Qualcomm suffers defeat in FTC antitrust battle

Mae Love
May 23, 2019

This includes unfair licensing practices under the "no license, no chips" policy, which required customers to license Qualcomm patents in order to buy its baseband processors, refusing to license its standards-essential patents under FRAND terms, and by engaging in anti-competitive exclusivity deals with companies like Apple.

Qualcomm's royalty rate seems to have been of 5% of the phones' retail price (capped at $400), which means a company making a $400+ phone would have to pay Qualcomm $20 in royalties alone (about 10-100x what companies pay for a video codec, for instance). According to the WSJ, Koh also called out Qualcomm's practice of charging royalties on a percentage of a smartphone's price, a practice that reportedly generated billions of dollars for the company.

The decision vindicates the US Federal Trade Commission two years after it filed its antitrust lawsuit against the San Diego chipmaker.

Judge Koh said Qualcomm engaged in "extensive" anticompetitive conduct targeting more than one dozen original equipment manufacturers including Apple, BlackBerry, Huawei, Lenovo, LG, Motorola, Samsung, and Sony, often by cutting off or threatening to cut off chip supplies or withholding technical support.

A U.S. federal judge has ruled that Qualcomm unlawfully squeezed out cellphone chip rivals and charged excessive royalties to manufacturers such as Apple in a decision that undercuts a key part of its business.

Qualcomm shares have risen about 51 per cent since the company's settlement with Apple last month. Qualcomm chips are an essential component in modern mobile phones. "Qualcomm's licensing practices are an unreasonable restraint of trade".

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Additionally, Qualcomm is barred from requiring licensees to exclusively license its cellular modems. Specifically, Qualcomm shall report to the FTC on an annual basis Qualcomm's compliance with the above remedies ordered by the Court.

Judge Koh said Qualcomm can not bundle patent licensing deals with its hardware, a practice regulators called "no license, no chips".

Koh said she had discounted testimony by Qualcomm chief executive officer Steve Mollenkopf and Cristiano R. Amon as lacking in credibility and said their testimony was directly contradicted by company emails and notes sent by both men. Qualcomm also allegedly threatened OEMs with disruption of chip supplies unless they agreed to its patent licensing terms.

Judge Koh also said Qualcomm must license its patents to rival chipmakers like MediaTek Inc. The company earns a major portion of its revenue from smartphone chips, of which it earns 23% from licensing. The FTC also alleged that Qualcomm worked to prevent the adoption of competing (non-LTE) technologies altogether.

Qualcomm has said it will appeal the decision and seek an immediate stay on the injunction. Appeals courts are reluctant to second-guess such findings by trial judges, he said. Qualcomm must also make licenses available to modem suppliers "on fair, reasonable and non-discriminatory terms" and it can not "interfere with the ability of any customer to communicate with a government agency about a potential law enforcement or regulatory matter".

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