Broadcom Corp v. Qualcomm Inc

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit

9-4-2007

Broadcom Corp v. Qualcomm Inc
Precedential or Non-Precedential: Precedential

Docket No. 06-4292

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 06-4292

BROADCOM CORPORATION,
Appellant

v.

QUALCOMM INCORPORATED

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
D.C. Civil No. 05-cv-03350
District Judge: The Honorable Mary Little Cooper

Argued: June 28, 2007

Before: BARRY, FUENTES, and GARTH, Circuit Judges

(Filed: September 4, 2007)

George S. Cary, Esq. (Argued)
Cleary Gottlieb Steen & Hamilton LLP
2000 Pennsylvania Avenue, NW
Washington, DC 20006
-AND-
David S. Stone, Esq.
Boies, Schiller & Flexner
150 John F. Kennedy Parkway
4 th Floor
Short Hills, NJ 07078

Counsel for Appellant,
Evan R. Chesler, Esq. (Argued)
Richard J. Stark, Esq.
Cravath, Swaine & Moore
825 Eighth Avenue
Worldwide Plaza
New York, NY 10019
-AND-
William J. O’Shaughnessy, Esq.
McCarter & English
100 Mulberry Street
Four Gateway Center
Newark, NJ 07102-0652

Counsel for Appellee

Eric L. Cramer, Esq.
Berger & Montague
1622 Locust Street
Philadelphia, PA 19103
-AND-
David Balto, Esq.
1350 I Street, NW
Washington, DC 20005

Counsel for Amici Curiae American Antitrust Institute and the
Consumer Federation of America on Behalf of Neither Party

William S. Feiler, Esq.
Morgan & Finnegan
3 World Financial Center
New York, NY 10281
-AND-
Liza M. Walsh, Esq.
Connell Foley
85 Livingston Avenue
Roseland, NJ 07068

Counsel for Amici Curiae Texas Instruments Inc., Nokia Corp.
and Telefonaktiebolaget LM Ericsson on Behalf of Appellant

2
Federick A. Nicoll, Esq.
Dorsey & Whitney
95 Route 17 South, Suite 203
Paramus, NJ 07652
-AND-
Michael A. Lindsay, Esq.
Dorsey & Whitney
50 South Sixth Street
Minneapolis, MN 55402
-AND-
Robert A. Skitol, Esq.
Drinker Biddle & Reath
1500 K Street, NW
Washington, DC 20005
-AND-
Andrew Updegrove, Esq.
Gesmer Updegrove
40 Broad Street
Boston, MA 02109

Counsel for Amici Curiae The Institute of Electrical and
Electronics Engineers, Inc., VITA, OASIS Open (Organization
for the Advancement of Structured Information Standards), The
Open Group, and PCI Industrial Computer Manufacturers Group
on Behalf of Neither Party

OPINION OF THE COURT

BARRY, Circuit Judge

This appeal presents important questions regarding
whether a patent holder’s deceptive conduct before a private
standards-determining organization may be condemned under
antitrust laws and, if so, what facts must be pled to survive a
motion to dismiss. Broadcom Corporation (“Broadcom”)
alleged that Qualcomm Inc. (“Qualcomm”), by its intentional
deception of private standards-determining organizations and its

3
predatory acquisition of a potential rival, has monopolized
certain markets for cellular telephone technology and
components, primarily in violation of Sections 1 and 2 of the
Sherman Act and Sections 3 and 7 of the Clayton Act. The
District Court dismissed the Complaint, and Broadcom appeals.
For the reasons that follow, we conclude that Broadcom has
stated claims for monopolization and attempted monopolization
under § 2 of the Sherman Act – Claims 1 and 2 of the
Complaint. We also conclude, however, that Broadcom lacks
standing to assert a claim for unlawful monopoly maintenance in
a market in which it neither competes nor seeks to compete –
Claim 7 – and that it has failed to allege an antitrust injury
sufficient to state a claim under § 7 of the Clayton Act – Claim
8. We will, accordingly, affirm in part, reverse in part, and will
order the reinstatement of Broadcom’s state and common-law
claims.

I. Background

A. Mobile Wireless Telephony and the UMTS Standard

Mobile wireless telephony is the general term for
describing the technology and equipment used in the operation
of cellular telephones. A cellular telephone contains one or
more computer “chipsets” – the core electronics that allow it to
transmit and receive information, either telephone calls or data,
to and from the wireless network. Chipsets transmit
information, via radio waves, to cellular base stations. Base
stations, in turn, transmit information to and from telephone and
computer networks. It is essential that all components involved
in this transmission of information be able to communicate
seamlessly with one another. Because multiple vendors
manufacture these components, industry-wide standards are
necessary to ensure their interoperability. In mobile wireless
telephony, standards are determined privately by industry groups
known as standards-determining organizations (“SDOs”).

Two technology paths, or families of standards, are in
widespread use today: “CDMA,” which stands for “code
division multiple access”; and “GSM,” which stands for “global

4
system for mobility.” Cellular telephone service providers
operate under one or the other path, with, for example, Verizon
Wireless and Sprint Communications operating CDMA-path
networks, and Cingular (now AT&T) and T-Mobile operating
GSM-path networks. The CDMA and GSM technology paths
are not interoperable; equipment and technologies used in one
cannot be used in the other. For this reason, each technology
path has its own standard or set of standards. The standard used
in current generation GSM-path networks is the third generation
(“3G”) standard created for the GSM path, and is known as the
Universal Mobile Telecommunications System (“UMTS”)
standard.1

The UMTS standard was created by the European
Telecommunications Standards Institute (“ETSI”) and its SDO
counterparts in the United States and elsewhere after a lengthy
evaluation of available alternative equipment and technologies.
Qualcomm supplies some of the essential technology that the
ETSI ultimately included in the UMTS standard, and holds
intellectual property rights (“IPRs”), such as patents, in this
technology. Given the potential for owners of IPRs, through the
exercise of their rights, to exert undue control over the
implementation of industry-wide standards, the ETSI requires a
commitment from vendors whose technologies are included in
standards to license their technologies on fair, reasonable, and
non-discriminatory (“FRAND”) terms. Neither the ETSI nor the
other relevant SDOs further define FRAND.

Broadcom alleged that Qualcomm was a member of the

1
Previous generation standards were more limited in their
capacity for data transmission. The first generation (“1G”)
standard was analog and could transmit voice communication but
little or no data. The second generation (“2G”) standard was
digital and had limited data-transmission capacity. A 2.5G
standard added more data-transmission capacity. Future generation
standards with greater data-transmission capacity are currently in
development, and are known as the “beyond-3G” (“B3G”) and 4G
standards.

5
ETSI, among other SDOs, and committed to abide by its IPR
policy. Specifically, Broadcom alleged, the ETSI included
Qualcomm’s proprietary technology in the UMTS standard only
after, and in reliance on, Qualcomm’s commitment to license
that technology on FRAND terms. The technology in question is
called Wideband CDMA (“WCDMA”), not to be confused with
the CDMA technology path. Although it represents only a small
component of the technologies that collectively comprise the
UMTS standard, WCDMA technology is said to be essential to
the practice of the standard.

B. Broadcom’s Complaint

Broadcom filed this action in the U.S. District Court for
the District of New Jersey on July 1, 2005, and filed its First
Amended Complaint (the “Complaint”) shortly thereafter. The
Complaint alleged that Qualcomm induced the ETSI and other
SDOs to include its proprietary technology in the UMTS
standard by falsely agreeing to abide by the SDOs’ policies on
IPRs, but then breached those agreements by licensing its
technology on non-FRAND terms. The intentional acquisition
of monopoly power through deception of an SDO, Broadcom
posits, violates antitrust law.

The Complaint also alleged that Qualcomm ignored its
FRAND commitment to the ETSI and other SDOs by demanding
discriminatorily higher (i.e., non-FRAND) royalties from
competitors and customers using chipsets not manufactured by
Qualcomm. Qualcomm, the Complaint continued, has a 90%
share in the market for CDMA-path chipsets, and by withholding
favorable pricing in that market, coerced cellular telephone
manufacturers to purchase only Qualcomm-manufactured
UMTS-path chipsets. These actions are alleged to be part of
Qualcomm’s effort to obtain a monopoly in the UMTS chipset
market because it views competition in that market as a long-
term threat to its existing monopolies in CDMA technology.

Broadcom claims to have been preparing to enter the
UMTS chipset market for several years prior to its filing of the
Complaint. After Broadcom purchased Zyray Wireless, Inc., a

6
developer of UMTS chipsets, Qualcomm allegedly demanded
that Broadcom license Qualcomm’s UMTS technology on non-
FRAND terms. Broadcom refused, and commenced this action.
Qualcomm also allegedly acquired Flarion Technologies, a
competitor in the development of technologies for inclusion in
the forthcoming B3G and 4G standards, in an effort to extend
Qualcomm’s monopolies into future generations of standards.

