FTC vs. Qualcomm: No license, no chips

The court should refuse Qualcomm’s motion to dismiss the antitrust suit

qualcomm chip
© Raimond Spekking, via Wikimedia Commons (Creative Commons BY or BY-SA)

It’s not every day that the government and the tech industry agree on intellectual property policy, but both interests are united in their opposition to San Diego-based Qualcomm Inc.’s abusive patent-licensing practices.  

Hoping to escape impending and much-needed scrutiny, Qualcomm has asked the U.S. District Court for Northern California to dismiss an antitrust suit brought by the U.S. Federal Trade Commission (FTC) that alleges that Qualcomm, which holds patents essential to assuring that wireless devices operate with networks worldwide, leveraged its monopoly on those standards-essential patents (SEP) to harm competition. A hearing on Qualcomm’s dismissal motion is scheduled for June 15.  

Judging from the amicus curie briefs filed against Qualcomm’s motion to dismiss, Qualcomm’s years of bullying competitors and abusing the licensing process for its own financial gain have netted it few friends in the wireless industry. 

The FTC suit is only the latest scrutiny of Qualcomm for abusing its patent monopoly. It follows sanctions in South Korea, Taiwan, China and the European Union for similar behavior. 

Typically, companies that hold patents that international industry bodies deem essential to make part of a global or regional standard — such as the way TVs convert signals into pictures — agree to make those patent licenses available to all manufacturers under fair, reasonable and non-discriminatory (FRAND) terms. 

Courts and regulatory bodies in the U.S. and internationally have found that Qualcomm repeatedly flouts its FRAND commitments and agreements. The most persistent complaint within the FTC action is the Qualcomm practice of “no license, no chips.” Qualcomm, the FTC says, has a pattern of withholding patent licenses unless buyers also agree to purchase its chipsets for wireless devices. For example, Qualcomm is accused of demanding a license royalty of 5% of the retail price of a device — $30 for a $600 smartphone — when a typical SEP license amounts to less than 0.5% of retail price. 

If left unchecked, Qualcomm’s anticompetitive practices could have profound effects on the entire standards-setting ecosystem. For consumers, that would mean higher prices and a proliferation of incompatible devices. Without the industry’s adoption of the global Wi-Fi standard, TVs, computers, tablets and smart speakers such as Amazon’s Echo might all require separate wireless routers. More likely, few of these innovations would be developed at all. 

Though no company is obliged to submit technology for standards consideration, once it does and its technology is deemed essential to a standard, it is obliged to license that technology under FRAND terms. Over the years, standards bodies have proved to be an excellent example of industry self-regulation, but Qualcomm’s persistent flouting of established laws and rules have forced government authorities to step in. That’s why the FTC case is critical. The case will help check Qualcomm’s behaviors, but more importantly it will send a signal that the U.S. government stands behind the FRAND system and the global innovation it upholds.  

“The public interest function of FRAND breaks down where a company violates its obligation to license on FRAND terms,” the App Association, a group representing thousands of small businesses, writes in its amicus brief.  

The App Association’s brief was one of several to urge the U.S. district court to deny Qualcomm’s request for dismissal. Though motions to dismiss are commonplace, an onslaught of amicus filings at this stage of a trial is extremely rare. The outpouring of concern speaks volumes about the impact of Qualcomm’s tactics. 

“For too long, Qualcomm has blocked [wireless device makers] from assessing competing chipsets on their merits,” Intel writes in its amicus brief. “Qualcomm’s web of anticompetitive practices distorts prices in this market, which imposes a financial burden on [device makers], rival chipset manufacturers, and ordinary consumers alike.” 

For its part, Qualcomm poses a weak defense and doesn’t dispute the main accusations in the case. Because it has been charging a 5% royalty rate since the early years of wireless, it argues, it can continue to do so. This ignores the reality that today’s wireless devices have evolved way beyond a device dedicated to voice communication on the go. 

The FTC claims that competitors such as Broadcom, Marvell, Freescale and NVidia were all illegally forced out of the wireless chip market due to Qualcomm’s tactics. And these higher-profile casualties don’t account for all the would-be competitors that never got off the ground because of Qualcomm’s abusive behavior. 

The FTC’s lawsuit is justified, and the case must move forward. The court should deny Qualcomm’s motion for dismissal. It’s time to hold the company accountable. 

Steven Titch is an independent policy analyst focusing on telecommunications, internet and information technology. His work has been published by the R Street Institute, the Heartland Institute, the Reason Foundation and the Competitive Enterprise Institute.

Copyright © 2017 IDG Communications, Inc.

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