Qualcomm Faces Lawsuits Over Standard Essential Patents

  • Feb 21 2017
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  • Category: Blog

In January, the Federal Trade Commission (FTC) filed a lawsuit against Qualcomm Inc. over its practices for licensing cellular patents to smartphone makers. The company is a leading supplier of modem chips that connect phones to wireless networks. At issue is whether Qualcomm used its dominant market position to obtain excessive royalties on standard essential patents – technology that is required to be offered broadly and at reasonable rates.

The FTC also claims that Qualcomm engaged in anti-competitive tactics by giving Apple Inc. rebates in exchange for being the exclusive supplier of cellular modems in iPhones between 2011 and 2015. During this time, Qualcomm had a significant advantage over rival chip makers in the performance of 4G LTE wireless modems.  Apple began using Intel’s chips last year in the iPhone7.

Days after the FTC filed its lawsuit, Apple also sued Qualcomm, accusing the company of overcharging for modem chips and failing to pay $1 billion in promised rebates.

No License, No Chips

The controversy stems from Qualcomm’s “no license, no chips” policy which requires smartphone makers that buy wireless semiconductors to also license the company’s patents. The chip maker charges a 3 percent patent royalty based on the smartphone’s wholesale price.

The FTC contends cellphone makers are required to pay higher royalties whether they buy wireless semiconductors from Qualcomm or its rivals. In sum, the suit alleges that the company used its dominant market position to force smartphone makers to take the licenses while refusing to license its technology to rival chip manufacturers. The regulator said these practices were tantamount to an “anti-competitive tax.”

Rather than seeking monetary damages, the FTC is asking the court to take measures to prevent a recurrence of Qualcomm’s alleged anti-competitive practices. Qualcomm intends to contest the FTC action, saying regulator did not have sufficient evidence or sound legal grounds to bring the lawsuit.

The Apple Lawsuit Against Qualcomm

The lawsuit contends that Qualcomm imposed the “no license, no chips” policy on Apple and that the chip maker engaged in anticompetitive tactics to maintain a monopoly over key semiconductors in mobile phones.

Apple also said that Qualcomm withheld the rebates because of Apple’s discussions with the Korea Free Trade Commission (KFTC), South Korea’s antitrust regulator. The lawsuit claims that Qualcomm refused to release the payments unless Apple change its responses and provide false information to the regulator, actions which it labeled extortion. The KFTC fined Qualcomm for $865 million in December for its unfair practices in patent licensing.

Qualcomm called the claims baseless and said the Apple has misrepresented facts and withheld information while “actively encouraging regulatory attacks on Qualcomm’s business in various jurisdictions around the world.”

The Takeaway

While the outcome of these lawsuits is uncertain, Qualcomm has been dogged by claims of engaging in anticompetitive practices. In addition to the KFTC fine, the company is currently under investigation in Europe, Japan and Taiwan over patent royalties. In 2015, Qualcomm paid a $975 million China over similar practices.