Qualcomm's licensing practices violated US antitrust laws, judge rules

The chip giant will appeal the decision.
Written by Campbell Kwan, Contributor

The US ruled on Tuesday that Qualcomm breached antitrust laws, finding the chip giant had illegally suppressed competition in the semiconductor industry and overcharged smartphone manufacturers.

"Qualcomm's licensing practices have strangled competition in the CDMA and premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process," US District Court Judge Lucy Koh said in her judgment.

In coming to her 233-page decision, she issued five orders that may change the core of how Qualcomm's business is run. Qualcomm will be required to renegotiate any license agreements so they do not contain provisions that threaten to cut off chip supply or technical support.

The chip giant will also stop making exclusive dealing agreements with smartphone manufacturers for the supply of modem chips. According to Koh, Qualcomm currently has exclusive dealing agreements with Apple, LGE, BlackBerry, Samsung, and Vivo, and had also previously offered de facto exclusive dealing agreements  to Motorola and Lenovo.

"Exclusive dealing agreements are particularly fraught in markets, like the modem chip market, that are 'highly concentrated' with few market participants … given that concentration in the market, exclusive deals with Apple could eliminate competition," Koh said.

See: Qualcomm announces smart cities accelerator program

Among the other orders made on Tuesday are that Qualcomm will have to make its patent licences available to modem-chip suppliers on fair, reasonable, and non-discriminatory terms and provide compliance and monitoring reports to the Federal Trade Commission (FTC) for the next seven years to demonstrate it has complied with the judge's orders.

During the trial, the FTC called on witnesses from Apple, Samsung, Intel, and Huawei to testify on how Qualcomm's licensing practices have weakened competition in the semiconductor industry.

In a statement released shortly after the judgment, Qualcomm said it would immediately appeal the decision. 

"We strongly disagree with the judge's conclusions, her interpretation of the facts and her application of the law," Qualcomm executive vice president and general counsel Don Rosenberg said.

FTC competition director Bruce Hoffman, meanwhile, has labelled the judgment "an important win for competition" for the semiconductor industry.

The FTC commenced the antitrust proceedings in 2017, arguing that Qualcomm used its monopolistic position to coerce smartphone manufacturers into paying "onerous" fees for its patent licences.

See: Qualcomm expects up to $4.7 billion in Q3 revenue from its Apple settlement   

The decision against Qualcomm follows a long line of court appearances for the company, with Qualcomm only just coming to a patent settlement with Apple last month. On the same day of the settlement, Apple also agreed to a six-year license agreement with Qualcomm, which was shortly followed by Intel announcing it had cancelled plans to make 5G modem chips.

According to ZDNet's sister site CNET, an Intel spokesperson declined to comment on whether the decision behind Intel's exit occurred before the settlement or was in response to the new agreements between Apple and Qualcomm.  

In 2015, Qualcomm was fined $1 billion to settle an antitrust probe from the Chinese government. Then, in 2016, the company was fined 1.03 trillion won ($865 million) by South Korea for similar antitrust issues. Qualcomm was fined again in January 2018, when it was ordered by the European Union to pay €997m ($1.23bn) for abusing its dominance in LTE baseband chipsets market.

"Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance. Qualcomm paid billions of US dollars to a key customer, Apple, so that it would not buy from rivals. These payments were not just reductions in price -- they were made on the condition that Apple would exclusively use Qualcomm's baseband chipsets in all its iPhones and iPads," EU commissioner in charge of competition policy Margarethe Vestager said at the time.

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