Based on the above factual allegations, the Complaint
asserted claims under Sections 1 and 2 of the Sherman Act, 15
U.S.C. §§ 1, 2; Sections 3 and 7 of the Clayton Act, 15 U.S.C.
§§ 14, 18; and various state and common-law claims.

C. The District Court’s Opinion

Qualcomm moved to dismiss the Complaint under
Federal Rule of Civil Procedure 12(b)(6) for failure to state a
claim. On August 30, 2006, little more than a year after the
filing of the Complaint and while discovery was ongoing, the
District Court granted the motion. In dismissing Broadcom’s
claim of monopolization in the WCDMA technology markets,
the Court reasoned that Qualcomm enjoyed a legally-sanctioned
monopoly in its patented technology, and that this monopoly
conferred the right to exclude competition and set the terms by
which that technology was distributed. Acknowledging that
industry-wide standards merit “additional antitrust scrutiny”
(App. at A18), the Court nevertheless quickly concluded that the
inclusion of Qualcomm’s WCDMA technology in the UMTS
standard did not harm competition because an absence of
competition was the inevitable result of any standard-setting
process. That inclusion of Qualcomm’s technology may have
been the product of deception was of no moment under antitrust
law, the Court continued, because no matter which company’s
patented technology ultimately was chosen, the adoption of a
standard would have eliminated competition. (Id. at A21 (“[I]t is
the SDO’s decision to set a standard for WCDMA technology,
not Qualcomm’s ‘inducement,’ that results in the absence of
competing WCDMA technologies.”).) The Court did not discuss
the possibility that the FRAND commitments that SDOs required
of vendors were intended as a bulwark against unlawful

7
monopoly, nor did it consider the possibility that the SDOs
might have chosen nonproprietary technologies for inclusion in
the standard.

As to the claim that Qualcomm was attempting to obtain a
monopoly in the UMTS chipset market by exploiting its
monopolies in WCDMA technology and CDMA-path chipsets,
the District Court faulted the Complaint for not providing
“information on the composition or dynamics of the market for
UMTS chipsets to enable the Court to infer that Qualcomm’s
conduct is anticompetitive.” (Id. at A23.) The Court also
dismissed Broadcom’s claim for unlawful maintenance of
monopoly, reasoning that the combination of patent rights and an
industry-wide standard foreclosed the possibility of unlawful
monopoly, and that the Complaint did not describe the
composition of the 3G CDMA chipset market in sufficient
detail.

The District Court, next, dismissed Broadcom’s claims
for unlawful tying and exclusive dealing, finding that
Qualcomm’s mere refusal to offer discounts and market
incentives to potential licensees who did not purchase
Qualcomm chipsets was neither coercive nor an unlawful
agreement not to use a competitor’s goods that foreclosed a
substantial share of commerce. The Court also dismissed the
final federal claim, the claim relating to Qualcomm’s purchase
of Flarion, finding Broadcom’s alleged injuries “too
speculative.” (Id. at A44.) Absent a federal claim, the Court
declined to exercise supplemental jurisdiction over the
remaining state and common-law claims, and dismissed the
Complaint with leave to amend. Choosing to stand on its
Complaint, Broadcom filed this timely appeal.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction to decide Broadcom’s
federal antitrust claims under 28 U.S.C. §§ 1331 and 1337, and §
4 of the Sherman Act, 15 U.S.C. § 4. Supplemental jurisdiction
over Broadcom’s state and common-law claims was proper
under 28 U.S.C. § 1367. We have jurisdiction to review the final

8
order of the District Court under 28 U.S.C. § 1291.

Our review of a district court’s dismissal of a complaint
for failure to state a claim is plenary. Lum v. Bank of America,
361 F.3d 217, 223 (3d Cir. 2004). In reviewing a dismissal
under Rule 12(b)(6), “we accept all factual allegations as true,
construe the complaint in the light most favorable to the
plaintiff, and determine whether, under any reasonable reading
of the complaint, the plaintiff may be entitled to relief.” Pinker
v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002).

III. Discussion

Broadcom raises these issues on appeal: whether
deception of an SDO may give rise to antitrust liability under the
circumstances alleged, whether the Complaint adequately pled
claims of attempted monopolization and monopoly maintenance,
and whether the claim relating to Qualcomm’s acquisition of
Flarion was properly dismissed. Broadcom does not appeal the
dismissal of its claims for tying and exclusive dealing.

A. The District Court erred in dismissing Claim 1 – the
monopolization claim – on the ground that abuse of a
private standard-setting process does not state a claim
under antitrust law.

Claim 1 of the Complaint alleged that Qualcomm
monopolized markets for WCDMA technology by inducing the
relevant SDOs to include Qualcomm’s patented technology as an
essential element of the UMTS standard. Qualcomm did this by
falsely promising to license its patents on FRAND terms, and
then reneging on those promises after it succeeded in having its
technology included in the standard. These actions, the
Complaint alleged, violated § 2 of the Sherman Act, 15 U.S.C. §
2.

1. Unlawful Monopolization under § 2: Monopoly
Power

Section 2 of the Sherman Act, in what we have called

9
“sweeping language,” makes it unlawful to monopolize, attempt
to monopolize, or conspire to monopolize, interstate or
international commerce.2 It is, we have observed, “the provision
of the antitrust laws designed to curb the excesses of
monopolists and near-monopolists.” LePage’s Inc. v. 3M, 324
F.3d 141, 169 (3d Cir. 2003) (en banc). Liability under § 2
requires “(1) the possession of monopoly power in the relevant
market and (2) the willful acquisition or maintenance of that
power as distinguished from growth or development as a
consequence of a superior product, business acumen, or historic
accident.” United States v. Grinnell Corp., 384 U.S. 563, 570-
71 (1966). Monopoly power is the ability to control prices and
exclude competition in a given market. Id. at 571. If a firm can
profitably raise prices without causing competing firms to
expand output and drive down prices, that firm has monopoly
power. Harrison Aire, Inc. v. Aerostar Int’l, Inc., 423 F.3d 374,
380 (3d Cir. 2005).

The existence of monopoly power may be proven through
direct evidence of supracompetitive prices and restricted output.
United States v. Microsoft Corp., 253 F.3d 34, 51 (D.C. Cir.
2001) (en banc); Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d
1421, 1434 (9th Cir. 1995). It may also be inferred from the
structure and composition of the relevant market. Harrison Aire,
423 F.3d at 381; Microsoft, 253 F.3d at 51. To support an
inference of monopoly power, a plaintiff typically must plead

2
Section 2 provides as follows:
Every person who shall monopolize, or attempt to
monopolize, or combine or conspire with any other
person or persons, to monopolize any part of the
trade or commerce among the several States, or with
foreign nations, shall be deemed guilty of a felony,
and, on conviction thereof, shall be punished by fine
not exceeding $100,000,000 if a corporation, or, if
any other person, $1,000,000, or by imprisonment
not exceeding 10 years, or by both said punishments,
in the discretion of the court.
15 U.S.C. § 2.

10
and prove that a firm has a dominant share in a relevant market,
and that significant “entry barriers” protect that market.
Harrison Aire, 423 F.3d at 381; Microsoft, 253 F.3d at 51.
Barriers to entry are factors, such as regulatory requirements,
high capital costs, or technological obstacles, that prevent new
competition from entering a market in response to a
monopolist’s supracompetitive prices. Microsoft, 253 F.3d at
51; Rebel Oil, 51 F.3d at 1439; see also Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 591 n.15 (1986)
(“[W]ithout barriers to entry it would presumably be impossible
to maintain supracompetitive prices for an extended time.”).

Proving the existence of monopoly power through
indirect evidence 3 requires a definition of the relevant market.
See SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1062-63
(3d Cir. 1978). The scope of the market is a question of fact as
to which the plaintiff bears the burden of proof. Queen City
Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430, 436 (3d Cir.

3
Because market share and barriers to entry are merely
surrogates for determining the existence of monopoly power, see
2A Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An
Analysis of Antitrust Principles and Their Application ¶ 531a
(2006) [hereinafter Areeda & Hovenkamp], direct proof of
monopoly power does not require a definition of the relevant
market. See PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 107-08
(2d Cir. 2002) (stating that “a relevant market definition is not a
necessary component of a monopolization claim” where there is
direct evidence of monopoly power); Conwood Co., L.P. v. U.S.
Tobacco Co., 290 F.3d 768, 783 n.2 (6th Cir. 2002) (noting that
monopoly power “may be proven directly by evidence of the
control of prices or the exclusion of competition, or it may be
inferred from one firm’s large percentage share of the relevant
market” (internal quotation marks and citation omitted)); Toys “R”
Us, Inc. v. F.T.C., 221 F.3d 928, 937 (7th Cir. 2000)
(distinguishing between proving monopoly power by direct
evidence, and “by proving relevant product and geographic markets
and by showing that the defendant’s share exceeds whatever
threshold is important for the practice in the case”).

