A U.S. district court judge has found that Qualcomm violated anti-trust laws, ruling in favor of the Federal Trade Commission and ordering Qualcomm to change some of its licensing and negotiation practices and seven years of monitoring and reporting on its compliance.
Qualcomm has said publicly that it plans to appeal.
“We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law,” general counsel Don Rosenberg said in a statement to Reuters.
The FTC sued Qualcomm in 2017 over its trade practices. In a 233-page ruling, U.S. District Court Judge Lucy Koh wrote that “Qualcomm’s licensing practices have strangled competition in the CDMA and premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process” — including undermining the development of the WiMAX ecosystem supported by Intel. And the company continues to engage in anticompetitive conduct, she wrote.
“Qualcomm continues to refuse to provide patent exhaustion, refuse to sell modem chips to an OEM until the OEM signs a license, and engage in chip supply threats and cutoffs … and continues to withhold chip supply as leverage against OEMs,” Koh wrote, citing the example of Apple challenging Qualcomm’s royalty rates and Qualcomm responding by refusing to supply chips for 2018 iPhone models. (The companies have since settled their litigation and signed a new, multi-year supplier agreement.)
Koh noted that in addition to the FTC action, regulatory agencies around the world — including in Japan, Korea, Taiwan, China and the European Union — have investigated and/or taken action against the company for its trade practices.
In setting out new rules under which Qualcomm must operate, the judge took into consideration both the current market and the one developing for 5G. Her ruling cited internal Qualcomm documents which lay out the company’s position that technology transitions — such as the current transition to 5G — create significant returns for Qualcomm, with the company documenting that its revenues more than doubled during the 3G to 4G transition and estimating that its lead on key competitors in the 5G space was between 12 to 24 months. Meanwhile, documents from OEMs such as Motorola demonstrated concerns that the significant technology gap would mean that Qualcomm’s market dominance would be maintained in 5G.
“There is sufficient likelihood that Qualcomm will hold monopoly power in the 5G modem chip market such that exclusive dealing agreements for the supply of modem chips could foreclose competition in that emerging market,” Koh concluded.
As a remedy, Koh ordered that Qualcomm make a series of changes in its trade practices, including not conditioning the supply of modem chips on a customer’s patent license status and renegotiating patent license agreements on terms that “reflect the fair value of Qualcomm’s patents” — but the company is prohibited from threatening a lack of, or discriminatory, access to chips and related support as part of those negotiations. Qualcomm must also make “exhaustive [standard essential patent] licenses available” to competing modem-chip suppliers, and it will be prohibited from entering expressly or de facto exclusive deals for modem chip supply — so it can’t undercut a device OEM’s efforts to source those components elsewhere, thereby cutting its rivals out of the market. In some cases, the judge wrote, Qualcomm has made deals that required OEMs such as Samsung to buy 100% of its premium modem chips in a given year; such deals would be prohibited.
