Europe again has the technology sector in its target zone
Guidance for Taiwanese companies
2020 witnesses a year filled with significant changes to all of our professional and personal lives.
Businesses and individuals worldwide are witnessing significant geopolitical fractures that have resulted in significant changes to various aspects of the global legal landscape, such as financing, trade, sanctions, foreign direct investment (FDI), intellectual property and antitrust. The COVID-19 pandemic has also negatively affected many aspects of deal-making, with general corporate finance transactional activity levels significantly lower than last year. On the other hand, distressed M&A, restructuring and financing activities are on the upswing, as is the case for investments in sectors that are primed to take center stage in a post-COVID-19 world.
Taiwanese companies and financial institutions are not immune to these global developments. Indeed, Taiwan's unique positioning in the global supply chain and other areas warrants special attention to some of these issues faced by other players globally.
While the COVID-19 pandemic has prevented us from seeing clients in person in Taiwan this year, we continue to focus on the latest legal issues and trends affecting our Taiwanese clients and other contacts globally. Through a series of webinar presentations and online meetings, our objective this year is to deliver to you updates on the following key topics of interest:
We hope this report and our recent webinars are helpful in navigating a swiftly changing landscape.
What Quanta Storage and Qualcomm mean for Taiwan's businesses
Antitrust litigation in the US continues to focus on competitor interactions. Companies that participate in multiple levels of a supply chain must consider how to engage with their competitors and even whether that engagement should take place in the first place.
Two prominent US Circuit Court rulings in 2020 highlight the continuing risks of entering into agreements with competitors and other types of competitor interactions and coordination at all levels of a supply chain. They also show that price-fixing allegations and follow-on private actions remain a potentially fertile source of antitrust litigation in the US.
In 2020, one influential US appellate court confirmed an extraordinary US$439 million award against Taiwan-based Quanta Storage in private litigation over alleged antitrust conspiracy. The complaint in that case followed a government investigation of the company's competitors. Soon afterwards, a different appellate court relieved Qualcomm—a leading modern chip supplier—of antitrust liability, while potentially leaving options open for further antitrust theory development.
Both of these cases are potentially relevant to Taiwanese companies conducting business in the US.
Before the HP v. Quanta Storage case was brought, the US Department of Justice (DOJ) investigated multiple suppliers of optical disc drives (ODDs) for an alleged bid-rigging conspiracy to exchange confidential pricing and related information, set prices and allocate customers and markets. After the DOJ obtained a guilty plea from Hitachi-LG, private plaintiff lawsuits followed, including an October 2013 lawsuit by HP.
The case is notable for a number of reasons. First, the DOJ case did not allege a violation by the entire ODD industry. Yet the private plaintiffs named others, including Quanta Storage. All of the defendants in the case eventually settled with HP, except Quanta Storage, which claimed it had not participated in the conspiracy.
In 2019, a Houston, Texas jury ruled against Quanta Storage in favor of HP and awarded HP US$176 million in damages. Since the US Sherman Antitrust Act provides for automatic treble damages, the trial court ended up increasing the award to US$439 million and entered a harsh order requiring Quanta Storage to turn over business assets valued at US$439 million to satisfy this judgment.
In reviewing the case, the US Fifth Circuit Court of Appeals focused on extraterritoriality, damages and unique Texas procedural rules on judgments. In June 2020, the Fifth Circuit upheld the judgment for HP, finding that the jury had sufficient evidence to justify the damages award, but the appeals court set aside the turnover order to allow more time to complete the procedural steps required under Taiwanese and PRC law to turn over assets located in Taiwan and the PRC. Soon afterwards, HP and Quanta settled out of court for an undisclosed amount.
In FTC v. Qualcomm Inc., the US Federal Trade Commission (FTC) challenged Qualcomm's licensing practices, alleging that Qualcomm had engaged in exclusive dealing and leveraged its chip modem monopoly to obtain unreasonable licensing fees by requiring its customers to license Qualcomm's patents in order to purchase its modem chips ("No license, no chips").
The FTC argued that because Qualcomm participated in the chip supply chain as a chip supplier, its refusal to license its patents to rival OEMs breached its FRAND commitment and resulted in a violation of the US antitrust laws. The FTC's theory was that participating in a standards-setting process limits technology competition (members agree on a single standard, rather than compete by offering different technologies). This lost technology competition would be an acceptable business practice, according to the FTC, only if FRAND licensing could prevent a patent holder like Qualcomm from abusive standards capture.
The trial court reframed the case as an issue of Qualcomm's general "duty to deal" apart from its standards setting. The trial court's analysis was based on an exceptional obligation owed by monopoly holders under the US Supreme Court's 1985 Aspen Skiing decision. Then in August 2020, the US Ninth Circuit Court of Appeals reversed the trial court's ruling and rejected its analysis that Qualcomm had met the Aspen Skiing duty-to-deal standard.
According to the Ninth Circuit, a dispute over FRAND licensing should be viewed as a contract or patent dispute, and Qualcomm had not engaged in illegal exclusive dealing (having entered into the challenged agreement before it had any competitors). The appeals court did not need to address the FTC's trial theory that participating in a standards-setting process altered Qualcomm's freedom to refuse to license OEMs as a matter of antitrust law.
Although the Quanta Storage loss and the Qualcomm reversal produced different results for those companies, several lessons emerge from these two cases for Taiwanese companies.
Be vigilant about competitor agreements – First, realize that agreements with competitors will continue to face significant US antitrust scrutiny. Coordinating on how to compete for even a single customer's purchases (potentially risking bid-rigging allegations) could be equated with price-fixing. Companies can also face possible strict liability for entering into agreements with competitors about market allocations, outputs and no-hire decisions.
Expect plenty of private lawsuits – As with HP v. Quanta Storage, runaway private lawsuits may seek to target an entire industry after one company reaches a criminal plea deal with regulatory authorities, even if that plea does not implicate every supplier in the industry.
Pay attention to framing essential patent licenses – How you frame a license for a standard-essential patent (SEP) remains important for US antitrust analysis. Since the Ninth Circuit's Qualcomm ruling did not definitively address the FTC's antitrust theory, it remains open whether a FRAND dispute could be deemed an antitrust violation when viewed through the lens of standards-setting abuse or traditional antitrust theories (such as exclusive dealing or tying).
No matter how the year ahead unfolds, Taiwanese innovators doing business in the US should continue to pay attention to antitrust pitfalls. Otherwise, growth and expansion could lead to significant risks.
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