Qualcomm has been accused by the Federal Trade Commission of anticompetitive patent tactics, with the FTC filing a federal court complaint alleging the chip maker used nefarious tactics to maintain a monopoly on mobile processors. The case, filed in the U.S. District Court for the Northern District of California today, argues that Qualcomm used standards-essential patents it holds to demand elevated royalties and other license payments from phone manufacturers. That would contravene the FTC Act.
As we’ve seen play out before when cellular-essential patents are contested, those who hold such rights are expected to license them on so-called FRAND terms. Those “fair, reasonable, and non-discriminatory” terms are what the FTC has taken issue with today. The Commission alleges that Qualcomm threatened to cut off or otherwise disrupt the supply of baseband chips it made to phone manufacturers if they didn’t accept the company’s rates.
“These royalties amount to a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors,” the FTC argues, “a tax that excludes these competitors and harms competition. Increased costs imposed by this tax are passed on to consumers,” it continues.
In total, there are three core elements of the FTC’s case. The first, is that Qualcomm instituted a “no license, no chips” policy, by which it would only supply baseband processors – used in cellular radios – to phone makers if they agree to the chip company’s preferred license terms. Since losing out on those baseband chips isn’t a possibility, the FTC says, it means that the manufacturers are forced to accept what amount to inflated royalties.
Secondly, the FTC says that Qualcomm refuses to license its standard-essential patents to its competitors. Although none are named specifically, the complaint suggests that Qualcomm “consistently refused” to baseband manufacturers who wanted to launch competing products to its own.
Finally, Qualcomm is accused of forcing Apple to agree to a baseband exclusivity deal in order to cut its patent royalty demands. According to the FTC, Apple was forced to solely use Qualcomm’s baseband processors between 2011 and 2016. “Qualcomm recognized that any competitor that won Apple’s business would become stronger,” the FTC says, “and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.”
It’s a comprehensive and serious set of allegations, and the FTC is looking to secure a court order which would not only prevent Qualcomm from doing any of this in future, but also undo what is has already agreed with phone manufacturers. Though the case has been filed, one of the FTC commissioners, Maureen K. Ohlhausen, dissented. Her argument is that she not only disagrees with the economic and evidentiary support of the FTC’s accusations, but “that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide.”
Qualcomm itself picks up on one of commissioner Ohlhausen’s other points, the fact that the case was brought just on the eve of the US Presidential transition. In a statement, it argues that the FTC’s complaint has been “based on a flawed legal theory, a lack of economic support and significant misconceptions about the mobile technology industry.” In particular, Qualcomm continues, it “has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms.”
Meanwhile, Qualcomm also highlights the fact that the FTC complaint does not accuse it of actually attempting to charge above “fair and reasonable” royalties, despite the FRAND references in the suit. “In our recent discussions with the FTC, it became apparent that it still lacked basic information about the industry and was instead relying on inaccurate information and presumptions,” Don Rosenberg, executive vice president and general counsel at Qualcomm said today. “We have grave concerns about the two Commissioners’ decision to bring this case despite a lack of evidence supporting the allegations and theories in the complaint.”
“Despite an appeal from members of Congress to refrain from “midnight litigation” with novel and untested legal theories that could damage competition in the U.S., the FTC accelerated the investigation of Qualcomm and directed the filing of the complaint just days before the change of the Administration though only three of five FTC commissioners are in place.” Qualcomm
According to Rosenberg, Qualcomm intends to fight the accusations in the federal court. A date is yet to be set for that appearance.