The United States Federal Trade Commission on Tuesday filed suit against California chip maker Qualcomm, alleging the company’s sales and licensing practices “hamper Qualcomm’s competitors and threaten innovation in mobile communications.”
In a complaint lodged with California’s federal court, the FTC accused Qualcomm of maintaining a monopoly on baseband processors for mobile devices and alleged the company has used its dominant position to “impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors.” As a result, the FTC said in its complaint, competitors’ ability and incentive to innovate is diminished while the prices consumers must pay for phones and tablets is increased.
In addition to violating the FTC Act, the Commission in a press release noted Qualcomm’s alleged actions also go against the spirit of its commitment to license its patents on fair, reasonable, and non-discriminatory, or “FRAND,” terms. Rather than establishing reasonable royalties in court as is the FRAND custom when two parties disagree, the FTC said Qualcomm instead has adopted a “no license-no chips” policy that “dramatically increases customers’ costs of challenging Qualcomm’s preferred license terms before a court or other neutral arbiter.”
The FTC also alleged it was through these means that Qualcomm achieved exclusivity with Apple from 2011 to 2016.
“By using its monopoly power to obtain elevated royalties that apply to baseband processors supplied by its competitors, Qualcomm in effect collects a ‘tax’ on cell phone manufacturers when they use non-Qualcomm processors,” the FTC wrote in its complaint. “This tax weakens Qualcomm’s competitors, including by reducing demand for their processors, and serves to maintain Qualcomm’s monopoly in baseband processor markets.”
The FTC said it is seeking a court order to undo and prevent Qualcomm from utilizing what it called “unfair methods of competition” as well as an order instructing Qualcomm to cease anticompetitive conduct and take action to restore competitive conditions.
But not everyone at the FTC agreed with the action.
Commissioner Maureen Ohlhausen raised a dissenting voice in the 2-1 vote to file the complaint, subsequently issuing a statement calling the filing an “enforcement action based on a flawed legal theory that lacks economic and evidentiary support.”
“I have been presented with no robust economic evidence of exclusion and anticompetitive effects, either as to the complaint’s core ‘taxation’ theory or to associated allegations like exclusive dealing,” Ohlhausen commented. “What I have been presented with is simply a possibility theorem. It is no answer to an unsupported Sherman Act theory to bring an amorphous standalone Section 5 claim based on the same conduct. Today’s decision unfortunately bears out my concerns that the Commission’s 2015 statement was too vague and abbreviated to discipline Section 5 enforcement.”
Similarly, Qualcomm Executive Vice President and General Counsel Don Rosenburg said that recent discussions between the FTC and Qualcomm revealed the Commission “still lacked basic information about the industry and was instead relying on inaccurate information and presumptions.” A Qualcomm press release further noted the company “has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms,” and called the FTC’s assertions simply “wrong.”
“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,” Rosenburg said. “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.”
However, this isn’t the first antitrust action Qualcomm has faced.
South Korean regulators in December fined Qualcomm $865 million for allegedly violating competition laws through its practices related to patent licensing and chip sales.Qualcomm has said it plans to appeal that ruling in court.
Back in 2015, Qualcomm also agreed to a $975 million fine and rectification plan to settle monopoly allegations brought by regulatory officials in China in relation to its patent licensing practices. Separately, European Union regulators late that year issued a “statement of objections” to Qualcomm, alleging the company illegally made exclusivity payments to a major customer and sold chipsets below cost to force a competitor out of the market.
Filed Under: Industry regulations