PUBLIC VERSION

UNITED STATES INTERNATIONAL TRADE COMMISSION

WASHINGTON, D.C.

In the Matter of

CERTAIN MOBILE ELECTRONIC DEVICES Investigation No. 337-TA-1065

AND RADIO FREQUENCY AND
PROCESSING COMPONENTS THEREOF

RESPONDENT APPLE INC.’S SUBMISSION PURSUANT TO

THE COMMISSION’S REQUEST FOR STATEMENTS ON THE PUBLIC INTEREST
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Apple Inc. (“Apple”) respectfully submits that none of the asserted claims is infringed, and on that

basis alone, the Commission should not enter an exclusion order. But if the Commission affirms

Administrative Law Judge Pender’s infringement determination, the Commission should also adopt his

recommendation that no exclusion order should enter because of the clear harm to the public interest.

Here and in the 1093 Investigation, Qualcomm Incorporated (“Qualcomm”) attempts to use patent

claims as the basis for relief that would restore its monopoly in a critical technology market. Qualcomm

seeks to halt imports of Apple products that include cellular (or “baseband”) chipsets from Intel Corporation

(“Intel”)—Qualcomm’s only competitor in the open (or “merchant”) market for premium baseband

chipsets—while exempting from exclusion the same products that include Qualcomm’s own chipsets. As

ALJ Pender found, such an exclusion order would harm competitive conditions in the United States and

undermine national security due to its impact on U.S. 5G leadership. Indeed, Qualcomm’s facially

discriminatory remedy—accusing only certain iPhones because of the baseband chipset supplier—makes

plain that Qualcomm’s aim is to harm competition, not to remedy purported infringement.1

I. The Market for Premium Baseband Chipsets Is Critical to Cellular Innovation.

Although Qualcomm has sought to focus the public interest inquiry solely on the market for

smartphones, this Investigation directly implicates the market for premium baseband chipsets, components

that are vital to cellular innovation.

As Apple, Intel, and Qualcomm witnesses confirmed, “premium” baseband chipsets comprise a

distinct market. Such chipsets support the latest releases of cellular standards and the highest data speeds,

offer superior power management, and cost more than lower-tier chipsets. (Tr. [Thompson] at 1538:10-

1539:9; Tr. [Evans] at 1069:13-1070:5; Tr. [Blevins] at 637:1-22.) Because innovation is concentrated in

the premium tier, advancements in that tier will be critical to the development and implementation of the

next generation of wireless standards: 5G. (Tr. [Evans] at 1106:13-22; Tr. [Thompson] at 1539:10-24.)

1
Underscoring the discriminatory nature of Qualcomm’s requested remedy, Qualcomm alleges
infringement of U.S. Patent No. 8,633,936 based on graphics processing functionality in the accused
iPhones that has nothing to do with the baseband chipset.
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There are only two merchant-market suppliers of premium baseband chipsets: Qualcomm and Intel.

Before Intel’s recent emergence in that market, Qualcomm exercised monopoly power through a variety of

interrelated anticompetitive practices to exclude competition and collect exorbitant royalties from

licensees.2 Among other tactics, it reinforced its market power by conditioning a reduction of Apple’s net

royalty payments on Apple’s agreement to use Qualcomm chipsets exclusively. Qualcomm also refused to

license rival chipset suppliers, which made it impossible for Apple to source chipsets elsewhere. It is

therefore unsurprising that in the past decade, multiple U.S. baseband chipset suppliers—including

Broadcom, Marvell, and Texas Instruments—exited the market. (See Tr. [Blevins] at 638:20-639:12.)

In late 2016, after years of inability to add a second supplier, Apple finally began to dual-source

premium baseband chipsets for iPhones from Intel and Qualcomm. But even with Intel’s entry, there remain

just two suppliers of premium chipsets in the merchant market, including in the United States. Except for

Intel’s portion of sales to Apple, Qualcomm is the sole merchant supplier to every other manufacturer

supplying premium smartphones in the United States. (RDX-28.4; Tr. [Mulhern] at 1456:25-1458:13.)

(RDX-10.2C; RX-976C [IMC Profit and Loss Data]; RX-10C [Eisenach] at Q.73-78.)

II. An Exclusion Order Would Force Intel to Exit and Restore Qualcomm’s Monopoly.

Although an exclusion order would formally bar Intel-based iPhones from only the United States,

its practical effect would be to destroy Intel’s baseband chipset business globally, thus reinstating

Qualcomm’s monopoly in a market critical to the U.S. public interest.

In the event of an exclusion order,

Tony Blevins, Apple’s Vice President of Procurement and the key Apple decision-maker

regarding component sourcing, testified that

2
The Federal Trade Commission’s (FTC) antitrust complaint against Qualcomm details the full scope of
its anticompetitive practices. (RX-1036 [FTC Compl.]; see also RX-11C [Scott Morton] at Q.96-124.)

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(RX-1C [Blevins] at Q.165.)

(Tr. [Blevins] at 645:5-22.)

