Judge Finds Qualcomm's Pricing Policy Violates Antitrust Law

Steve Mollenkopf, CEO of Qualcomm, which vowed to appeal a ruling that it violated antitrust laws.Andrew Harrer/Bloomberg/Getty Images
The US has joined China, the European Union, and South Korea, in ruling that Qualcomm violated antitrust laws.Qualcomm is the largest maker of modem chips for connecting smartphones to wireless networks. Its customers, including Apple and Samsung, complain that the company uses unfair practices, such as threatening to withhold supplies of chips, to force companies to agree to excessive licensing fees for its technology. Apple and Qualcomm settled their own separate, complicated legal battle last month.The Federal Trade Commission sued Qualcomm in 2017, alleging that the company drove up smartphone prices by overcharging customers and unfairly blocking competitors from the modem chip market, but the case didn't make it to trial until January . Late Tuesday night, US District Judge Lucy Koh ruled in the FTC's favor and ordered Qualcomm to negotiate or renegotiate its modem chip licensing terms with its customers, barred the company from entering into exclusivity deals that prevent customers from buying modem chips from other companies, and required the company to submit to monitoring by the FTC for the next seven years. Koh also upheld her previous ruling that Qualcomm must license its patents to competitors under fair and reasonable terms.Qualcomm will appeal the decision. "We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law," Qualcomm general counsel Don Rosenberg said in a statement.

If Qualcomm loses its appeal, smartphone makers might be able to pay the company less for its technology, though it’s unclear whether that will translate into lower prices for consumers.

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Qualcomm has historically charged a fee both for the chips it sells to device makers like Apple and Samsung, and a patent licensing fee of around 5 percent of the total value of a device, up to about $20. That means if you paid $300 for a phone, Qualcomm would get $15 on top of whatever the manufacturer paid for any Qualcomm chips included in the phone. If you paid $1,000, Qualcomm would get $20.In the FTC case, Apple argued that this license overvalued Qualcomm's chips relative to other technologies, such as touchscreens, that go into a smartphone. But Apple and other customers say they were unable to renegotiate patent licensing prices because Qualcomm threatened to cut off supplies of chips. Koh's order specifically bans Qualcomm from cutting off chip supplies, but it doesn’t necessarily stop Qualcomm from charging patent licensing fees separate from the cost of chips.

Qualcomm argued that it underpriced the chips themselves because it didn't account for the value of its intellectual property when selling the chips. It also claimed that the average price of smartphones dropped by 34 percent between 2010 and 2017 and argued that the drop is evidence that it hasn’t harmed competition.

Qualcomm has been competing with companies like Intel and Taiwanese chipmaker MediaTek in the modem chip business. Last month Intel abandoned its plans to make chips capable of connecting to 5G networks, leaving smartphone makers more dependent on Qualcomm than ever.
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