FTC Files Much-Anticipated Monopolization Charges Against Broadcom
Also Paves Way for Private Actions
As predicted by some, the Federal Trade Commission issued a complaint charging Broadcom Inc. with illegally monopolizing several markets for semiconductor chips used to deliver television and broadband internet services. The Commission simultaneously issued a proposed consent order that, if approved, would settle the FTC’s charges against Broadcom and allegedly restore competition in the impacted markets. But this is likely just the beginning of Broadcom’s antitrust issues in the U.S. because the FTC’s complaint provides an effective roadmap for Broadcom customers to collect treble damages for their overpayments.
The Complaint and Consent Decree
The FTC alleges that Broadcom has monopoly power in three separate semiconductor chip markets: (i) systems-on-a-chip (“SOCs”) for set top boxes, (ii) SOCs for DSL broadband devices, and (iii) SOCs for fiber broadband devices. It also determined Broadcom is one of a few significant suppliers of other chips relevant to the investigation, which include wi-fi chips that enable the devices to connect to wireless internet and front-end chips that convert analog signals to digital signals for the devices. Collectively, the FTC refers to these chips as the “Relevant Products.”
According to the FTC, Broadcom maintained its monopoly power through unlawful practices beginning in 2016. At that time, Broadcom began facing competitive threats from nascent rivals in the monopolized markets, which was largely fueled by Broadcom customers (cable and internet service providers and original equipment manufacturers (“OEMs”)) attempting to lessen dependence on Broadcom and foster competition in these markets. Around the same time, customer demand began shifting significantly from broadcast STBs (i.e., traditional cable STBs) to streaming STBs that access content via the home’s broadband modem.
In response to the competitive threats and changing market dynamics, Broadcom endeavored to maintain its monopoly power rather than compete on the merits.
Through a series of long-term contracts entered with service providers and OEMs, and through an accompanying campaign of threats and retaliation, Broadcom induced customers to purchase or use Broadcom’s relevant products on an exclusive or near-exclusive basis.
Broadcom’s misconduct had significant anticompetitive effects, including: (i) foreclosing competitors from a substantial share of the relevant markets, (ii) causing higher prices for customers, (iii) preventing rivals from reaching necessary scale by stopping OEMs and service providers from purchasing relevant products from them, (iv) reducing customer choice and innovation by impeding rivals’ development efforts and/or causing them to divert money and resources from the relevant markets, and (v) erecting significant barriers to entry and expansion.
The consent order prohibits Broadcom from entering into these same types of exclusivity or loyalty agreements with its customers for the supply of the monopolized chips. Broadcom also must stop conditioning access to or requiring favorable supply terms for these chips on customers committing to exclusivity or loyalty for the supply of other relevant chips. And, finally, the consent order explicitly prohibits Broadcom from retaliating against customers for doing business with rivals. The consent order will remain in place for 10 years and Broadcom is required to submit a compliance report to the court annually. The FTC will publish the consent agreement package in the Federal Register with instructions for filing comments. Comments must be received 30 days after publication. The Commission provided an analysis of the agreement to assist those who wish to comment.
The complaint and consent decree are significant for several reasons beyond restoring competition in the relevant markets.
For one, the complaint bestows purchasers of Broadcom’s relevant products with most facts needed to plead a Section 2 monopolization case for treble damages. The complaint defines the relevant markets, explains that Broadcom has monopoly power in at least the monopolized markets, describes how Broadcom unlawfully maintained its monopoly power, and explains how Broadcom’s misconduct harmed competition and caused purchasers to pay higher prices.
Second, the complaint substantiates claims that Broadcom’s anticompetitive conduct extends beyond the relevant markets identified in the complaint. For example, Western Digital, the largest manufacturer of hard disk drives in the U.S., alleged that Broadcom engaged in strikingly similar misconduct in that market. Specifically, Western Digital alleged in a 2017 public court filing that Broadcom demanded that Western Digital buy certain components for its hard disk drives exclusively from Broadcom and eliminate avenues from which it could buy these components from rivals. Broadcom threatened to cut off supply of necessary components if Western Digital did not capitulate.
Broadcom customers in any market should consider whether they have been impacted by misconduct like that flagged by the FTC.
If so, then they should analyze two things: (i) whether they have made sufficient purchases to warrant filing a private action to recover treble damages and (ii) whether they should file a comment during the notice period concerning the adequacy (or lack thereof) of the consent decree. Given that Broadcom is subject to both judicial oversight for the next 10 years and an anti-retaliation clause in the consent order, companies should feel comfortable filing an action or comment against Broadcom.
Joining Dan Mogin and Tim LaComb in this post is Steven Benz, a partner at Kellogg, Hansen, Todd, Figel & Frederick P.L.L.C.