Update: FTC Sues Qualcomm, Charging Anticompetitive Conduct

Company says FTC is wrong and it will fight the suit
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With only three days until a new administration takes over, the Federal Trade Commission has filed suit against Qualcomm, saying it has been monopolizing a "key" component in phones and that its licensing practices "threaten innovation in mobile communications."

Qualcomm said it will fight the charges.

The Barack Obama Administration has made promoting wireless broadband a centerpiece of its communications tech policy.

“Qualcomm’s conduct has harmed competition and the competitive process. At a time when cellular technologies are expanding to new and varied applications, Qualcomm’s practices threaten further consumer harm in an industry in which competition and innovation are vitally important,” said the FTC.

The complaint, filed in federal district court, alleges the "dominant" cellular processor company used that position to "impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers" and in the process weakening its competitors. 

Given that Qualcomm holds key patents, "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," the FTC says. "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."

Specifically, the FTC is claiming that, in violation of the FTC Act, 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."

• "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 wants the court to block what it says are those unfair methods of competition. The vote was 2-1, with the lone Republican dissenting, citing in part the timing of the decision.

Maureen Ohlhausen, that lone Republican, does not usually provide dissenting statements, but said she was breaking with tradition saying the decision was "based on a flawed legal theory, threatened patent protections around the globe, and was issued "on the eve of a new presidential administration."

Qualcomm will fight the charges "vigorously," the company said in response.

"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 company said in a statement. "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, EVP and general counsel, for Qualcomm. “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.”

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