Economy First Look

FTC sues chipmaker Qualcomm over unfair licensing practices

The FTC voted 2 to 1 to sue Qualcomm, the world's dominant supplier of broadband processors, for allegedly withholding its chips to obtain reduced licensing fees. 

A video promotes the 5G mobile wireless standard at the Qualcomm booth during the 2017 CES in Las Vegas on Jan. 6, 2017. The FTC is suing Qualcomm over its licensing practices.
Steve Marcus/Reuters
|
Caption

The FTC announced Tuesday that it is suing Qualcomm for violating the FTC Act by allegedly maintaining a monopoly over a key device used in cellphones and other electronics.

Qualcomm, one of the world's foremost makers of chips used in mobile phones, has come under fire on the grounds that it "maintains a 'no license, no chips' policy under which it will supply its baseband processors only on the condition that cellphone manufacturers agree to Qualcomm's preferred license terms," "refuses to license standard-essential patents to competitors," and "extracted exclusivity from Apple in exchange for reduced patent royalties."

"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," said the agency in a statement. "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."

Qualcomm claims it has never withheld, or threatened to withhold, chips to negotiate unfair licensing terms. 

It's not the first time Qualcomm has faced anti-monopoly charges. But this complaint is particularly significant as it marks the furthest development in the Federal Trade Commission cracking down on anticompetitive conduct in patent licensing, experts say.

"This is a more aggressive complaint than we’ve seen in the past," Michael Carrier, a professor at Rutgers Law School who specializes in antitrust and intellectual property law, told Bloomberg. "Once you say higher royalties are a problem, the FTC is wading a little more in the details of what the royalties should be."

The FTC voted 2 to 1 to sue Qualcomm, with the dissenting vote coming from Commissioner Maureen K. Ohlhausen. She argued that the decision to take legal action was "based on a flawed legal theory," "lacks economic and evidentiary support," and will "undermine U.S. intellectual property rights in Asia and worldwide."

Don Rosenberg, executive vice president and general counsel for Qualcomm Incorporated, called the vote an "extremely disappointing decision" that "reflects a sharp break from FTC practice." 

He also lamented the timing of the charges, coming "on the eve of Chairwoman Ramirez's departure and the transition to a new Administration." 

"It will be very interesting to see how the Trump administration and their appointees handle this bombshell of a complaint," said Anshel Sag, an analyst with Moor Insights & Strategy, to Extreme Tech. "I believe that the Trump administration may end up being much less heavy-handed with how they approach this complaint than the Obama administration would have been." 

This report contains material from the Associated Press.