.

I WOULD NOTE THAT WE ARE TALKING ABOUT LICENSING

NEGOTIATIONS. LICENSING NEGOTIATIONS ARE TYPICALLY CONDUCTED

BY LAWYERS. AND, IN FACT, THE WITNESSES THAT QUALCOMM

PRESENTED TO TALK ABOUT LICENSING NEGOTIATIONS ARE LAWYERS.

MR. REIFSCHNEIDER IS A LAWYER. MR. ALTMAN IS A LAWYER.

MR. ABERLE IS A LAWYER. FRANKLY, WE'RE ALL LAWYERS. I THINK

THAT TRYING TO PAINT WITNESSES AS DISHONEST BECAUSE THEY HAPPEN

TO BE LAWYERS IS ABSURD.

I ALSO THINK THAT SOME OF THE -- I WOULD POINT OUT THAT

SOME OF THE THINGS THAT MR. VAN NEST WAS SAYING ABOUT THE

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2175

RECORD ARE ALSO, I BELIEVE, CONFUSING.

FIRST, THE IDEA THAT THE FTC WAS TRYING TO PRESENT

EVIDENCE IN A MISLEADING FASHION IS JUST WRONG. WE REACHED A

COMPROMISE DEAL WITH QUALCOMM BECAUSE THEY DIDN'T WANT THEIR

WITNESSES TO COME TWICE, AND THAT'S WHY THE EVIDENCE WAS

PRESENTED IN THE MANNER THAT IT WAS AND THERE WAS NOTHING

MISLEADING ABOUT IT.

IN THE WAY THAT THE EVIDENCE WAS JUST PRESENTED HERE,

HOWEVER, I THINK THAT THERE WERE SOME THINGS THAT WERE

MISLEADING.

MR. BLUMBERG FROM LENOVO, HE PROVIDED TESTIMONY ABOUT

THREATS MADE IN 2013. THE INTERNAL DOCUMENTS OF QUALCOMM

CONFIRM THAT IT WAS PART OF THEIR STRATEGY AT VARIOUS POINTS IN

THEIR NEGOTIATIONS WITH LENOVO TO MAKE THREATS.

THAT'S THE CARROTS AND STICKS SLIDE THAT WE SAW. THAT'S

ABOUT MAKING THREATS TO LENOVO.

THEN MR. VAN NEST PLAYED A SNIPPET OF TESTIMONY FROM

MR. MADDEROM, WHO DOES NOT, WHO WAS NOT INVOLVED IN LICENSING

NEGOTIATIONS, ABOUT A CONVERSATION THAT HE HAD IN 2015.

SO I THINK -- I WOULD ASK THE COURT THAT WHEN YOU'RE

REVIEWING THE RECORD, TO KEEP IN MIND THAT THESE ARE SNIPPETS

THAT ARE TAKEN OUT OF CONTEXT AND THAT IF YOU LOOK AT THE WHOLE

STORY, THE STORY PROCEEDS EXACTLY AS THE WITNESSES SAID THAT IT

DID.

AND I WOULD POINT OUT THE SAME THING ABOUT THE SONY

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DISCUSSION. ACCORDING TO QUALCOMM, THERE WAS A THREAT MADE TO

SONY AND THEN IMMEDIATELY THAT WAS CORRECTED.

THAT'S ABSOLUTELY NOT TRUE, AND THERE ARE A NUMBER OF

DOCUMENTS IN THE RECORD THAT SHOW CONTINUING THREATS MADE TO

SONY AFTER THAT INITIAL THREAT IN FEBRUARY OF 2012.

NEGOTIATIONS WENT ON THROUGH THE END OF OCTOBER OF 2012, AND

THERE WERE MULTIPLE THREATS MADE THROUGHOUT THOSE NEGOTIATIONS,

AND THEY'RE EVIDENT IN THE DOCUMENTS THAT ARE ADMITTED IN THIS

CASE.

