United States FTC Charges Qualcomm with Antitrust Violations over Cellular Modem Patents & Technology

Qualcomm’s legal problems are growing. This afternoon the United States Federal Trade Commission, which has been investigating Qualcomm for possible anti-trust issues since 2014, has moved on to the next stage in their investigating by formally charging the company with multiple antitrust violations. This is the latest in a series of moves from national regulatory authorities, which has seen China, South Korea, and the European Union all fine, settle with, or investigate the company.

As with the cases against Qualcomm in other nations, much of FTC’s suit sounds similar: that Qualcomm refused to follow FRAND practices on its patents, and that it used its leverage to force device manufacturers to use its modems by making competing modems more expensive via royalties. Furthermore the FTC also alleges that Qualcomm worked to prevent the adoption of competing (non-LTE) technologies altogether.

The FTC summarizes their key points as follows:

1. [Qualcomm] Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.
    
2. Refuses to license standard-essential patents to competitors. Despite its commitment to license standard-essential patents on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.
    
3. Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.

Points 1 and 2 are fairly straightforward. If Qualcomm was not licensing their patents out at all, or not licensing them under FRAND terms, then that would allow the company to discourage the use of competing modems, either via royalties or the risk of a lawsuit for violating their patents. Qualcomm holds a number of standards-essential patents for both CDMA and LTE, with both network technologies seeing heavy use in the roughly decade-long time period the complaint covers.

Similarly, once device vendors agree to use Qualcomm’s chips, Qualcomm is also accused of forcing them to accept the company’s patent licensing terms, which according to the FTC is not a standard industry practice. The end result being that device vendors would be locked into paying higher patent royalties.

But perhaps the most interesting – and certainly most novel – aspect of the FTC’s complaint is specifically the company’s agreement with Apple. In their complaint, the FTC alleges that Qualcomm forged a deal with Apple specifically to prevent competitors (e.g. Intel) from getting a foothold in the market and eroding Qualcomm’s dominance. This aspect of the FTC’s complaint also extends to competing technologies, with the FTC further accusing Qualcomm of forging agreements with Apple in part to prevent the adoption of WiMax, which is now a failed standard that was overtaken by the more Qualcomm patent-heavy LTE.

Ultimately in filing this complaint, the FTC is looking to force Qualcomm to halt what the commission sees as anticompetitive actions and to ensure a competitive market for cellular modems/basebands. It’s worth noting that as this is just the initial complaint, unless the FTC and Qualcomm were to settle early, this likely will be a multi-year legal battle just to prove or disprove the FTC’s complaints (and that doesn’t include any potential remedies/fines). At the same time, LTE is now well-entrenched and 5G technology is under development, so the market won’t be standing still one way or another while this case is going on.

Finally, in response to the FTC’s complaint, Qualcomm has issued their own press release denying the allegations against them. Along with refuting the FCC’s claim that they withheld chips, the company is also voicing their disagreement at the FTC’s underlying legal theory and what they see as a lack of evidence. The company is also questioning the timing of the suit, noting that it comes days before the new presidential administration takes power, insinuating that the suit was filed now to get the case started before the new administration (and its appointed FTC members) took control.