Even if , Intel would nevertheless

exit the market because

(Tr. [Evans]

at 1114:4-21, 1132:11-22; Tr. [Bowers] at 1154:12-1155:13, 1162:16-1163:4, 1165:6-17.)

(RX-8C [Evans] at Q.74; Tr. [Evans] at 1073:13-17, 1084:16-24.) Indeed,

as Apple’s economic expert Dr. Jeffrey Eisenach explained, if an exclusion order enters, “market

participants would rationally consider the persistent pattern of anticompetitive conduct in which Qualcomm

has already engaged … [and] Qualcomm’s demonstrated willingness to use its patent portfolio as a club

with which to coerce OEMs into buying chipsets from Qualcomm” and be “forced to add a ‘risk premium’

to any deals with Intel to reflect the potential for supply disruption.” (RX-10C [Eisenach] at Q.106). Aicha

Evans—Intel’s Chief Strategy Officer and former head of Intel’s Mobile Communications business—thus

said she was “ ” the premium baseband chipset market if Intel could no longer

supply chipsets to Apple for the U.S. market.3 (Tr. [Evans] at 1114:4-8 (emphasis added).)

III. Intel’s Exit Would Disrupt Competition, Impede Innovation, and Threaten National
Security.

An exclusion order would undermine each of the public interest factors in Section 337(d)(1)—with

the greatest harms to competitive conditions in the United States from Intel’s exit and Qualcomm’s restored

monopoly. The legislative history states, “[t]he public health and welfare and the assurance of competitive

3
ALJ Pender lauded Ms. Evans’s “unrebutted, unequivocal, uniquely credible, and highly logical
testimony” as “decisive on all matters … concerning Intel’s intentions and plans.” (1065 ID at 191.) He
also praised other Intel and Apple witnesses, while finding “Qualcomm’s non-fact [public interest]
witnesses, especially its economic witnesses, to be far less credible.” (Id. (footnote omitted).)

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conditions in the United States economy must be the overriding considerations in the administration of

[Section 337],” especially “where there is any evidence of price gouging or monopolistic practices in the

domestic industry.” S. Rep. No. 93-1298, at 197 (1974), reprinted in 1974 U.S.C.C.A.N. 7186, 7330.

Intel’s exit would wipe out the benefits of recent competition in the premium chipset market,

including for pricing, supply stability, and innovation. (RX-10C [Eisenach] at Q.109-34; RDX-10.8C; RX-

11C [Scott Morton] at Q.135-70; RX-1C [Blevins] at Q.139-45.) Qualcomm itself also would become less

innovative without competition. (RX-11C [Scott Morton] at Q.166; Tr. [Eisenach] at 1269:10-19.)

The effects of Intel’s exit would also cascade into 5G markets. As ALJ Pender found, “Intel would

also not be a player in the coming critical 5G baseband chip market” if an exclusion order were issued.

(Initial Determination and Recommended Determination (Sept. 28, 2018) (“1065 ID”) at 193; see also Tr.

[Bowers] at 1157:15-1158:21; Tr. [Scott Morton] at 1335:20-1336:14.) This effect would

(RX-8C [Evans] at Q.84-

85.) Intel is now a leader in 5G development, but an exclusion order would undermine that leadership

because of

. (See, e.g., Tr. [Bowers] at 1153:8-1158:21.) Even a carve-

out permitting Intel to sell 5G chipsets for future iPhones (as proposed by the Staff) would be insufficient,

as . (Tr. [Evans] 1127:11-1128:9.)

No other company is poised to fill Intel’s position in the merchant market for premium chipsets.

The barriers to entry are extraordinary (Tr. [Thompson] at 1539:25-1541:4), and the only other

manufacturers of premium chipsets, HiSilicon and Samsung LSI, are based abroad and are in-house chipset

suppliers of their respective smartphone divisions, Huawei and Samsung. (See, e.g., Tr. [Mulhern] at

1438:7-20, 1441:24-1442:5.) Qualcomm could also leverage an exclusion order to extract new exclusivity

agreements from Apple, placing chipset sales even further out of Intel’s or another supplier’s reach.

Most importantly, “5G is crucial to U.S. national security and competitiveness in the national

economy and thus Intel’s exit would harm the national interests of the United States.” (1065 ID at 193.)

The Committee on Foreign Investment in the United States (CFIUS), which investigates proposed foreign

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acquisitions of U.S. companies, recently recommended that Qualcomm—the only other U.S. chipset

supplier participating in 5G innovation—not be sold to a foreign company, because “technological

competitiveness and influence in standard setting would significantly impact U.S. national security” and

because it was important to prevent “a shift to Chinese dominance in 5G.” (CX-1929 [CFIUS Letter] at 2-

3.) In a recent order, the President stated that “it is imperative that America be first in fifth-generation (5G)

wireless technologies.”4 If Intel exits the market, leaving Qualcomm as the only U.S.-based chipmaker,

foreign firms will be positioned to overtake the United States in 5G leadership.

