Qualcomm violated antitrust law, US judge rules

May 23, 2019 08:51
Qualcomm’s licensing practices have 'strangled competition' in parts of the chip market for years, harming rivals, smartphone makers and consumers, a US judge ruled. Photo: Bloomberg

Qualcomm illegally suppressed competition in the market for smartphone chips by threatening to cut off supplies and extracting excessive licensing fees, a US judge ruled.

“Qualcomm’s licensing practices have strangled competition” in parts of the chip market for years, harming rivals, smartphone makers and consumers, US District Judge Lucy Koh in San Jose, California wrote in a 233-page decision, Reuters reports.

She ordered the San Diego-based chipmaker to renegotiate licensing agreements at reasonable prices, without threatening to cut off supplies, and ordered that it be monitored for seven years to ensure its compliance, the report said.

The decision issued late Tuesday night caused Qualcomm shares to plunge 11 percent on Wednesday.

Qualcomm said it will immediately ask Koh to put her decision on hold, and also seek a quick appeal to the federal appeals court in California.

“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.

Koh’s decision followed a 10-day non-jury trial in January, and is a victory for the US Federal Trade Commission, which has accused Qualcomm in 2017 of violating antitrust law.

It is unclear whether the sanctions will be challenged by the U.S. Department of Justice, which has taken a different view of the case than the FTC and emerged as an ally to Qualcomm, Reuters said.

On May 2, the Justice Department argued Koh should hold a hearing before placing sanctions on Qualcomm. Placing stringent conditions on the company would “reduce competition and innovation in markets for 5G technology,” the department said.

According to the latest ruling from Koh, Qualcomm engaged in “extensive” anticompetitive conduct targeting more than one dozen original equipment manufacturers including Apple, BlackBerry, Huawei, Lenovo, LG, Motorola, Samsung, and Sony, often by cutting off or threatening to cut off chip supplies or withholding technical support.

The judge also said Qualcomm’s monopoly power in modem chips enabled the company to sustain “unreasonably high” royalty rates not justified by its contributions to the marketplace.

“With practices that result in exclusivity and eliminate opportunities to compete for OEM business, Qualcomm undermines rivals in every facet,” she wrote.

She also found Qualcomm knew its licensing practices harmed competition “yet continued anyway” despite government investigations in China, Japan, Korea, Taiwan, the European Union and the US.

“This evidence of Qualcomm’s intent confirms the court’s conclusion that Qualcomm’s practices cause anticompetitive harm because no monopolist monopolizes unconscious of what he is doing,” she wrote.

Koh also said testimony from some Qualcomm witnesses “lacked credibility,” faulting CEO Steve Mollenkopf and others for giving “long, fast, and practiced narratives”.

Qualcomm cannot bundle patent licensing deals with its hardware, Koh said. The ruling could give chip customers more leverage in negotiations over patent terms and result in lower royalty rates for Qualcomm.

Koh also said Qualcomm must license its patents to rival chipmakers like MediaTek.

Qualcomm argued during the trial that it achieved market dominance through technological leadership. The company began its licensing business in the 1980s and 1990s, decades before it began selling chips, and has charged broadly similar patent rates since then.

Qualcomm also argued that the FTC failed to show harm to competition, arguing that the chip industry is thriving and prices are declining.

-- Contact us at [email protected]