Qualcomm Found Guilty of Antitrust Abuse

Posted on May 22, 2019 by Paul Thurrott in Android, iOS, Mobile with 22 Comments

A U.S. District Court has ruled that Qualcomm’s patent licensing practices violate U.S. antitrust laws by harming competition. The ruling is a victory for the Federal Trade Commission (FTC), which will now monitor Qualcomm for seven years.

“Qualcomm’s licensing practices have strangled competition in the CDMA and the premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process,” U.S. District Judge Lucy Koh wrote in her ruling, the public version of which is heavily redacted to protect trade secrets.

As you may know, Qualcomm is the dominant worldwide supplier of mobile microprocessors and chipsets, and it was sued by the FTC in 2017 for using anticompetitive practices to maintain this monopoly. The FTC charged that Qualcomm imposed “onerous” licensing terms on device makers that wished to use its patent-protected technologies. Among the complaints, Qualcomm had allegedly required Apple to enter into an exclusive contract for cellular modems. When Apple refused, Qualcomm simply refused to sell Apple the parts.

The Apple case is muddled by two inconvenient facts: Qualcomm’s chipsets were and still are demonstrably better than the competing parts Apple was able to obtain from Intel. And Apple ultimately settled its own lawsuits with Qualcomm, agreeing to pay about $4.5 billion in withheld licensing fees as part of the deal.

The District Court ruling won’t impact that agreement, but it should ease Apple’s—other others’—licensing costs moving forward. At issue is that Qualcomm’s technologies are covered by so-called standard essential patents, which must be licensed under fair, reasonable, and non-discriminatory (FRAND) terms.

But the Court found that Qualcomm did not meet that bar at all.

“Qualcomm must not condition the supply of modem chips on a customer’s patent license status and Qualcomm must negotiate or renegotiate license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical support or access to software,” the ruling explains. “Qualcomm must make exhaustive SEP licenses available to modem-chip suppliers on fair, reasonable, and non-discriminatory (‘FRAND’) terms and to submit, as necessary, to arbitral or judicial dispute resolution to determine such terms.”

Additionally, Qualcomm is barred from requiring licensees to exclusively license its cellular modems. And it cannot attempt to interfere when a licensee wishes to communicate with a governmental agency.

“In order to ensure Qualcomm’s compliance with the remedies, the Court orders Qualcomm to submit to compliance and monitoring procedures for a period of seven (7) years,” the ruling continues. “Specifically, Qualcomm shall report to the FTC on an annual basis Qualcomm’s compliance with the above remedies ordered by the Court.”

If you’re looking for a little light reading, the Court has issued a 223-page document outlining the facts of the case. As FOSS Patents notes, the document is damning for Qualcomm on a number of levels, including the fact that Judge Lucy Koh “largely discounted” the testimonies of Qualcomm executives because they differed so much from “these witnesses’ own contemporaneous emails, handwritten notes, and recorded statements to the IRS.” In other words, she found them to be dishonest.

Qualcomm can and will appeal the verdict.

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Comments (22)

22 responses to “Qualcomm Found Guilty of Antitrust Abuse”

  1. proesterchen

    No surprise there.

    Qualcomm only exists as an SOC company because of their IP in the wireless area, which they have quite successfully introduced in several generations of cell phone standards. This is their one and only lever to gain a foothold in the phone SOC market, which they then tried to extend to desktop / laptop and server platforms.

    I certainly hope that this decision undercuts their ability to keep third-party suppliers especially out of the US Android market, and for competitors offering better performance, lower power consumption and more features to emerge.

    Who knows, they may even think about improving their own slow processors for a change.

    • Andi

      In reply to proesterchen:

      Absolutely this will mean Exynos Samsung Galaxy units in the US.

      Going forward Qualcomm will have to chose, their licensing business or their SoC one. Since hardware is a commodity I suspect they will settle on their licensing. Since they can't discriminate anymore between Snapdragon purchasers and 3rd party clients, they might as well charge the maximum percentage allowed by FRAND to all parties, whether they are Apple or a Snapdragon using OEM.

  2. wocowboy

    I guess Apple had a point after all.

  3. jimchamplin

    Maybe Android Wear can get a non-awful SOC now that these jokers have been put back in their place.

    I’m convinced at this point that it’s not so much that Apple’s A series is somehow magically better, but that Qualcomm is simply incompetent.

  4. Lordbaal

    Well if you are using their patented tech, you should pay for it.

  5. glenn8878

    I thought Apple wanted lower prices and Qualcomm agreed to that with an exclusive deal. Qualcomm should not be prevented from offering exclusive deals if there are terms that must be met to secure it. Otherwise, Qualcomm chips should be sold at much higher prices and thus get a lower licensing rate.

    Now that Huawei is blacklisted, another source of 5G chips is disallowed.

  6. Trickyd

    I rather doubt that Apple would license their A9 chips to anyone else so if Qualcomm choose to apply conditions and charge fees etc. surely that is their right otherwise why bother patenting anything. But the most obvious flaw in the court's argument is the 'harming competition' bit , if Qualcomm license to anyone then there will be no competition and no incentive for anyone to come up with a better alternative , rather as Android's availability has removed any impetus to develop mobile operating systems.

    • wright_is

      In reply to Trickyd:

      It doesn't work quite like that. The patents under discussion are required for standards compliant processes (E.g. CDMA and LTE protocols). If they are used as part of a national or international standard, you have to use FRAND (fair and reasonable), because there is no getting around using those patented technologies if you want to use LTE, for example.

      That means you (generally) get a lot more people using your patent than if it wasn't a standard - if Qualcomm refused to let their patents be used in LTE, they would have a difficult time trying to get people to buy their non-compliant modems or use their non-compliant patents. On the other hand, because they are being used in a standard, you can't charge as much as you want. The idea is, you get less per finished device/sold license, but because there are billions of them out there, you still earn more than if you set a higher price and only sold a handful of licenses.

      Qualcomm decided it didn't have to adhere to this etiquette and wanted to charge a higher price for the use of their patents, which broke FRAND and this is why they are now in trouble.

  7. JerryH

    I figured they were going to run afoul of the FRAND provisions. It is interesting that they went so far in violating them though. I had thought they were likely to just be pushing the boundaries of them. But the results seem to indicate that they really just ignored them.

  8. provision l-3

    Having to move from licensing based on the cost of the device that uses an SEP component to the price of the SEP component was a pretty big hit for Qualcomm. I’m guess that point alone will drive the appeals on this one.

    • Andi

      In reply to provision l-3:

      That is a tough one for the company. I was actually with Qualcomm on this one. Guess I was wrong. To me this means that the licensing business becomes untenable. No way a percentage of a few dollars worth of a chip can sustain future R&D into the next standards. From now on the OEMs would control the future "G's". Apple, Samsung and Huawei will afford what Qualcomm will not.

  9. Greg Green

    As an aside, I’m fascinated at how difficult this silicon engineering must be. Qualcomm is dominant in modems, so much so that even intel couldn’t compete.

    There's only two companies making x86 chips, and intel is better at speed than core count, with amd better at core count than speed. But neither can compete in risc chips.

    ARM is king of risc but can’t scale that up to desktop capable devices.

    In the discrete video arena there’s only two players for consumers with amd seemingly incapable of competing at the top level.

    Compare this to 25 years ago when there were a half dozen video chip companies, several cpu chip companies and almost everyone made a modem chip. This really seems to be the era of specialized silicon companies with no room for generalists or crossovers.

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