Judge Lucy Koh of Federal District Court in San Jose, Califfornia, found that Qualcomm has "strangled competition" and violated antitrust law through its abusive patent-licensing schemes. The judge ordered the company to strike new fairer deals with its partners under Federal Trade Commission (FTC) supervision.
Qualcomm’s Anticompetitive Actions
According to Judge Koh, Qualcomm abused its position in order to harm competition and charge smartphone makers excessive licensing fees. The judge said that these patent-licensing practices violate U.S. antitrust law.
Judge Koh then ordered Qualcomm to remake all of its deals with licensees without anymore onerous fees. In case you’re wondering whether or not Qualcomm will actually follow-up on this order, the judge also ordered the company to submit to seven years of monitoring by the FTC to ensure that it will comply with the antitrust law.
Qualcomm Has No FRANDs
In 2017, the FTC sued Qualcomm over anti-competitive practices. Apple, Samsung, Intel, and other companies have given testimony against Qualcomm. Apple, in particular, has argued that Qualcomm was charging excessive royalty fees that were not proportionate to the modem company’s inventions.
Qualcomm’s royalty rate seems to have been of 5% of the phones’ retail price (capped at $400), which means a company making a $400+ phone would have to pay Qualcomm $20 in royalties alone (about 10-100x what companies pay for a video codec, for instance).
The modem itself would cost extra, of course. The strange part is that Qualcomm was demanding that smartphone makers had to pay this royalty even if they weren’t using the company’s modem chips. That’s because Qualcomm claims many of the patents around 4G (and now 5G) technology.
However, those patents are supposed to be fair, reasonable and non-discriminatory (FRAND) patents, because otherwise Qualcomm’s 4G modem technology may have never been accepted by the industry as a standard.
If the industry knew ahead of time that Qualcomm was going to charge them excessive fees for the simple use of Qualcomm’s version of “4G technology,” it may have gone with some other next-generation wireless technology that would now be called "4G" (or say 4G Ultra), and Qualcomm’s own technology could have have been passed over. Qualcomm seems to have essentially “baited and switched” the smartphone makers who agreed to use 4G technology based on Qualcomm’s inventions. And when it was too late to give up on it, Qualcomm started charging companies excessive fees.
Furthermore, judge Koh accused Qualcomm of not even allowing some companies to purchase its modems unless they also agreed to pay the high royalty fees the company was asking. Regardless of the patent situation, Qualcomm has consistently had the best modems in the market for years, so many of its customers were forced to pay the royalties if they wanted those modems.
Apple and Tim Cook Bit The Bullet Too Early
Tim Cook’s Apple is no longer Steve Job’s "thermonuclear war” Apple, at least as far as patents fights go. The old Apple used to be much more aggressive in its patent fights, for better or worse.
The new Apple seems to have agreed to pay Qualcomm all of the royalties Qualcomm said it owned from the past couple of years and renewed its exclusive partnership with Qualcomm for another six years -- a mere month before judge Koh ruled that Apple was in the right all along.
However, it’s also possible Apple didn’t care about whether or not it would pay Qualcomm an extra billion dollars or two, as long as it got to use working 5G modems in its 2021 iPhones. Intel’s modems may have been in such a dire state, that Apple was willing to pay almost anything to use Qualcomm’s modems again, even though, as judge Koh ruled, it shouldn’t have to do that.
Regardless of Apple’s actions, judge Koh’s ruling should be most welcome to other industry players, who seem to keep getting avenged in antitrust lawsuits against Qualcomm. In the past few years Qualcomm has been fined multiple-billions in total by the Korean, Chinese, Taiwan, and the European Union antitrust government bodies.
The FTC will likely come up with a fine of its own against Qualcomm, although the company has promised to appeal judge Koh’s ruling at the Court of Appeals for the 9th Circuit.