[A2k] FTC Charges Qualcomm With Monopolizing Key Semiconductor Device Used in Cell Phones

Thiru Balasubramaniam thiru at keionline.org
Tue Jan 17 23:24:27 PST 2017


FTC Charges Qualcomm With Monopolizing Key Semiconductor Device Used in
Cell Phones

Company’s sales and licensing practices hamper Qualcomm’s competitors and
threaten innovation in mobile communications, according to FTC

January 17, 2017

Bureau of Competition


The Federal Trade Commission filed a complaint in federal district court
charging Qualcomm Inc. with using anticompetitive tactics
maintain its monopoly in the supply of a key semiconductor device used in
cell phones and other consumer products.

Qualcomm is the world’s dominant supplier of baseband processors – devices
that manage cellular communications in mobile products. The FTC alleges
that Qualcomm has used its dominant position as a supplier of certain
baseband processors to impose onerous and anticompetitive supply and
licensing terms on cell phone manufacturers and to weaken competitors.

Qualcomm also holds patents that it has declared essential to industry
standards that enable cellular connectivity. These standards were adopted
by standard-setting organizations for the telecommunications industry,
which include Qualcomm and many of its competitors. In exchange for having
their patented technologies included in the standards, participants
typically commit to license their patents on what are known as fair,
reasonable, and non-discriminatory, or “FRAND,” terms.

When a patent holder that has made a FRAND commitment negotiates a license,
ordinarily it is constrained by the fact that if the parties are unable to
reach agreement, the patent holder may have to establish reasonable
royalties in court.

According to the complaint, by threatening to disrupt cell phone
manufacturers’ supply of baseband processors, Qualcomm obtains elevated
royalties and other license terms for its standard-essential patents that
manufacturers would otherwise reject. These royalties amount to a tax on
the manufacturers’ use of baseband processors manufactured by Qualcomm’s
competitors, a tax that excludes these competitors and harms competition.
Increased costs imposed by this tax are passed on to consumers, the
complaint alleges.

By excluding competitors, Qualcomm impedes innovation that would offer
significant consumer benefits, including those that foster the increased
interconnectivity of consumer products, vehicles, buildings, and other
items commonly referred to as the Internet of Things.

The FTC has charged Qualcomm with violating the FTC Act. The complaint
alleges that Qualcomm:

   - *Maintains a “no license, no chips” policy under which it will supply
   its baseband processors only on the condition that cell phone manufacturers
   agree to Qualcomm’s preferred license terms.* The FTC alleges that this
   tactic forces cell phone manufacturers to pay elevated royalties to
   Qualcomm on products that use a competitor’s baseband processors. According
   to the Commission’s complaint, this is an anticompetitive tax on the use of
   rivals’ processors. “No license, no chips” is a condition that other
   suppliers of semiconductor devices do not impose. The risk of losing access
   to Qualcomm baseband processors is too great for a cell phone manufacturer
   to bear because it would preclude the manufacturer from selling phones for
   use on important cellular networks.

   - *Refuses to license standard-essential patents to competitors.* Despite
   its commitment to license standard-essential patents on FRAND terms,
   Qualcomm has consistently refused to license those patents to competing
   suppliers of baseband processors.

   - *Extracted exclusivity from Apple **in exchange for reduced patent
   royalties.* Qualcomm precluded Apple from sourcing baseband processors
   from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any
   competitor that won Apple’s business would become stronger, and used
   exclusivity to prevent Apple from working with and improving the
   effectiveness of Qualcomm’s competitors.

The FTC is seeking a court order to undo and prevent Qualcomm’s unfair
methods of competition in violation of the FTC Act. The FTC has asked the
court to order Qualcomm to cease its anticompetitive conduct and take
actions to restore competitive conditions.

The Commission vote to file the complaint was 2-1. Commissioner Maureen K.
Ohlhausen dissented and issued a statement.
a public and sealed version of the complaint were filed in the U.S.
District Court for the Northern District of California on January 17, 2017.

*NOTE:* The Commission files a complaint when it has “reason to believe”
that the law has been or is being violated and it appears to the Commission
that a proceeding is in the public interest. The case will be decided by
the court.

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