Qualcomm Abused Dominance, Say US Authorities

Mobile-phone chipmaker Qualcomm has denied accusations that it abused its dominant market position to squeeze out rivals and to the detriment of handset manufacturers including Apple. (See Qualcomm Hits Back at FTC Complaint.)

The charges against the company were made by the US Federal Trade Commission (FTC), which has begun legal action against Qualcomm Inc. (Nasdaq: QCOM) this week.

They come amid rising tension over the intellectual property used in so-called "standard-essential patents" and with Qualcomm desperate to protect its licensing interests in the face of other business challenges.

In a statement, the FTC said that Qualcomm had used anti-competitive tactics to maintain its monopoly in the market for baseband processors. It also accuses the company of obtaining "elevated royalties" for its intellectual property by threatening to withhold processors unless customers agree to its licensing terms.

Such behavior forces manufacturers to make heavy licensing payments to Qualcomm, even when they are using baseband processors from a Qualcomm rival, according to the FTC.

In the case of Apple Inc. (Nasdaq: AAPL), specifically, Qualcomm is said to have forced the iPhone maker to sign exclusivity agreements between 2011 and 2016, preventing it from using baseband processors from Qualcomm's competitors.

Qualcomm said the FTC's complaints were based on "flawed legal theory, a lack of economic support and significant misconceptions about the mobile technology industry."

It vehemently denies ever having threatened to withhold chip supply to extract unfair licensing terms from manufacturers and says the FTC's move could "undermine US intellectual property rights in Asia and worldwide."

"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, Qualcomm's general counsel, in reference to the personnel changes that will occur when President-elect Donald Trump enters the White House later this week.

"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," he added. "That is for the industry, not a regulator, to decide."

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Despite the objections, this is hardly the first time Qualcomm has found itself in hot water over its licensing activities. Only a few weeks ago, authorities in South Korea fined it 1.03 trillion Won ($883 million) for violating the country's competition laws. And in 2015, it agreed to pay a $975 million fine in China for similar infractions. (See Qualcomm to Appeal $865M Fine by South Korea's Fair Trade Commission and Qualcomm to Pay $975M in China Antitrust Spat.)

Together with network equipment makers Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK), Qualcomm is part of the IP Europe lobby group, which is fiercely resisting any changes to the current patents system. (See Patents Prizefight Pending: Clash of the Tech Titans.)

Through a rival body called the FairStandards Alliance, companies including Cisco Systems Inc. (Nasdaq: CSCO), Google (Nasdaq: GOOG) and Intel Corp. (Nasdaq: INTC) are pushing for a reduction in the royalty rates for standard-essential patents, arguing it would spur innovation and provide a boost to smaller players.

But IP Europe insists the current system offers protection to organizations big and small and ensures that would-be imitators cannot shamelessly rip off original innovation.

Qualcomm's stance is not surprising: Licensing sales are becoming increasingly important to the company as revenues from equipment and services continue to slide.

Between 2015 and 2016, those revenues fell from $17.1 billion to $15.5 billion, while licensing sales were more stable, shrinking from $8.2 billion to $8.1 billion.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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