11
1997); Weiss v. York Hosp., 745 F.2d 786, 825 (3d Cir. 1984).
Competing products are in the same market if they are readily
substitutable for one another; a market’s outer boundaries are
determined by the reasonable interchangeability of use between a
product and its substitute, or by their cross-elasticity of demand.
Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962).
Failure to define the proposed relevant market in these terms
may result in dismissal of the complaint. Queen City Pizza, 124
F.3d at 436.

2. Unlawful Monopolization under § 2:
Anticompetitive Conduct

The second element of a monopolization claim under § 2
requires the willful acquisition or maintenance of monopoly
power. As this element makes clear, the acquisition or
possession of monopoly power must be accompanied by some
anticompetitive conduct on the part of the possessor. Verizon
Commcn’s Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S.
398, 407 (2004). Anticompetitive conduct may take a variety of
forms, but it is generally defined as conduct to obtain or
maintain monopoly power as a result of competition on some
basis other than the merits. LePage’s, 324 F.3d at 147. Conduct
that impairs the opportunities of rivals and either does not
further competition on the merits or does so in an unnecessarily
restrictive way may be deemed anticompetitive. Aspen Skiing
Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 604-05 &
n.32 (1985). Conduct that merely harms competitors, however,
while not harming the competitive process itself, is not
anticompetitive. See Brooke Group Ltd. v. Brown & Williamson
Tobacco Corp., 509 U.S. 209, 224 (1993) (“It is axiomatic that
the antitrust laws were passed for ‘the protection of competition,
not competitors.’” (quoting Brown Shoe, 370 U.S. at 320));
Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993)
(“The law directs itself not against conduct which is competitive,
even severely so, but against conduct which unfairly tends to
destroy competition itself.”).

In activities that enjoy First Amendment protection, such
as lobbying, firms may enjoy broad immunity from antitrust

12
liability for concerted efforts to influence political action in
restraint of trade, even when such efforts employ unethical or
deceptive methods. See Eastern R.R. Presidents Conference v.
Noerr Motor Freight, Inc., 365 U.S. 127, 136-38, 144-45 (1961);
Mine Workers v. Pennington, 381 U.S. 657, 669-72 (1965); see
also Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S.
492, 499-500 (1988). “[I]n less political arenas,” however, such
as here, “unethical and deceptive practices can constitute abuses
of administrative or judicial processes that may result in antitrust
violations.” Allied Tube, 486 U.S. at 500. Private standards-
determining organizations, in contrast to legislative or quasi-
legislative bodies, have historically been subject to antitrust
scrutiny. Id.; Am. Soc. of Mech. Eng’rs, Inc. v. Hydrolevel
Corp., 456 U.S. 556, 571 (1982) (“[A] standard-setting
organization . . . can be rife with opportunities for
anticompetitive activity.”).

The primary goal of antitrust law is to maximize
consumer welfare by promoting competition among firms.
Areeda & Hovenkamp, supra, ¶ 100a; see also LePage’s, 324
F.3d at 169. Private standard setting advances this goal on
several levels. In the end-consumer market, standards that
ensure the interoperability of products facilitate the sharing of
information among purchasers of products from competing
manufacturers, thereby enhancing the utility of all products and
enlarging the overall consumer market. See Allied Tube, 486
U.S. at 501, 506-07 (noting the procompetitive benefits of
private standard setting); Areeda & Hovenkamp, supra, ¶ 2233
(referring to the foregoing benefits as “network externalities”);
see also Letter from Thomas O. Barnett, Assistant Attorney
Gen., Antitrust Div., Dep’t of Justice, to Robert A. Skitol, Esq.
[hereinafter “Skitol Letter”] 7 (Oct. 30, 2006), available at 2006
WL 3326742; Deborah Platt Majoras, Chairman, Fed. Trade
Comm’n, Recognizing the Procompetitive Potential of Royalty
Discussions in Standard Setting, Remarks (Sept. 23, 2005),
available at 2005 WL 2406107, at *1; Gerald F. Masoudi,
Deputy Assistant Attorney Gen., Address at the High-Level
Workshop on Standardization, IP Licensing, and Antitrust,
Tilburg Law & Economics Center, Tilberg University (Jan. 18,
2007), available at 2007 WL 969967, at *3. (Br. of Amici

13
Curiae American Antitrust Institute and Consumer Federation of
America [hereinafter “AAI/CFA Br.”] 18; Br. of Amici Curiae
The Institute of Electrical and Electronics Engineers, Inc. et al.
[hereinafter “IEEE Br.”] 17-18.) This, in turn, permits firms to
spread the costs of research and development across a greater
number of consumers, resulting in lower per-unit prices. (Br. of
Amici Texas Instruments Inc. et al. [hereinafter “Texas
Instruments Br.”] 4.) Industry-wide standards may also lower
the cost to consumers of switching between competing products
and services, thereby enhancing competition among suppliers.
(Id.)

Standards enhance competition in upstream markets, as
well. One consequence of the standard-setting process is that
SDOs may more readily make an objective comparison between
competing technologies, patent positions, and licensing terms
before an industry becomes locked in to a standard. (AAI/CFA
Br. 19.) Standard setting also reduces the risk to producers (and
end consumers) of investing scarce resources in a technology
that ultimately may not gain widespread acceptance. (Texas
Instruments Br. 5.) The adoption of a standard does not
eliminate competition among producers but, rather, moves the
focus away from the development of potential standards and
toward the development of means for implementing the chosen
standard. (Cf. id. at 17.)4

4
In their brief, SDO Amici explain the competition that
occurs between firms in the telecommunications standard-setting
process. Prior to the adoption of a standard, firms compete on the
basis of their respective technologies and intellectual property
positions. Each SDO Amicus has policies in place to require
competing firms to disclose all relevant patents and licensing
commitments. Such policies facilitate an informed comparison of
the firms and their technologies, and are “part of an effort to
preserve the competitive benefits of ex ante technology
competition.” (IEEE Br. 10 (IEEE Standards Association); see
also id. 12 (VITA Standards Organization); 16 (OASIS Open
(Organization for the Advancement of Structured Information
Standards)).) Thus, the selection of a standard is, itself, the product

14
 Each of these efficiencies enhances consumer welfare and
competition in the marketplace and is, therefore, consistent with
the procompetitive aspirations of antitrust law. See Areeda &
Hovenkamp, supra, ¶ 100a. Thus, private standard setting –
which might otherwise be viewed as a naked agreement among
competitors not to manufacture, distribute, or purchase certain
types of products – need not, in fact, violate antitrust law. See
Allied Tube, 486 U.S. at 500-01; see also Standards
Development Organization Advancement Act of 2004, 15
U.S.C. §§ 4302, 4303 (Supp. 2004) (providing that private
standard-setting conduct shall not be deemed illegal per se, and
insulating such conduct from treble damages); Pub. L. 108-237,
Title I, § 102, June 22, 2004, 118 Stat. 661 (noting congressional
finding of “the importance of technical standards developed by
voluntary consensus standards bodies to our national economy”).

This is not to say, however, that acceptance, including
judicial acceptance, of private standard setting is without limits.
Indeed, that “private standard-setting by associations comprising
firms with horizontal and vertical business relations is permitted
at all under the antitrust laws [is] only on the understanding that
it will be conducted in a nonpartisan manner offering
procompetitive benefits,” Allied Tube, 486 U.S. at 506-07, and in
the presence of “meaningful safeguards” that “prevent the
standard-setting process from being biased by members with
economic interests in stifling product competition,” id. at 501;
Hydrolevel, 456 U.S. at 572; see also Clamp-All Corp. v. Cast
Iron Soil Pipe Inst., 851 F.2d 478, 488 (1st Cir. 1988)
(acknowledging possibility of antitrust claim where firms both
prevented SDO from adopting a beneficial standard and did so
through “unfair, or improper practices or procedures”). As the
Supreme Court acknowledged in Allied Tube, and as
administrative tribunals, law enforcement authorities, and some
courts have recognized, conduct that undermines the
procompetitive benefits of private standard setting may, at least
in some circumstances, be deemed anticompetitive under
antitrust law.

of a competitive process.

