November 19, 2018 at 5:00 am ET
Early this month, U.S. District Court Judge Lucy Koh issued a preliminary ruling in the Federal Trade Commission case against Qualcomm, finding that the company must license its standard essential patent technology to rival chipmakers. This is a significant blow to the chipmaker, coming on the heels of September’s neutral fact-finding decision by Judge Thomas Pender at the U.S. International Trade Commission not to block Apple products with Intel chipsets from importation to the U.S. market because doing so would be against the public interest.
The FTC’s case started back in January 2017, when it accused Qualcomm of refusing to license competing chip vendors and using its market power to undermine its competitors’ business relationships. Judge Koh’s ruling finds that these tactics violate obligations — which Qualcomm voluntarily agreed — to license patents in a fair, reasonable, and non-discriminatory way.
The FTC is not alone in accusing Qualcomm of illegal practices. In the past few years, regulatory agencies around the world have penalized Qualcomm for engaging in anticompetitive tactics to preserve its monopoly position and maximize its profits. In response, Qualcomm has settled a flurry of lawsuits — to the tune of billions of dollars — brought by governments and tech companies alleging that it adopts anticompetitive tactics to protect its market power and raise its profits.
Allowing Qualcomm to settle now with the FTC will once again allow the company to simply “paper over” these anticompetitive complaints without fixing the problem.
The FTC’s arguments appear overwhelming. In September, Judge Koh certified a class of as many as 240 million people and organizations that purchased cellphones in the U.S. at prices allegedly inflated by Qualcomm’s discriminatory licensing policies. The case brought by these consumers rests on the same antitrust grounds as the FTC’s case.
“Plaintiffs have presented copious common evidence to prove that Qualcomm engaged in three uniform practices,” Judge Koh wrote last month in a prior judicial ruling – “namely, (1) Qualcomm’s no license-no chips policy, (2) Qualcomm’s refusal to license cellular [standards essential patents] to competing modem chip manufacturers, and (3) Qualcomm’s exclusive dealings with Apple.”
At the preliminary ruling, Koh wrote, “If a SEP holder could discriminate against modem chip suppliers, a SEP holder could embed its technology into a cellular standard and then prevent other modem chip suppliers from selling modem chips to cellular handset producers … Such discrimination would enable the SEP holder to achieve a monopoly in the modem chip market and limit competing implementations of those components.”
Those are strong words. By handicapping its competitors, Qualcomm’s actions threaten innovation and America’s global competitiveness in new areas of cellular technology like 5G, which promises to create $1.3 trillion in new consumer benefits. As other countries race to deploy 5G wireless networks, the United States can’t afford to fall behind.
Despite the strength of its case, last month the FTC recently filed a joint motion with Qualcomm asking to delay a ruling on the case for a month in order to give the parties time to negotiate a potential settlement. Judge Koh denied the motion, but the FTC’s apparent willingness to consider a settlement is concerning. Some observers were left asking, “why would the Federal Trade Commission snatch defeat from the jaws of victory over Qualcomm?”
The FTC’s rationale is unclear, but the fact that some high-ranking FTC officials are sympathetic to Qualcomm is concerning. It’s also possible that Qualcomm’s multi-million dollar investment in D.C. lobbying is currying favor with the Trump administration, which may be pressuring the FTC to back off.
A settlement with Qualcomm would hurt both the chip industry and millions of consumers. The App Association, a trade group for thousands of app developers, notes that, unlike a settlement agreement, a ruling by a federal court “would provide much-needed legal certainty” to all those involved in using standards-essential patents. While a settlement might address some issues, it would fail to resolve significant underlying problems — limiting the exercise of market power and preventing antitrust abuses — that are at the core of the FTC’s mission.
A settlement would merely postpone clarity on central questions of patent licensing and anticompetitive behavior, leaving it up to private-party litigation (like the class action suit mentioned earlier) to provide answers. A settlement would also let Qualcomm’s suspected anticompetitive behaviors off the hook with a fine until next time.
At the recent earnings call and while referring chipmaker’s $774 million fine by the Taiwan Fair Trade Commission, Qualcomm executive Alex Rogers referred to its antitrust settlements as not affecting its patent licensing business, stating “the other thing I think is important to keep in mind is that we’ve dealt with similar issues like this before, for example, in the TFTC matter, and we found a way to resolve it there in a way that’s not disruptive to the licensing business and satisfactory to the TFTC obviously.”
It is simply a cost of doing business – just pay a fine and move on.
A judgment against Qualcomm would send a strong message to other industry members that similar tactics will not be tolerated by the FTC, which has a distinguished, bipartisan record of promoting policies that nurture competition and benefit consumers.
A settlement would be a mistake.
Steve Pociask is president and CEO of the American Consumer Institute, a nonprofit educational and research organization.
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