Qualcomm: FTC complaint on licensing practices 'significantly flawed'

The FTC's complaint against Qualcomm's licensing practices is flawed, has no economic basis, and relies on 'significant misconceptions' about the mobile industry, the company has argued.

Qualcomm has said the complaint filed against it by the United States Federal Trade Commission (FTC) alleging that its business practices violate competition law is "significantly flawed".

The complaint was filed in the District Court in the Northern District of California by the FTC earlier on Monday.

"Qualcomm believes the complaint is based on a flawed legal theory, a lack of economic support, and significant misconceptions about the mobile technology industry," Qualcomm said in response.

"The complaint seeks to advance the interests and bargaining power of companies that have generated billions in profit from sales of products made possible by the fundamental 3G and 4G cellular technology developed by innovators like Qualcomm."

Qualcomm has denied ever withholding or threatening to withhold chip supply in an effort to obtain agreement with companies over unfair or unreasonable licensing terms, saying the FTC is simply "wrong" on this count.

"This is an extremely disappointing decision to rush to file a complaint on the eve of [FTC] Chairwoman Ramirez's departure and the transition to a new [Trump] administration, which reflects a sharp break from FTC practice," Don Rosenberg, Qualcomm's executive vice president and general counsel, added.

"In our recent discussions with the FTC, it became apparent that it still lacked basic information about the industry and was instead relying on inaccurate information and presumptions."

The company also pointed towards the dissenting statement by FTC Commissioner Maureen Ohlhausen, who said the FTC's majority decision to file a complaint is "based on a flawed legal theory" and "lacks economic and evidentiary support".

"[The case] was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine US intellectual property rights in Asia and worldwide," Ohlhausen said.

Just three of the five FTC commissioners are sitting presently, Qualcomm added, further detracting from the complaint's merit.

Earlier in the day, the FTC alleged in its complaint [PDF] that Qualcomm used anti-competitive means to hold a monopoly over the semiconductor industry.

Qualcomm refused to allow access to its cellular technology if manufacturers did not agree to its conditions, the FTC alleged, as well as refusing to licence standard-essential patents to competitors and attained an exclusive contract with Apple, impeding competition as a result.

The FTC has applied to the District Court for an injunction preventing Qualcomm from continuing such conduct, as well as equitable relief.

The American trade commission's complaint follows the South Korean Fair Trade Commission (KFTC) decision to fine Qualcomm 1.03 trillion won ($865 million) in December over antitrust violations, with the regulator finding the chip giant's business practices to be in violation of competition law.

Qualcomm's business model includes collecting royalty payments from clients, which are calculated on the price of the handset using the chip, rather than the price of the chipset itself, and royalties from its patents.

"Qualcomm strongly believes that the KFTC findings are inconsistent with the facts, disregard the economic realities of the marketplace, and misapply fundamental tenets of competition law," Rosenberg said in response to the fine.

"Importantly, this decision does not take issue with the value of Qualcomm's patent portfolio. Qualcomm's enormous R&D investments in fundamental mobile technologies and its broad-based licensing of those technologies to mobile phone suppliers and others have facilitated the explosive growth of the mobile communications industry in Korea and worldwide, brought immense benefits to consumers, and fostered competition at all levels of the mobile ecosystem."

Qualcomm will appeal the decision and the fine to the Seoul High Court, saying the fine is "inconsistent with the facts and the law", and a violation of rights specified under the Korea-US Free Trade Agreement (KORUS).

Rosenberg added that Qualcomm's requests for access to case files and the right to cross-examine witnesses were denied repeatedly throughout the KFTC's investigation into the matter, and said its appeal to the Seoul High Court will ensure antitrust principles are applied.

The investigation was launched by the KFTC in April 2014, which sent a request for information to the company in August 2015 and followed this up by sending requests for information to competitors -- which include Intel and AMD -- and clients such as Samsung and LG in March 2016.

The KFTC in 2009 similarly fined Qualcomm for collecting "discriminating" royalties for its Code Division Multiple Access (CDMA) patents, as they were deemed to be SEP. Qualcomm also appealed this decision and it remains in the Supreme Court.

In February 2016, Qualcomm also agreed to pay $975 million to the Chinese antitrust regulator and lower its royalty rates on patents in the Chinese mobile phone market in order to end a 14-month investigation into its patent-licensing practices.