15
16
 a. Patent Hold-up

Inefficiency may be injected into the standard-setting
process by what is known as “patent hold-up.” An SDO may
complete its lengthy process of evaluating technologies and
adopting a new standard, only to discover that certain
technologies essential to implementing the standard are patented.
When this occurs, the patent holder is in a position to “hold up”
industry participants from implementing the standard. Industry
participants who have invested significant resources developing
products and technologies that conform to the standard will find
it prohibitively expensive to abandon their investment and
switch to another standard. They will have become “locked in”
to the standard. In this unique position of bargaining power, the
patent holder may be able to extract supracompetitive royalties
from the industry participants. See In the Matter of Rambus,
Inc., No. 9302, at 4 (F.T.C. Aug. 2, 2006), available at 2006 WL
2330117; Skitol Letter, supra, at 8; Majoras, supra, at *1;
Masoudi, supra, at *3; see also Eastman Kodak Co. v. Image
Technical Servs., Inc., 504 U.S. 451, 476 (1992) (describing the
lock-in that causes purchasers of expensive office equipment to
tolerate supracompetitive service prices before changing brands);
Qualcomm Inc. v. Broadcom Corp., No. 05-CV-1958-B, 2007
WL 2296441, at *34 (S.D. Cal. Aug. 7, 2007) (characterizing
such conduct as an attempt at “holding hostage the entire
industry desiring to practice the . . . standard”).

In actions brought before the Federal Trade Commission
(“FTC”), patent holders have faced antitrust liability for
misrepresenting to an SDO that they did not hold IPRs in
essential technologies, and then, after a standard had been
adopted, seeking to enforce those IPRs. In 1996, the FTC
entered into a consent order with Dell Computer Corporation.
The complaint issued in conjunction therewith alleged that Dell
participated in an SDO’s adoption of a design standard for a
computer bus (i.e., an information-carrying conduit), but failed
to disclose that it owned a patent for a key design feature of the
standard, and even certified to the SDO that the proposed
standard did not infringe any of Dell’s IPRs. After the design
standard proved successful, Dell attempted to assert its IPRs,

17
prompting the FTC to commence an enforcement action under §
5 of the FTC Act, 15 U.S.C. § 45, for unfair methods of
competition in or affecting commerce. Dell’s actions, it was
alleged, created uncertainty that hindered industry acceptance of
the standard, increased the costs of implementing the standard,
and chilled the willingness of industry participants to engage in
the standard-setting process. In the Matter of Dell Computer
Corp., 121 F.T.C. 616, 618 (May 20, 1996).

The consent order required, among other things, that Dell
cease and desist from asserting that the use or implementation of
the standard violated its IPRs. Significantly, the FTC’s
announcement that accompanied the order stated that in the
“limited circumstances . . . where there is evidence that the
[SDO] would have implemented a different non-proprietary
design had it been informed of the patent conflict during the
certification process, and where Dell failed to act in good faith to
identify and disclose patent conflicts . . . enforcement action is
appropriate to prevent harm to competition and consumers.” Id.
at 624. It also noted that once the standard had gained
widespread acceptance, “the standard effectively conferred
market power upon Dell as the patent holder. This market power
was not inevitable: had [the SDO] known of the Dell patent, it
could have chosen an equally effective, non-proprietary
standard.” Id. n.2. One Commissioner, writing in dissent,
conceded that “[i]f Dell had obtained market power by
knowingly or intentionally misleading a standards-setting
organization, it would require no stretch of established
monopolization theory to condemn that conduct.” Id. at 629.
She objected, nevertheless, to imposing antitrust liability on Dell
absent specific allegations in the proposed complaint that Dell
misled the SDO intentionally or knowingly, and that it obtained
market power as a result of its misleading statements. Id. at 629-
30.

In 2005, the FTC entered into a consent order resolving
allegations that Union Oil Company of California (“Unocal”)
made deceptive and bad-faith misrepresentations to a state
standards-determining board concerning the status of Unocal’s
IPRs. The administrative complaint had alleged that the board

18
relied on these misrepresentations in promulgating new
standards governing low-emissions gasoline, and that Unocal’s
misrepresentations led directly to its acquisition of monopoly
power and harmed competition after refiners became locked in
to regulations that required the use of Unocal’s proprietary
technology. Unocal’s anticompetitive conduct was alleged to
have violated § 5 of the FTC Act. The consent order required
Unocal, among other things, to cease and desist from all efforts
to enforce its relevant patents. In the Matter of Union Oil Co. of
Cal., No. 9305 (F.T.C. July 27, 2005), available at 2005 WL
2003365.

Most recently, a landmark, 120-page opinion in In the
Matter of Rambus, Inc., was entered on the docket on August 2,
2006 by a unanimous FTC. Rambus, a developer of computer
memory technologies, was found to have deceived an SDO by
failing to disclose its IPRs in technology that was essential to the
implementation of now-ubiquitous computer memory standards,
by misleading other members of the SDO into believing that
Rambus was not seeking any new patents relevant to the
standard then under consideration, and by using information that
it gained from its participation in the standard-setting process to
amend its pending patent applications so that they would cover
the ultimate standard. Id. at 3, 4. Noting that such conduct “has
grave implications for competition,” id. at 3, the FTC found that
Rambus had distorted the standard-setting process and engaged
in anticompetitive hold-up. For the first time, the FTC held that
deceptive conduct of the type alleged in Dell Computer and
Union Oil constituted “exclusionary conduct” under § 2 of the
Sherman Act, as well as unlawful monopolization under § 5 of
the FTC Act. Id. at 3.5

5
In related litigation before the U.S. District Court for the
Eastern District of Virginia, the Court observed of Rambus’s
conduct that
even if the SSO [i.e., standard-setting organization]
itself is not corrupt, the subversion of an SSO by a
single industry player or by a limited subset of SSO
members can result in anticompetitive outcomes.

19
 Rambus is particularly noteworthy for its extensive
discussion of deceptive conduct in the standard-setting context
and the factors that make such conduct anticompetitive under § 2
of the Sherman Act. The FTC likened the deception of an SDO
to the type of deceptive conduct that the D.C. Circuit found to
violate § 2 of the Sherman Act in Microsoft. There, the Court
found that Microsoft had marketed software-development tools
that would permit software developers to create programs that,
ostensibly, did not need to run on Microsoft’s ubiquitous
operating system, but that, in fact, could operate properly only on
Microsoft’s operating system. The Court found that in an
environment in which software developers reasonably expected
Microsoft not to mislead them, Microsoft’s deceptive conduct
was anticompetitive. Microsoft, 253 F.3d at 76-77. Analogizing
to Microsoft, the FTC found that Rambus’s deception occurred
in an environment – the standard-setting process – in which
participants “expected each other to act cooperatively.” Rambus,
No. 9302, at 33, 51-52.

The FTC discussed at length the unique dangers of
deception in the standard-setting context. Private standard
setting occurs in a consensus-oriented environment, where
participants rely on structural protections, such as rules requiring
the disclosure of IPRs, to facilitate competition and constrain the
exercise of monopoly power. In such an environment,
participants are less likely to be wary of deception and may not
detect such conduct and take measures to counteract it until after
lock-in has occurred. At that point, the resulting harm to

Thus, antitrust law historically has been concerned
with the risk of one or a small number of participants
capturing the economic power of an industry-wide
standard and turning the SSO into a source of
exclusionary power. Simply put, by hijacking or
capturing an SSO, a single industry player can
magnify its power and effectuate anticompetitive
effects on the market in question.
Rambus, Inc. v. Infineon Techs. AG, 330 F. Supp. 2d 679, 696-97
(E.D. Va. 2004).

20
competition may be very difficult to correct. See id. at 33-35;6
see also Qualcomm, 2007 WL 2296441, at *31 (noting the
seriousness of standard-setting misconduct).

These decisions reflect a growing awareness of the risks
associated with deceptive conduct in the private standard-setting
process. The Supreme Court acknowledged these risks in Allied
Tube, and the FTC has found deception of an SDO to constitute
anticompetitive conduct in violation of § 2 of the Sherman Act.
Recent statements by Department of Justice officials support this
trend. See, e.g., Skitol Letter, supra, at 10.7

6
The concurring opinion reiterated the FTC’s finding that
Rambus violated § 2 of the Sherman Act when it “effectively
transmogrified [the SDO’s] procompetitive efforts into a tool for
monopolization.” Rambus, No. 9302, concurring op. at 1 (F.T.C.
Aug. 2, 2006).
7
Although several district court decisions appear to cut
against the trend, they are easily distinguishable. In Hynix
Semiconductor Inc. v. Rambus Inc., 441 F. Supp. 2d 1066, 1080-81
(N.D. Cal. 2006), the Court balanced the competing policies
underlying patent and antitrust law and concluded that Rambus’s
“breach of the [SDO] disclosure policies, without more, cannot
give rise to antitrust liability.” Significantly, however, the Court
also noted that “Hynix is not barred from asserting that Rambus’s
overall course of conduct, which may include the circumstances
and intent behind its decision to not disclose its patents and patent
applications, violated antitrust laws.” Id. at 1081. It should be
noted that the FTC’s Rambus decision considered all of the
“circumstances” and followed a lengthy trial on the merits. See
Rambus, No. 9302, at 51. Another readily distinguishable decision
is Townshend v. Rockwell Int’l Corp., No. C99-0400SBA, 2000
WL 433505, at *7, *10-11 (N.D. Cal. Mar. 28, 2000), a case cited
approvingly by the District Court. The Court in Townshend
dismissed an antitrust claim alleging that, prior to the adoption of
a standard incorporating proprietary technology, proposed licensing
terms that violated the SDO’s patent policy had been submitted to
the SDO, and litigation involving the relevant IPRs had not been
disclosed. In dismissing, the Court found no allegation that the

21
 b. FRAND Commitments

Against this backdrop, we must determine whether
Broadcom has stated actionable anticompetitive conduct with
allegations that Qualcomm deceived relevant SDOs into
adopting the UMTS standard by committing to license its
WCDMA technology on FRAND terms and, later, after lock-in
occurred, demanding non-FRAND royalties. As Qualcomm is at
pains to point out, no court nor agency has decided this precise
question and, in that sense, our decision will break new ground.
The authorities we have cited in our lengthy discussion that has
preceded this point, however, decidedly favor a finding that
Broadcom’s allegations, if accepted as true, describe actionable
anticompetitive conduct.