IN ADDITION, ON THE CHIP LEVEL LICENSING POINT, IT IS

UNDISPUTED THAT QUALCOMM HAS CHIP LEVEL LICENSES. IT IS

UNDISPUTED -- IN FACT, WE SHOWED A DOCUMENT IN WHICH QUALCOMM

SAID THAT IT PROACTIVELY SOUGHT THOSE LICENSES, NOT JUST FROM

ITS LICENSEES, BUT FROM OTHERS IN THE INDUSTRY.

AND WE PUT -- I POINTED OUT IN A SLIDE EARLIER TODAY THAT

QUALCOMM MARKETED THOSE RIGHTS WHEN IT WAS SELLING ITS CHIPS,

AND IF YOU JUST LOOK AT THE LIST OF LICENSES ATTACHED TO THAT

MARKETING DOCUMENT, THERE ARE FOLKS ON THAT LIST THAT WERE NOT

QUALCOMM LICENSEES.

THIS IS NOT A SIMPLE MATTER OF CROSS-LICENSES.

BUT EVEN IF IT WAS, I WOULD SAY THAT SAMSUNG SOUGHT TO

NEGOTIATE A CROSS-LICENSE THAT WOULD APPLY TO ITS CHIP

BUSINESS. AND QUALCOMM SAID NO. AND THAT'S PART OF THE

EVIDENCE IN THIS CASE.

AND IN ADDITION, SAMSUNG WAS ABLE TO OBTAIN CHIP LEVEL

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CROSS-LICENSES AS WE HEARD -- FROM OTHERS AS WE HEARD YESTERDAY

FROM MR. KIM.

IN ADDITION, THERE WAS ARGUMENT THAT THE FTC WAS UNABLE TO

MEET ITS BURDEN ABOUT ANTITRUST DUTIES TO DEAL, AND, AGAIN, I

DISAGREE WITH THAT.

I STARTED MY PRESENTATION TODAY WITH A SLIDE THAT SHOWED

THAT AT THE BEGINNING OF ITS CDMA TECHNOLOGY, QUALCOMM MADE A

CHOICE. IT MADE A CHOICE THAT IT THOUGHT WOULD BE PROFITABLE,

TO CONTRIBUTE ITS TECHNOLOGY TO A STANDARD IN ORDER TO EXPAND

ITS MARKET AND TO EXPAND THE NUMBER OF UNITS -- OF LICENSED

UNITS.

THAT WAS THE VOLUNTARY CONDUCT THAT IT THOUGHT WOULD BE

PROFITABLE AND THAT REQUIRED IT TO LICENSE ITS RIVALS.

SO IT'S ABSOLUTELY UNTRUE THAT WE HAVEN'T MET THAT BURDEN.

IN ADDITION, I -- THERE WAS SOME CONFUSION MADE, I THINK,

ABOUT THE WORK THAT DR. -- PROFESSOR NEVO DID. WHAT

PROFESSOR NEVO DID WAS ASSUME THAT THERE WAS NO MARKET POWER IF

THE FTC DIDN'T BRING A LAWSUIT ABOUT A CERTAIN MARKET.

OF COURSE THERE'S NO REQUIREMENT FOR THE FTC TO BRING A

LAWSUIT ABOUT EVERY SINGLE MARKET THAT'S AFFECTED BY

ANTICOMPETITIVE CONDUCT. JUST BECAUSE WE DIDN'T BRING A

LAWSUIT ABOUT WCDMA DOESN'T MEAN THAT'S A PERFECTLY COMPETITIVE

MARKET.

IN FACT, I THINK THERE'S SUFFICIENT, AND A SIGNIFICANT

AMOUNT OF EVIDENCE IN THE RECORD THAT SHOWS THAT THAT'S NOT

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TRUE. THERE'S AT LEAST ONE DOCUMENT THAT I RECALL ADMITTING

THROUGH MR. MOLLENKOPF IN WHICH QUALCOMM ITSELF RECOGNIZED THAT

IT HAD A DOMINANT POSITION IN WCDMA.

