SAN DIEGO -- The U.S. Federal Trade Commission (FTC) has filed a complaint today against Qualcomm in the U.S. District Court in the Northern District of California. The FTC’s complaint alleges that certain Qualcomm’s business practices, which have enabled the growth and advancement of mobile communications worldwide, are in violation of U.S. competition law. Qualcomm believes the complaint is based on a flawed legal theory, a lack of economic support and significant misconceptions about the mobile technology industry. 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.
The portrayal of facts offered by the FTC as the basis for the agency’s case is significantly flawed. In particular, Qualcomm has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms. The FTC’s allegation to the contrary -- the central thesis of the complaint -- is wrong.
As FTC Commissioner Maureen Ohlhausen (who voted against the filing) explained in what she notes is a rare dissenting statement, the Commission’s 2-1 decision to sue Qualcomm is “an enforcement action based on a flawed legal theory (including a standalone Section 5 count) that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide.” As Commissioner Ohlhausen notes, it is telling that the complaint does not allege that Qualcomm charges above fair and reasonable royalties.
Despite an appeal from members of Congress to refrain from “midnight litigation” with novel and untested legal theories that could damage competition in the U.S., the FTC accelerated the investigation of Qualcomm and directed the filing of the complaint just days before the change of the Administration though only three of five FTC commissioners are in place.
“This is an extremely disappointing decision to rush to file a complaint on the eve of Chairwoman Ramirez’s departure and the transition to a new Administration, which reflects a sharp break from FTC practice,” said Don Rosenberg, executive vice president and general counsel, Qualcomm Incorporated. “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. In fact, Qualcomm was still receiving requests for information from the agency that would be necessary to an informed view of the facts when it became apparent that the FTC was driving to file a complaint before the transition to the new Administration. We have grave concerns about the two Commissioners’ decision to bring this case despite a lack of evidence supporting the allegations and theories in the complaint. We look forward to defending our business in federal court, where we are confident we will prevail on the merits.”
Rosenberg added, “Qualcomm has been the leader in innovation and invention in the mobile industry for more than 30 years. We have invested billions of dollars in research and development in fundamental mobile technologies that enable the applications and services that have become an essential part of our daily life. Our contribution of these technologies to standard setting organizations and our broad-based licensing of those technologies on fair, reasonable and non-discriminatory terms has facilitated the explosive growth of the mobile communications industry worldwide, brought enormous benefits to consumers, and fostered competition. Qualcomm’s investments and the work of its 30,000 employees have given consumers the ability to access the Internet and massive amounts of data instantaneously on their mobile devices. The historically unprecedented level of innovation and extraordinarily successful worldwide adoption of mobile technology, and the vibrant competition within the industry, make it difficult to understand why the FTC decided to act in this case. The intellectual-property-rights policies of the cellular standards organizations do not require licensing at the component level, and the FTC does not have the authority to rewrite industry policy. That is for the industry, not a regulator, to decide.”
Qualcomm Inc. (Nasdaq: QCOM)