To guard against anticompetitive patent hold-up, most
SDOs require firms supplying essential technologies for
inclusion in a prospective standard to commit to licensing their
technologies on FRAND terms. (E.g., IEEE Br. 9 & n.13
(stating that under IEEE bylaws, the absence of irrevocable
FRAND assurances will preclude approval of standards known
to incorporate essential, proprietary technologies).) A firm’s
FRAND commitment, therefore, is a factor – and an important
factor – that the SDO will consider in evaluating the suitability
of a given proprietary technology vis-a-vis competing
technologies. (Id. 9.)

The FRAND commitment, or lack thereof, is, moreover, a
key indicator of the cost of implementing a potential technology.
See Rambus, No. 9302, at 4 (noting that FRAND commitments
“may further inform [SDO] members’ analysis of the costs and
benefits of standardizing patented technologies”); see also id. at
35 (noting that predisclosure of IPRs enables SDO participants
“to make their choices with more complete knowledge of the

misrepresentation caused the SDO to adopt defendant 3Com’s
technology over competing technologies, and no allegation that
defendant 3Com demanded license fees inconsistent with those that
the SDO considered before adopting the standard.

22
consequences”); cf. F.T.C. v. Indiana Fed’n of Dentists, 476
U.S. 447, 461-62 (1986) (noting that efforts to obscure
“information desired by consumers for the purpose of
determining whether a particular purchase is cost justified is
likely enough to disrupt the proper functioning of the
price-setting mechanism of the market that it may be
condemned” under antitrust law). During the critical
competitive period that precedes adoption of a standard (see
AAI/CFA Br. 11 (“[T]he competition to become the standard is
critical.”)), technologies compete in discrete areas, such as cost
and performance characteristics (id. 12 n.8). Misrepresentations
concerning the cost of implementing a given technology may
confer an unfair advantage and bias the competitive process in
favor of that technology’s inclusion in the standard. See Allied
Tube, 486 U.S. at 501 (noting the need for private standard
setting to be free “from being biased by members with economic
interests in stifling product competition”); see also Rambus, No.
9302, at 29 (“[D]istorting choices through deception obscures
the relative merits of alternatives and prevents the efficient
selection of preferred technologies.”); Qualcomm, 2007 WL
2296441, at *15 (noting that intentional concealment of IPRs
deprived SDO of opportunity to design around patented
technologies in developing standard).

A standard, by definition, eliminates alternative
technologies. See Hydrolevel, 456 U.S. at 559 (“Obviously, if a
manufacturer’s product cannot satisfy the applicable [standard],
it is at a great disadvantage in the marketplace.”). When a
patented technology is incorporated in a standard, adoption of
the standard eliminates alternatives to the patented technology.
Although a patent confers a lawful monopoly over the claimed
invention, Ethyl Gasoline Corp. v. United States, 309 U.S. 436,
456 (1940); Scheiber v. Dolby Labs., Inc., 293 F.3d 1014, 1018
(7th Cir. 2002), its value is limited when alternative technologies
exist. See Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 10
n.8 (1958) (“Often the patent is limited to a unique form or
improvement of the product and the economic power resulting
from the patent privileges is slight.”); see also Ill. Tool Works
Inc. v. Indep. Ink, Inc., 547 U.S. 28, ___, 126 S. Ct. 1281, 1292
(2006) (“[A] patent does not necessarily confer market power.”).

23
That value becomes significantly enhanced, however, after the
patent is incorporated in a standard. Rambus, No. 9302, at 35.
Firms may become locked in to a standard requiring the use of a
competitor’s patented technology. The patent holder’s IPRs, if
unconstrained, may permit it to demand supracompetitive
royalties. It is in such circumstances that measures such as
FRAND commitments become important safeguards against
monopoly power. See Daniel G. Swanson & William J. Baumol,
Reasonable and Nondiscriminatory (RAND) Royalties,
Standards Selection, and Control of Market Power, 73 Antitrust
L.J. 1, 5, 10-11 (2005).

We hold that (1) in a consensus-oriented private standard-
setting environment, (2) a patent holder’s intentionally false
promise to license essential proprietary technology on FRAND
terms, (3) coupled with an SDO’s reliance on that promise when
including the technology in a standard, and (4) the patent
holder’s subsequent breach of that promise, is actionable
anticompetitive conduct. This holding follows directly from
established principles of antitrust law and represents the
emerging view of enforcement authorities and commentators,
alike. Deception in a consensus-driven private standard-setting
environment harms the competitive process by obscuring the
costs of including proprietary technology in a standard and
increasing the likelihood that patent rights will confer monopoly
power on the patent holder. See Rambus, No. 9302, at 68
(holding that “distorting [the SDO’s] technology choices and
undermining [SDO] members’ ability to protect themselves
against patent hold-up . . . caused harm to competition”).
Deceptive FRAND commitments, no less than deceptive
nondisclosure of IPRs, may result in such harm. See id. at 66
(noting that SDO’s rules requiring members to disclose IPRs and
commit to FRAND licensing “presented the type of consensus-
oriented environment in which deception is most likely to
contribute to competitive harm”).8

8
We are unpersuaded by Qualcomm’s argument that
antitrust liability cannot turn on so vague a concept as whether
licensing terms are “reasonable,” although, in other contexts, we

24
 3. Claim 1 States a Claim for Monopolization of
WCDMA Technology Markets

The District Court’s only stated reason for dismissing
Broadcom’s Claim 1 was that it did not plead an antitrust cause
of action. Having now held that a firm’s deceptive FRAND
commitment to an SDO may constitute actionable
anticompetitive conduct, we conclude quickly and easily that
Claim 1 states a claim for monopolization under § 2 of the
Sherman Act.9

First, the Complaint adequately alleged that Qualcomm
possessed monopoly power in the relevant market. The
Complaint defined the relevant market as the market for
Qualcomm’s proprietary WCDMA technology, a technology

have summarily dismissed claims that turn on similarly ambiguous
terms, see Lum, 361 F.3d at 226. The reasonableness of royalties
is an inquiry that courts routinely undertake using the 15-factor test
set forth in Georgia-Pacific Corp. v. United States Plywood Corp.,
318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), and some courts have
already applied this test in the FRAND context, see, e.g., ESS
Tech., Inc. v. PC-Tel, Inc., No. C-99-20292 RMW, 2001 WL
1891713, at *3-6 (N.D. Cal. Nov. 28, 2001); see also Rambus, No.
9302, at 114-15 (finding substantial evidence that Rambus’s
royalty rates were not reasonable). Their success persuades us that,
given a fully-developed factual record, the same can be done here.
9
An interesting question, not developed by the parties, is
whether “deception” of an SDO is sufficiently akin to fraud to
bring the claim within the heightened pleading requirements of
Federal Rule of Civil Procedure 9(b). Analogous claims for
inequitable conduct before the United States Patent and Trademark
Office must be pled with particularity. See, e.g., Cent. Admixture
Pharmacy Servs., Inc. v. Advanced Cardiac Solutions, 482 F.3d
1347, 1356 (Fed. Cir. 2007). We need not resolve the “interesting
question” because Broadcom’s allegations would satisfy even a
heightened pleading standard, particularly given that Rule 9(b)
permits intent to be averred generally.

25
essential to the implementation of the UMTS standard. (¶¶ 2, 3;
see also ¶ 58.)10 This technology was not interchangeable with
or substitutable for other technologies (¶¶ 7, 48, 58-59), and
adherents to the UMTS standard have become locked in (¶ 53).
With respect to monopoly power, Qualcomm had the power to
extract supracompetitive prices (¶¶ 13, 87-109), it possessed a
dominant market share (see ¶¶ 9, 10, 14, 58, 82), and the market
had entry barriers (¶¶ 82, 86). These allegations satisfied the
first element of a § 2 monopolization claim.