PROFESSOR NEVO'S ASSUMPTION ON THAT WAS UNWARRANTED.

IN ADDITION, I'D LIKE TO CLARIFY, WE CERTAINLY DO GIVE

CREDIT TO QUALCOMM FOR BEING FIRST TO MARKET WITH CDMA BACK IN

THE 1990S.

THE ISSUE, THE ANTITRUST ISSUE IN THIS CASE IS THAT ONCE

IT HAD THAT DOMINANT POSITION, IT THREW UP ROADBLOCKS THAT

PREVENTED OTHER FOLKS FROM CATCHING UP.

WE DON'T KNOW, AND WE CAN'T KNOW, WHAT THE MARKET WOULD

HAVE LOOKED LIKE WITHOUT THAT, WHETHER IN THESE LATER PERIODS

IN LTE, QUALCOMM WOULD HAVE BEEN FIRST TO MARKET OR NOT. WE

JUST DON'T KNOW.

AND WE DON'T KNOW BECAUSE THE MARKET, THE ENTIRE

MARKETPLACE WAS INFECTED BY THESE ROADBLOCKS. WE DON'T KNOW

WHAT R&D INVESTMENT BY COMPETITORS WOULD HAVE BEEN IN THAT

HYPOTHETICAL MARKET, AND WE DON'T KNOW HOW SUCCESSFUL THEY

WOULD HAVE BEEN.

AND TO BE CLEAR, THAT IS NOT THE FTC'S BURDEN TO SHOW, AND

THAT IS VERY CLEAR IN THE MICROSOFT CASE, AND THAT IS CLEAR IN

THE AMERICAN EXPRESS CASE.

WHERE THERE'S ANTICOMPETITIVE CONDUCT BY A MONOPOLIST, AS

THERE IS HERE, THE FTC IS NOT REQUIRED TO CONSTRUCT A

HYPOTHETICAL MARKETPLACE THAT WOULD HAVE EXISTED WITHOUT THESE

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YEARS OF CONDUCT. THAT WOULD BE IMPOSSIBLE. AND I'M AWARE OF

NO CASE THAT HAS EVER SUGGESTED THAT THAT'S A BURDEN THAT

SHOULD BE PLACED ON THE GOVERNMENT AS -- BEFORE ANTICOMPETITIVE

CONDUCT CAN BE ENJOINED.

AND I THINK I'M OUT OF TIME. THANK YOU, YOUR HONOR.

THE COURT: ALL RIGHT. THANK YOU TO EVERYONE. I

APPRECIATE YOUR PRESENTATION OF THE CASE. I'D ALSO LIKE TO

THANK JUDGE COUSINS AND HIS CHAMBERS FOR WORKING ON THIS CASE

SO DILIGENTLY OVER THE YEARS.

I WANT TO APOLOGIZE TO YOUR FAMILIES THAT YOU HAVE BEEN

LIVING IN SAN JOSE FOR SO LONG DURING THE HOLIDAYS.

BUT THANK YOU ALL VERY MUCH. YOU'VE COMPLETED YOUR HARD

JOB NOW, AND NOW IT IS UP TO THE COURT TO NOW SORT OF GO

THROUGH ALL OF THE EVIDENCE THAT YOU HAVE PRESENTED.

SO THANK YOU.

OKAY. SAFE TRAVELS EVERYONE.

MR. BORNSTEIN: THANK YOU, YOUR HONOR.

MS. MILICI: THANK YOU, YOUR HONOR.

MR. MATHESON: YOUR HONOR, I REALLY APOLOGIZE TO THE

COURT.

THE COURT: OKAY.

