Samsung and Intel recently filed two amicus briefs in the FTC’s antitrust case against Qualcomm, accusing Qualcomm of violating Fair, Reasonable And Non-Discriminatory (FRAND) patent terms and legally excluding competitors from the market through the use of its own baseband processor patents. Samsung also claimed that Qualcomm stopped it from selling its chips to third-party vendors. Qualcomm has previously called this allegation “false.”
Why FRAND Patents Exist
Without FRAND patents, certain standards may not exist, simply because the other members of a standards group would not agree to adhere to a given standard without all members sharing the patents with each other in a reasonable way.
Let’s consider, for example, a situation where multiple companies within a standards body each try to create a next-generation wireless technology. If one company creates a technology called LTE-X, but doesn’t want to share its technology with the rest of the members from the standards body, then that technology would likely not end up being chosen as the standard by the standards body.
If another company creates a different technology called LTE-Z but is willing to share the patents for free or for a small price, the standards body would likely go with LTE-Z as the “next-generation wireless technology.” It would then become much harder for the company behind LTE-X to promote its technology to carriers, smartphone makers, and so on, because everyone else has already agreed on a different standard.
Now, let’s consider one company has the majority of the patents on the LTE-Z technology and at first agrees to license them out to competitors for a reasonable price. Thus, LTE-Z becomes the new standard, and everyone adopts it. However, later on, this company decides that it doesn’t want to license the technology to competitors anymore, or it does do it but for a prohibitive price, effectively stopping competitors from being able to legally use it.
This is basically what Samsung and Intel are accusing Qualcomm of doing.
Qualcomm’s “Handset Tax”
According to the FTC, Qualcomm has been imposing a “handset tax” on manufacturers that disincentivizes them from seeking alternative chip suppliers. Even if the manufacturers would use another company’s chip, they’d still have to pay Qualcomm an “onerous” sum based on a percentage of a device’s retail price, according to Samsung’s amicus brief.
Intel also argued in its own brief that it wasn’t technology prowess that helped Qualcomm stay ahead, but these types of contracts it’s been imposing on manufacturers. The contracts allegedly prevented the smartphone makers from being competitive on price when buying chips from Qualcomm’s competitors.
Qualcomm has seemingly argued before that if so many of its customers were harmed by its policies, then why hasn’t anyone sued it yet? Samsung pointed out that Broadcom did sue it over abusing FRAND patents in 2006, but the two companies eventually ended up settling, instead of concluding the trial.
Samsung also noted that Qualcomm’s customers, including itself, are also disincentivized from suing Qualcomm, because they could forever lose access to its chips, too. Samsung admitted that it has been forced to buy Qualcomm’s chips, even if it believed Qualcomm was overcharging for its FRAND patents.
Samsung asserted that Qualcomm’s policies and overcharging for FRAND patents have made it all but impossible for competing modem makers to compete in the premium handset market. This includes Intel which blamed Qualcomm for being unsuccessful in the mobile market, but also Nvidia, which had to shut down its Icera modem business a few years ago because of Qualcomm’s "unlawful abuse of dominance," as the company claimed at the time.
Recently, Apple also sued Qualcomm arguing that Qualcomm is abusing its market position and charging it five times more than what all the other licensors charge it combined. In response, Qualcomm counter-sued Apple over breach of contract and for mischaracterizing the agreements between the two companies to the FTC. Qualcomm also said Apple lowered the performance of its modem in the iPhone 7 to reduce the discrepancy in performance between its chip and Intel's modem, which was available in certain iPhone 7 models.
Qualcomm's Ongoing Antitrust Issues
Over the past few years, Qualcomm has been hit with antitrust lawsuits from Japan, China, South Korea, the European Union, and recently the United States. The company continues to claim that the accusations are flawed, even after it was already forced to pay almost a billion dollar on three different occasions (in settlement with Broadcom, as well as China, and South Korea’s cases).
Tom’s Hardware asked Qualcomm why, if these accusations are baseless, so many countries seem to be starting antitrust cases against it. The company refused to provide a direct answer to that, reiterating that its stance on these issues has not changed.