Qualcomm objects to a relevant market definition that is
congruent with the scope of its WCDMA patents, arguing that
such a definition would result in every patent holder being
condemned as a monopolist. This objection misconstrues
Broadcom’s theory. It is the incorporation of a patent into a
standard – not the mere issuance of a patent – that makes the
scope of the relevant market congruent with that of the patent.

Second, the Complaint also adequately alleged that
Qualcomm obtained and maintained its market power willfully,
and not as a consequence of a superior product, business
acumen, or historic accident. Qualcomm excluded competition
(¶ 10) and refused to compete on the merits (¶ 12). As discussed
above, the alleged anticompetitive conduct was the intentional
(¶¶ 9, 99) false promise (¶ 82) that Qualcomm would license its
WCDMA technology on FRAND terms, on which promise the
relevant SDOs relied in choosing the WCDMA technology for
inclusion in the UMTS standard (¶¶ 82, 84-85, 140), followed by
Qualcomm’s insistence on non-FRAND licensing terms (¶¶ 3,
12, 13, 86, 87-109). Qualcomm’s deceptive conduct induced (¶
140) relevant SDOs to incorporate a technology into the UMTS
standard that they would not have considered absent a FRAND
commitment. (¶¶ 3, 42.) Although the Complaint did not
specifically allege that Qualcomm made its false statements in a
consensus-oriented environment of the type discussed in
Microsoft and Rambus, this omission is not fatal in light of

10
Paragraph (“¶”) citations refer to the relevant paragraphs
of the Complaint, found in the Appendix at A69 to A128.

26
allegations that FRAND assurances were required (¶ 42), see
Rambus, No. 9302, at 66, as well as allegations concerning the
SDOs’ reliance on Qualcomm’s assurances (¶¶ 82, 140).
Together, these allegations satisfy the second element of a § 2
claim.

Qualcomm makes much of the Complaint’s failure to
allege that there were viable technologies competing with
WCDMA for inclusion in the UMTS standard. (Qualcomm’s
Br. 31.) As Qualcomm concedes, however, the Complaint does
allege that an SDO’s adoption of a standard eliminates
competing technologies. (¶¶ 58, 82.) The District Court also
inferred that the relevant SDOs selected Qualcomm’s WCDMA
technology “to the detriment of those patent-holders competing
to have their patents incorporated into the standard.” (App. at
A21.) This inference was reasonable, particularly because even
if Qualcomm’s WCDMA technology was the only candidate for
inclusion in the standard, it still would not have been selected by
the relevant SDOs absent a FRAND commitment. (See ¶ 42.)
Thus, the allegations of the Complaint foreclose the possibility
that WCDMA’s inclusion in the standard was inevitable.

Finally, in closing our discussion of Claim 1, we
acknowledge, and will briefly address, certain of the concerns
voiced by Amici regarding the reasoning of the District Court as
to Claim 1. The Court, focusing on the anticompetitive conduct
element, proceeded from the premise that “the basic allegation is
that Qualcomm’s conduct amounts to a refusal to deal fairly in
the WCDMA technology market, which affects the UMTS
chipset market and CDMA markets.” (App. at A14.) The Court
then rejected this “basic allegation” as an impermissible attempt
to extend the Supreme Court’s refusal-to-deal jurisprudence.
This case does not involve a refusal to deal; Qualcomm
conceded as much at oral argument. But even if we were to
analyze it as such, we would find that the Complaint does not
run afoul of established Supreme Court precedent.

A firm is generally under no obligation to cooperate with
its rivals. Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S.
752, 761 (1984). In Aspen Skiing, 472 U.S. at 610-11, however,

27
the Supreme Court created an exception to this rule by holding
that the decision of a defendant who possessed monopoly power
to terminate a voluntary agreement with a smaller rival
evidenced the defendant’s willingness to forego short-run profits
for anticompetitive purposes. The Court has since refused to
expand this exception. Most recently, in Verizon, 540 U.S. at
410-11, the Court considered whether plaintiffs stated a claim
under § 2 of the Sherman Act by alleging that the defendant did
not honor a statutory duty to give competitors access to its
telecommunications network on “just, reasonable, and
nondiscriminatory” terms. Id. at 401, 405-06. The Court held
that they did not. First, the Court observed, the complaint did
not allege that the defendant engaged in a voluntary course of
dealing with its rivals, or would have done so absent statutory
compulsion. Id. at 409. Second, said the Court, the defendant
would not have publicly marketed the allegedly withheld
services absent a statutory duty to do so. Id. at 410. Here, by
contrast, Qualcomm is alleged to have actively marketed its
WCDMA technology for inclusion in an industry-wide standard,
and to have voluntarily agreed to license that technology on
FRAND terms. We note, albeit in passing, that the Court in
Verizon pointed as well to the extensive regulatory framework
that created oversight functions and remedies that the antitrust
laws were unsuited to augment. Id. at 410-15. No such
regulatory framework exists here.

We also agree with Amici that the District Court erred
when it concluded that Qualcomm’s alleged inducement of an
SDO did not harm competition, as is required for a § 2 claim,
because “it is the SDO’s decision to set a standard for WCDMA
technology, not Qualcomm’s ‘inducement,’ that results in the
absence of competing WCDMA technologies.” (App. at A21.)
This conclusion failed to recognize that Qualcomm’s FRAND
commitment was an essential part of its competitive effort to win
inclusion of its patented technology in the UMTS standard. Cf.
Rambus, No. 9302, at 97 (“If Rambus had refused to provide the
requisite [F]RAND assurances, [the SDO] would have been
bound by its rules to avoid Rambus’s patented technologies.”).
The Court also failed to recognize that even if adoption of the
UMTS standard did not expand Qualcomm’s exclusionary rights

28
as a patent holder, it nevertheless significantly expanded
Qualcomm’s market power by eliminating alternatives to its
patented technology. Finally, the Court erroneously assumed
that monopoly is the “natural consequence of the standard-
setting process,” an unsupported factual finding that ignores the
possibility of a standard comprised of nonproprietary
technologies.

B. The District Court erred in dismissing Claim 2 – the
attempted monopolization claim.

A claim of attempted monopolization under § 2 of the
Sherman Act must allege “(1) that the defendant has engaged in
predatory or anticompetitive conduct with (2) a specific intent to
monopolize and (3) a dangerous probability of achieving
monopoly power.” Crossroads Cogeneration Corp. v. Orange
& Rockland Utils., Inc., 159 F.3d 129, 141 (3d Cir. 1998)
(internal quotation marks omitted). The District Court found
insufficient factual allegations to satisfy the first and third
elements. (App. at A24.) Broadcom argues that the Court
impermissibly applied a heightened pleading requirement when
it dismissed Claim 2 for failing to allege specific facts regarding
the composition and dynamics of the UMTS chipset market.

Antitrust claims, at least those not akin to fraud, see n.10,
supra at 28, are subject to the notice-pleading standard of
Federal Rule of Civil Procedure 8(a)(2), which requires only “a
short and plain statement of the claim showing that the pleader is
entitled to relief.” Midwest Gas Servs., Inc. v. Indiana Gas Co.,
317 F.3d 703, 710 (7th Cir. 2003). Such claims must,
nevertheless, allege facts sufficient to raise a right to relief above
the speculative level. Bell Atl. Corp. v. Twombly, ___ U.S. ___,
127 S. Ct. 1955, 1965 (2007); Commw. of Pa. ex rel.
Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 179 (3d Cir. 1988).
We have held, in the context of a § 2 claim for attempted
monopolization, that a complaint must allege “something more”
than mere market share, such as “the strength of competition,
probable development of the industry, the barriers to entry, the
nature of the anticompetitive conduct, and the elasticity of
consumer demand.” Crossroads, 159 F.3d at 141 (internal

29
quotation marks omitted).

The Complaint alleged a relevant market that was global
in scope (¶ 57) and comprised of non-interchangeable UMTS
chipsets (¶ 55) – a market that was in its “infancy,” but
experiencing rapid growth (¶ 112). In that market, the
Complaint continued, Qualcomm engaged in a variety of
anticompetitive practices. Contrary to the District Court’s
puzzling characterization of these allegations as “broad and non-
specific” (App. at A23), the Complaint described numerous
specific practices. Qualcomm possessed a near monopoly in the
CDMA chipset market (¶¶ 8, 61-68), and was exploiting that
monopoly to obtain a new monopoly in the UMTS chipset
market (¶ 19). Qualcomm was discriminating among licensees
of the essential WCDMA technology by charging more and
higher fees to those who do not use Qualcomm’s UMTS
chipsets. (¶¶ 14, 15, 104-05.) Qualcomm was demanding
royalties on parts of UMTS chipsets for which it did not own
patents (¶ 89), and demanding that UMTS licensees grant back
to Qualcomm licenses for their own proprietary technologies on
terms much more favorable to Qualcomm (¶ 91). Qualcomm
was charging double royalties to UMTS cell phone
manufacturers who use non-Qualcomm UMTS chipsets (¶¶ 92-
98), in violation of its FRAND commitment (¶¶ 98, 99).
Qualcomm was discouraging price competition by demanding
sensitive sales and pricing information from its UMTS chipset
licensees, even when those licensees were competing directly
with Qualcomm. (¶ 102.) Qualcomm was also providing
discounts, incentives, and payments to cell phone manufacturers
who use only Qualcomm UMTS chipsets. (¶¶ 16, 106-11.)
These actions, the Complaint concluded, harmed competition
and undermined innovation in the UMTS chipset market. (¶¶ 90,
91, 98, 102.) Such factual allegations of anticompetitive
conduct are sufficiently specific to satisfy the first element of an
attempted monopolization claim. See LePage’s, 324 F.3d at
152-57.