MR. MATHESON: WE ARE ABSOLUTELY COMPELLED TO ASK,

DUE TO FTC INTERNAL CONSTRAINTS REGARDING RESOURCE ALLOCATION,

WE HAVE HEARD YOU SAY AND WE UNDERSTAND IT'S A VOLUMINOUS

RECORD AND WILL TAKE TIME, DUE TO RESOURCE ALLOCATION ISSUES,

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WE ARE COMPELLED TO REPEAT OUR REQUEST TO UNDERSTAND THE

PARAMETERS OF YOUR POTENTIAL TIMING OF A DECISION, EVEN THOUGH

I KNOW YOU'VE TOLD US TWICE THAT YOU DON'T KNOW.

(LAUGHTER.)

THE COURT: OKAY. LET'S TAKE A SEAT. I'M SORRY.

MR. MATHESON: I APOLOGIZE.

THE COURT: IS THIS BECAUSE THE SHUTDOWN IS ONLY FOR

THREE WEEKS?

MR. MATHESON: THAT HAS A LOT TO DO WITH IT.

THE COURT: OH, OKAY. IS THERE SOME OTHER WAY THAT

WE CAN DEAL WITH THIS OTHER THAN ME GIVING YOU A VERY

UNINFORMED ESTIMATE OF HOW LONG THE ORDER IS GOING TO TAKE,

WHICH IS BASICALLY ALL I COULD GIVE YOU TODAY?

BEFORE THE HOLIDAYS, I HAD ISSUED A PROSPECTIVE RULING

BASICALLY ORDERING THE FTC TO CONTINUE PREPARING FOR TRIAL.

WOULD THAT TAKE CARE OF THE ISSUE IF THERE'S ANOTHER

SHUTDOWN?

MR. MATHESON: I DON'T THINK SO, YOUR HONOR. I THINK

THAT WE NEED TO -- UNFORTUNATELY, I DON'T THINK THAT WOULD WORK

UNLESS YOU CAN TELL US AT WHAT POINT WE CAN STOP OR GIVE US AN

ESTIMATE SO WE CAN SAY THESE PEOPLE NEED TO BE DOING THIS FOR

THIS PERIOD -- YOU KNOW, WE ANTICIPATE IT WILL TAKE AT LEAST

THIS PERIOD OF TIME FOR THESE PEOPLE TO COMPLETE THEIR

ASSIGNMENT ON THIS CASE, EVEN THOUGH WE'RE NOT DOING MUCH RIGHT

NOW.

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THE COURT: OKAY. SO ARE YOU TALKING ABOUT ANY

APPEAL OF MY RULING AND THE WORK THAT WOULD BE REQUIRED FOR

THAT?

MR. MATHESON: NO. SIMPLY HOW LONG WE NEED TO KEEP

RESOURCES AVAILABLE IN THE EVENT THERE IS A SHUTDOWN. IF THERE

IS ZERO CHANCE ANYTHING HAPPENS BEFORE X TIME, THAT IS A DATA

POINT THAT WE WOULD APPRECIATE. AND IF THERE IS ZERO CHANCE

ANYTHING HAPPENS UNTIL X TIME, THAT IS A DATA POINT WE WOULD

APPRECIATE.

THE COURT: ALL RIGHT. I THINK THE FUNDING ONLY GOES

UNTIL FEBRUARY 15TH; IS THAT CORRECT?

MR. MATHESON: THAT'S MY UNDERSTANDING, YOUR HONOR.

THE COURT: SO YOU'RE BASICALLY ASKING ME, WHAT IS

THE LIKELIHOOD THAT A RULING WOULD BE ISSUED IN THE NEXT THREE

WEEKS?

MR. MATHESON: JUST ANY GENERAL GUIDANCE, YOUR HONOR.

THE COURT: IS THAT THE QUESTION?

MR. MATHESON: JUST ANY VERY GENERAL GUIDANCE.

SEPTEMBER? NOVEMBER?

(LAUGHTER.)

THE COURT: OKAY. I REALLY HOPE IT DOESN'T GO THAT

LONG.