The harms would not be confined to national security. Hundreds of billions of dollars in anticipated

domestic 5G investments—expected to generate $500 billion in economic growth and three million jobs—

would be jeopardized. (SX-14 [The Global Race to 5G] at 358.) Intel’s exit would compromise access to

technologies powered by 5G with implications for health and safety—such as healthcare tools and

autonomous vehicles. (RX-10C [Eisenach] at Q.142-47.) Further, the FTC’s ability to restore competition

in this market through its antitrust litigation against Qualcomm in district court would be vitiated.

There are no countervailing benefits to these harms. If the Commission denies an exclusion order

as against the public interest, Qualcomm will not be left without a remedy; it is asserting the same patents

in district court and, if it prevails, it can obtain monetary damages. (Tr. [Sidak] at 508:25-509:10.)

“Qualcomm introduced no credible evidence that an exclusionary order against the accused products is

necessary to protect its domestic industry, its incentive to innovate, or profitability.” (1065 ID at 194.)

IV. The Commission Should Not Enter an Exclusion Order.

If the Commission adopts ALJ Pender’s infringement recommendation, it should also adopt his

conclusion that the public interest factors preclude any exclusionary remedy. ALJ Pender explained: “[I]f

the Commission does issue an exclusion order as Qualcomm requests, it will do so with the near certainty

there will be real harm to the United States on a potentially very broad basis.” (1065 ID at 195 (emphasis

added).) For that reason and those set forth above, no exclusion order should enter.

4
Donald J. Trump, “Presidential Memorandum on Developing a Sustainable Spectrum Strategy for
America’s Future” (Oct. 25, 2018), https://tinyurl.com/ya7mfmon (emphasis added).

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 PUBLIC VERSION

Date: October 31, 2018 Respectfully submitted,

/s/ Ruffin B. Cordell

Ruffin B. Cordell
Lauren A. Degnan
Thomas S. Fusco
FISH & RICHARDSON P.C.
90115th Street, NW, 7th Floor
Washington, DC 20005
Telephone: (202) 783-5070
Facsimile: (202) 783-2331

Betty H. Chen
FISH & RICHARDSON P.C.
500 Arguello Street, Suite 500
Redwood City, CA 94063
Telephone: (650) 839-5070
Facsimile: (650) 839-5071

Benjamin C. Elacqua
FISH & RICHARDSON P.C.
One Houston Center, 28th Floor
1221 McKinney Street
Houston, TX 77010
Telephone: (713) 364-5300
Facsimile: (713) 3652-0109

William F. Lee
Joseph J. Mueller
Louis W. Tompros
Sarah B. Petty
Timothy D. Syrett
WILMER CUTLER PICKERING
HALE AND DORR LLP
60 State Street
Boston, MA 02109
Telephone: (617) 526-6000
Facsimile: (617) 526-5000

William G. McElwain
Nina S. Tallon
Michael D. Esch
WILMER CUTLER PICKERING
HALE AND DORR LLP
1875 Pennsylvania Avenue, NW
Washington, DC 20006
Telephone: (202) 663-6000
Facsimile: (202) 663-6363

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PUBLIC VERSION

James M. Dowd
WILMER CUTLER PICKERING
HALE AND DORR LLP
350 South Grand A venue
Suite 2100
Los Angeles, CA 90071
Telephone: (213) 443-5300
Facsimile: (213) 443-5400

Counsel for Respondent Apple Inc.

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 CERTIFICATE OF SERVICE

I hereby certify that true and correct copies of the foregoing documents PUBLIC
VERSION OF RESPONDENT APPLE INC.’S SUBMISSION PURSUANT TO THE
COMMISSION’S REQUEST FOR STATEMENT ON PUBLIC INTEREST has been
served on this 1st day of November, 2018, on the following:

The Honorable Lisa R. Barton Via First Class Mail

Secretary
Via Hand Delivery
U.S. International Trade Commission
500 E Street, S.W. Via Federal Express
Washington, D.C. 20436 Via Electronic Filing

The Honorable Thomas B. Pender Via First Class Mail

Administrative Law Judge
Via Hand Delivery
U.S. International Trade Commission
500 E Street, S.W. Via Federal Express
Washington, D.C. 20436 Via Electronic Mail
Patricia.Chow@usitc.gov

Lisa A. Murray
Via First Class Mail
Claire K. Comfort
Investigative Attorney Via Hand Delivery
Office of Unfair Import Investigations Via Federal Express
U.S. International Trade Commission
500 E Street S.W., Room 401 Via Electronic Mail
Washington, D.C. 20436 Lisa.Murray@usitc.gov
Claire.Comfort@usitc.gov
S. Alex Lasher, Esq.
Via First Class Mail
Quinn Emanuel Urquhart & Sullivan LLP
1300 I Street NW, Suite 900 Via Hand Delivery
Washington, D.C. 20005 Via Federal Express
Counsel for Complainants Qualcomm Incorporated Via Electronic Mail
qequalcommitc@quinnemanuel.com
qcom-8@adduci.com
JonesDay-QC-ITC1065@jonesday.com

/s/ Daveida Jacobs__________

Daveida Jacobs