The Complaint also alleged that Qualcomm acted with
specific intent to obtain a monopoly in the UMTS chipset
market. (¶¶ 81, 105, 107, 111, 146.) Several of the

30
anticompetitive practices, moreover, allegedly lacked a
legitimate business justification. (See, e.g., ¶¶ 14, 102, 105.) In
Aspen Skiing, the Supreme Court noted that evidence that
business conduct is “not related to any apparent efficiency” may
constitute proof of specific intent to monopolize. 472 U.S. at
608 n.39 (emphasis and internal quotation marks omitted); see
also LePage’s, 324 F.3d at 152 (“[A] monopolist will be found
to violate § 2 of the Sherman Act if it engages in exclusionary or
predatory conduct without a valid business justification.”).
There is no doubt, therefore, that the Complaint satisfied the
specific intent element.

The only question remaining is whether the Complaint
alleged sufficient facts as to the dangerous probability of
Qualcomm obtaining monopoly power in the UMTS chipset
market, “a particularly fact-intensive inquiry.” Microsoft, 253
F.3d at 80. Courts typically should not resolve this question at
the pleading stage “unless it is clear on the face of the complaint
that the ‘dangerous probability’ standard cannot be met as a
matter of law.” Brader v. Allegheny Gen. Hosp., 64 F.3d 869,
877 (3d Cir. 1995). Dangerous probability is a question of
“proximity and degree,” Microsoft, 253 F.3d at 80 (quotation
omitted), and the elements of an attempted monopolization claim
are frequently interdependent “so that proof of one may provide
circumstantial evidence or permissible inferences of other
elements,” Barr Labs., Inc. v. Abbott Labs., 978 F.2d 98, 112 (3d
Cir. 1992) (citing Twin City Sportservice, Inc. v. Charles O.
Finley & Co., 676 F.2d 1291, 1308 (9th Cir. 1982)). In a
determination of dangerous probability – and remembering that
we are only considering “the face of the complaint” – factors
such as significant market share coupled with anticompetitive
practices, barriers to entry, the strength of competition, the
probable development of the industry, and the elasticity of
consumer demand may be considered. Id. No single factor is
dispositive. See id. (noting that market share is not an exclusive
factor); cf. Pastore v. Bell Tel. Co., 24 F.3d 508, 513 (3d Cir.
1994) (identifying market share as the most significant factor).

Broadcom contends that the same anticompetitive
practices that resulted in Qualcomm’s acquisition of monopoly

31
power in the markets for CDMA chipsets and technologies now
threaten to create monopoly power in the emerging market for
UMTS chipsets. (¶¶ 20, 21.) Although the complaint did not
allege Qualcomm’s market share in the UMTS chipset market,
determining whether a defendant has a “dangerous probability”
of successful monopolization is a fact-sensitive inquiry, in which
market share is simply one factor. See Barr Laboratories, Inc. v.
Abbott Laboratories, 978 F.2d 98, 112 (3d Cir. 1992)
(“[A]lthough the size of a defendant’s market share is a
significant determinant of whether a defendant has a dangerous
probability of successfully monopolizing the relevant market, it
is not exclusive.”).11 The Complaint alleged Qualcomm’s
licensing practices in considerable detail (see ¶¶ 14-16, 89-102,
104–11) and described their anticompetitive effects (e.g., ¶¶ 90,
91, 98, 102). It also alleged that Qualcomm’s practices
“effectively foreclosed Broadcom’s entry into the UMTS chipset
market.” (¶ 86.) See LePage’s, 324 F.3d at 159 (“When a
monopolist’s actions are designed to prevent one or more new or
potential competitors from gaining a foothold in the market by
exclusionary, i.e. predatory, conduct, its success in that goal is
not only injurious to the potential competitor but also to
competition in general.”). Finally, the Complaint alleged that
the market was experiencing “rapid growth” (¶ 112), and that
Qualcomm was extending its anticompetitive licensing practices
into this emerging market by signing deals, as of January 2005,
“with 26 cell phone manufacturers, including three of the
leading UMTS cell phone manufactures [sic], LGE, Samsung,
and Siemens, . . . as well as six of the top seven Chinese

11
We note Qualcomm’s admission in a recent proceeding
before the International Trade Commission that it now possesses
a share of the United States market for UMTS chipsets of 80 to 100
percent, although we need not decide what weight, if any, we
should accord that admission. See In re Certain Baseband
Processor Chips and Chipsets, Transmitter and Receiver (Radio)
Chips, Power Control Chips, and Products Containing Same,
Including Cellular Telephone Handsets, Inv. No. 337-TA-543,
2007 ITC LEXIS 621, at *27, *50-51 & nn. 108, 109 (I.T.C. June
19, 2007).

32
manufacturers” (¶ 113). Because it is by no means “clear on the
face of the complaint that the ‘dangerous probability’ standard
cannot be met as a matter of law,” Brader, 64 F.3d at 877, we
conclude that the District Court erred in dismissing Claim 2.

C. The District Court did not err in dismissing Claim 7 –
the monopoly maintenance claim.

Claim 7 alleged that Qualcomm maintained its monopoly
in the markets for 3G CDMA technology and 3G CDMA
chipsets, in violation of § 2 of the Sherman Act. In moving to
dismiss this claim, Qualcomm argued only that Broadcom lacked
standing because it failed to allege that it participated in those
markets, and Broadcom responded only on that ground. The
District Court dismissed the claim on the merits, however,
without addressing the standing issue. Both parties take issue
with the Court’s decision, and resurrect their positions on
standing.

Broadcom’s rather highly attenuated theory of standing is
that Qualcomm is illegally maintaining a monopoly in various
markets for 3G CDMA technologies and chipsets (¶ 173); that
most manufacturers of UMTS cell phones are subject to
Qualcomm’s monopoly power in the CDMA markets (¶ 19); that
Qualcomm is using leverage over customers in the CDMA
markets to destroy the UMTS chipset business (¶ 174); and that
Broadcom, as an innovator in WCDMA technology and UMTS
chipsets, is suffering injury (¶ 116). We will affirm the District
Court’s dismissal of Claim 7 on the ground that Broadcom lacks
standing. See Narin v. Lower Merion Sch. Dist., 206 F.3d 323,
333 n.8 (3d Cir. 2000) (noting that court of appeals may affirm
on grounds not reached by district court).

We apply a five-factor balancing test in considering
antitrust standing:

(1) the causal connection between the antitrust
violation and the harm to the plaintiff and the intent
by the defendant to cause that harm, with neither
factor alone conferring standing; (2) whether the

33
 plaintiff’s alleged injury is of the type for which the
antitrust laws were intended to provide redress; (3)
the directness of the injury, which addresses the
concerns that liberal application of standing
principles might produce speculative claims; (4) the
existence of more direct victims of the alleged
antitrust violations; and (5) the potential for
duplicative recovery or complex apportionment of
damages.

Barton & Pittinos, Inc. v. SmithKline Beecham Corp., 118 F.3d
178, 181 (3d Cir. 1997) (quotation marks and citation omitted).
There are simply insufficient factual allegations that Qualcomm,
by maintaining its monopolies in the 3G CDMA technology and
chipset markets, intended to cause harm to Broadcom in the
WCDMA technology and UMTS chipset markets. Any causal
connection, moreover, is highly speculative. Injury to Broadcom
is extremely remote, and there is no apparent reason why
Qualcomm’s competitors in the CDMA markets could not assert
a monopoly maintenance claim. To the extent that Broadcom’s
injury results from its being excluded from competing in the
WCDMA technology and UMTS chipset markets, Claim 7 also
largely duplicates Claims 1 and 2. Only the second factor
weighs in Broadcom’s favor.