NO, IT WOULDN'T. I MEAN, I DON'T KNOW HOW MANY CASES

YOU'VE HAD WITH ME, BUT I'M GENERALLY FAIRLY FAST. I MEAN,

RELATIVELY FAST. SOMETHING OF THIS MAGNITUDE OBVIOUSLY IS

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GOING TO TAKE LONGER THAN YOUR AVERAGE LAW AND MOTION MATTER.

SO I WAS JUST WONDERING IF THERE'S SOME WAY THAT I

COULD -- YOU NEED THE INFORMATION NOW, IT'S NOT SOMETHING THAT

I COULD DEAL WITH ON FEBRUARY 13TH, FOR EXAMPLE?

MR. MATHESON: IT ABSOLUTELY IS, YOUR HONOR. WE WERE

JUST ASKED -- WE HAVE TO MAKE THE REQUEST NOW.

THE COURT: OH, I SEE. OKAY. WHY DON'T WE DO THIS.

CAN YOU FILE A REQUEST ON FEBRUARY 13TH, AND LET ME KNOW WHAT I

NEED TO DO, ANY KIND OF GUIDANCE OR RULING THAT I CAN GIVE THAT

MIGHT BE USEFUL IN THIS SITUATION?

MR. MATHESON: THAT SOUNDS WONDERFUL. THANK YOU.

THE COURT: I MEAN, I AM ASSUMING THAT IF YOU APPEAL

THIS, IF EITHER SIDE APPEALS THIS, YOU PROBABLY WILL NOT BE

DOING SIGNIFICANT BRIEFING ON THAT FOR SOME TIME, I WOULD

SUSPECT.

OR WHAT ARE YOU ENVISIONING POST THE RULING? OR I SHOULD

ASK?

MR. MATHESON: I WOULD HESITATE TO PRESUME WHAT WE

ENVISION AFTER A RULING, YOUR HONOR.

THE COURT: OKAY.

(LAUGHTER.)

THE COURT: ALL RIGHT. WELL, WHY DON'T WE JUST LEAVE

IT THAT ON WEDNESDAY, FEBRUARY 13TH, OR SOMETIME THAT WEEK, IF

IT LOOKS LIKE THERE'S NOT GOING TO BE ANY MORE FUNDING FOR THE

GOVERNMENT -- AND, FRANKLY, THERE MAY NOT EVEN BE ANY FUNDING

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FOR THE COURT BECAUSE I THINK WE'VE EXHAUSTED THE FUNDS THAT WE

HAVE TO CONTINUE OPERATING WITHOUT A CONTINUING RESOLUTION --

THAT YOU WOULD LET ME KNOW AND THEN I WOULD TRY TO PROVIDE

WHATEVER GUIDANCE I CAN.

MR. MATHESON: THANK YOU, YOUR HONOR. WE APPRECIATE

IT.

THE COURT: OKAY. THANK YOU.

ALL RIGHT. THANK YOU EVERYBODY.

MR. VAN NEST: THANK YOU, YOUR HONOR.

MS. MILICI: THANK YOU, YOUR HONOR.

(THE PROCEEDINGS WERE CONCLUDED AT 3:48 P.M.)

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UNITED STATES COURT REPORTERS

CERTIFICATE OF REPORTERS

WE, THE UNDERSIGNED OFFICIAL COURT REPORTERS OF THE

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF

CALIFORNIA, 280 SOUTH FIRST STREET, SAN JOSE, CALIFORNIA, DO

HEREBY CERTIFY:

THAT THE FOREGOING TRANSCRIPT, CERTIFICATE INCLUSIVE, IS

A CORRECT TRANSCRIPT FROM THE RECORD OF PROCEEDINGS IN THE

ABOVE-ENTITLED MATTER.

______________________________

IRENE RODRIGUEZ, CSR, CRR

CERTIFICATE NUMBER 8076

_______________________________

LEE-ANNE SHORTRIDGE, CSR, CRR

CERTIFICATE NUMBER 9595

DATED: JANUARY 29, 2019

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