Ignoring the standing factors set forth above, Broadcom
attempts to persuade us that a similar claim was allowed to
proceed in Microsoft – a case in which, obviously, the
government’s standing to prosecute antitrust violations was not
in issue. But Broadcom is incorrect that the injury in Microsoft
was analogous. Microsoft was found to have maintained its
computer operating system monopoly by suppressing certain
emerging technologies. Because those technologies were not yet
sophisticated enough to stand in as substitutes for Microsoft’s
operating system, they were excluded from the relevant market
for purposes of calculating Microsoft’s market share. The D.C.
Circuit held that nascent competitive threats were not beyond the
protection of the Sherman Act simply because they were not yet
“well-developed enough to serve as present substitutes.” 253
F.3d at 54. Microsoft’s anticompetitive conduct, in other words,

34
was a barrier to the entry of new competitors into the relevant
market. Here, by contrast, there is no allegation that Broadcom
has sought, seeks, or ever will seek to enter the CDMA markets.
Microsoft, therefore, is inapposite.

As a last resort, Broadcom relies on our decision in
Carpet Group International v. Oriental Rug Importers
Association, Inc., 227 F.3d 62, 76-77 (3d Cir. 2000). There, we
found that brokers, who were neither direct competitors of the
defendants nor consumers, had standing to assert an antitrust
action against an association of importer/wholesalers of oriental
rugs because their injury was “inextricably intertwined” with
defendants’ alleged anticompetitive conduct in the market for
oriental rugs. Since that time, however, we have declined to
extend the “inextricably intertwined” exception beyond cases in
which both plaintiffs and defendants are in the business of
selling goods or services in the same relevant market. Because
Broadcom does not allege that it sells goods in the same relevant
market as Qualcomm – indeed, it concedes that it does not – we
conclude that Broadcom’s alleged injury is not “inextricably
intertwined” with Qualcomm’s alleged anticompetitive conduct,
and that Broadcom lacks standing to assert Claim 7.

D. The District Court did not err in dismissing Claim 8 –
the claim under Section 7 of the Clayton Act seeking
to enjoin Qualcomm’s acquisition of Flarion.

Broadcom, finally, disputes the dismissal of Claim 8,
which sought to enjoin Qualcomm’s then-pending acquisition of
Flarion.12 Qualcomm moved to dismiss on the ground that

12
The acquisition has since been completed, having been
approved by the Department of Justice. Departmental approval,
however, does not preclude independent judicial review. Int’l Tel.
& Tel. Corp. v. Gen. Tel. & Elecs. Corp., 351 F. Supp. 1153, 1185
(D. Haw. 1972), rev’d on other grounds, 518 F.2d 913 (9th Cir.
1975). In a private action for injunctive relief under the Clayton
Act, a court may order the remedy of divestiture. California v. Am.
Stores Co., 495 U.S. 271, 280-81 (1990).

35
Broadcom lacked standing, but the District Court declined to
address the issue of standing and held, instead, that Broadcom
failed to allege a sufficient antitrust injury. (App. at A46 n.6.)
Although Qualcomm mistakenly tells us that the dismissal was
for lack of standing (Qualcomm’s Br. 58), both parties’
arguments track the reasoning of the District Court. We will
affirm the District Court largely for the reasons given by the
Court.

Section 7 of the Clayton Act provides, in relevant part, as
follows:

No person engaged in commerce or in any activity
affecting commerce shall acquire, directly or
indirectly, the whole or any part of the stock or other
share capital and no person subject to the jurisdiction
of the Federal Trade Commission shall acquire the
whole or any part of the assets of another person
engaged also in commerce or in any activity
affecting commerce, where in any line of commerce
or in any activity affecting commerce in any section
of the country, the effect of such acquisition may be
substantially to lessen competition, or to tend to
create a monopoly.

15 U.S.C. § 18. Section 16 authorizes injunctive relief for
violations of § 7. 15 U.S.C. § 26. A private plaintiff seeking to
enjoin an acquisition “need only prove that its effect ‘may be
substantially to lessen competition.’” California v. Am. Stores
Co., 495 U.S. 271, 284 (1990) (citation omitted). The
prospective harm to competition must not, however, be
speculative. See City of Pittsburgh v. West Penn Power Co., 147
F.3d 256, 267-68 (3d Cir. 1998) (“[A]ntitrust injury must be
caused by the antitrust violation – not a mere causal link, but a
direct effect.”). There must be “a threat of antitrust injury”
which produces “directly harmful effects” that are “closely
related to the violation.” Alberta Gas Chems. Ltd. v. E.I. Du
Pont De Nemours & Co., 826 F.2d 1235, 1240 (3d Cir. 1987).
Failure to allege actionable anticompetitive conduct forecloses
further judicial inquiry. See Cargill, Inc. v. Monfort of Colo.,

36
Inc., 479 U.S. 104, 122 (1986).

The Complaint alleged that Qualcomm sought to acquire
Flarion, a company widely regarded as the “leading developer”
of technologies known as Orthogonal Frequency Division
Multiplexing and Orthogonal Frequency Division Multiplexing
Access (“OFDM/OFDMA”) (¶ 22), and the only company to
own an operational OFDM/OFDMA network (¶ 121).
According to the Complaint, OFDM/OFDMA technology is
widely regarded to be the most likely foundation for the
forthcoming B3G and 4G standards, and the leading competitive
threat to Qualcomm’s CDMA technology. (¶¶ 23, 51, 120, 131.)
In the past, the Complaint alleged, Qualcomm competed CDMA
against OFDM/OFDMA technologies (¶¶ 122, 126-27), and
continues to tout CDMA as the most promising technology for
the foreseeable future (¶ 51). Given the competitive threat posed
by OFDM/OFDMA, however, Qualcomm allegedly purchased
Flarion as part of its pattern of acquiring competitors to obtain
market dominance. (¶ 117.) It is not entirely clear whether the
Complaint alleged that Qualcomm intended to extend its CDMA
monopoly into future generations of standards (¶¶ 2, 22, 52), or
whether it intended to promote OFDM/OFDMA for that purpose
(¶¶ 24, 52, 118, 123, 128). At all events, the likely effect of
Qualcomm’s acquisition of Flarion will, at least allegedly, be a
substantial lessening of competition. (¶¶ 124, 132-35, 177.)

Broadcom, significantly, conceded that B3G standards
were “not yet fully developed” (¶ 51), and that products utilizing
B3G technologies “may not arrive in the marketplace for three or
more years” (¶ 119). Although the B3G standards-development
process was “well underway” (id.; see also ¶ 50), 4G technology
standards were merely “expected to follow closely.” (¶ 119.)
Despite the uncertain development of B3G and 4G technologies,
Broadcom fears injury because it “expects to be a competitor to
Qualcomm” in B3G and 4G chipset markets (¶ 138), and
because it “may require” a license for B3G and 4G technologies
(¶ 137). The Complaint did not allege that Broadcom is
developing technologies to compete for inclusion in B3G and 4G
standards.

37
 The District Court was undoubtedly correct to dismiss
Claim 8 as “too speculative.” Any “directly harmful effects”
resulting from Qualcomm’s acquisition of Flarion will be
experienced by firms competing in the markets for the
development of B3G and 4G standards. See Alberta Gas, 826
F.2d at 1240. (See ¶ 124.) As Broadcom does not compete in
these markets, it will not experience these effects firsthand.
Rather, as a manufacturer of equipment that may require a
license from a firm possessing monopoly power in the B3G and
4G technology markets, Broadcom will experience only
secondary injury from Qualcomm’s acquisition of Flarion. (See
¶ 137.) Cf. Volvo Trucks North Am., Inc. v. Reeder-Simco GMC,
Inc., 546 U.S. 164, ___, 126 S. Ct. 860, 870 (2006) (classifying
competitive injury suffered by competitors as “primary line” and
that suffered by customers as “secondary line” in antitrust claims
under the Robinson-Patman Act, 15 U.S.C. § 13(a)). Even this
secondary theory of injury is premised on two major
assumptions: first, that SDOs will adopt B3G and 4G standards
incorporating Qualcomm’s IPRs as essential elements, thus
conferring monopoly power; and second, that Qualcomm will
intentionally engage in anticompetitive conduct by refusing to
offer Broadcom a license on competitive terms, if at all, in
violation of some putative FRAND commitment – assuming, of
course, that Broadcom even seeks a license. (See ¶ 137.)
Hypothetical anticompetitive conduct, speculative monopoly
power, and remote injuries do not merit the extreme remedy of
divestiture. See West Penn Power, 147 F.3d at 267 (affirming
denial of claim for injunctive relief under Clayton Act premised
on allegation that plaintiff “would have benefitted from
competition it hoped would occur”).

IV. Conclusion

For the reasons discussed, we will affirm in part and
reverse in part, and remand for further proceedings consistent
with this Opinion. Because the District Court summarily
dismissed Claims 9 through 13 – Broadcom’s state and common-
law claims – for lack of supplemental jurisdiction pursuant to 28
U.S.C. § 1367(c)(2), we will order the reinstatement of those
claims. See Berckeley Inv. Group, Ltd. v. Colkitt, 455 F.3d 195,

38
224 n.28 (3d Cir. 2006); Siegel v. Alpha Wire Corp., 894 F.2d
50, 56 (3d Cir. 1990).

39