Qualcomm defiant in the face of fresh monopolistic accusations

Mobile chip giant Qualcomm has been accused by the US Federal Trade Commission of abusing its FRAND patent position to manipulate the baseband market in its favour.

FRAND stands for ‘fair, reasonable, and non-discriminatory’ and is the system that seeks to ensure standard-essential patents are licensed at a rate reasonable to both the holder and licensee. Qualcomm’s strong position in the 3G standard has been the foundation of its success for the past decade or so, including the 2008 settlement with Nokia.

The FTC seems to be saying Qualcomm charges elevated fees for its licenses to rival baseband processor makers, thus putting them at a competitive disadvantage. Furthermore the FTC alleges Qualcomm sometimes refuses to license FRAND patents to competitors at all and, most emotively, says Qualcomm offered Apple reduced royalty payments in exchange for baseband exclusivity – thus blocking its competitors access to the world’s biggest company.

Qualcomm isn’t impressed with this move by the FTC, alleging the filing of the complaint was rushed ahead of the changing of the guard with the Trump presidency, which promises to be unpredictable to say the least, and with only three of five Commissioners in place and one objecting to the action. It also insists the claim is fundamentally flawed in fact.

“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, Qualcomm General Counsel. “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.

“The historically unprecedented level of innovation and extraordinarily successful worldwide adoption of mobile technology, and the vibrant competition within the industry, make it difficult to understand why the FTC decided to act in this case. The intellectual-property-rights policies of the cellular standards organizations do not require licensing at the component level, and the FTC does not have the authority to rewrite industry policy. That is for the industry, not a regulator, to decide.”

The dissenting Commissioner Maureen K. Ohlhausen was so appalled by the decision of her colleagues to take this action she published a letter detailing all the things she disagrees with. Essentially her objections tally closely with those of Qualcomm regarding incomplete evidence, flawed legality and dodgy timing.

“Rather than allege that Qualcomm charges above-FRAND royalties, the complaint dances around that essential element,” wrote Ohlhausen in the key passage of her letter. “It alleges that Qualcomm’s practices disrupt license challenges and bargaining in the shadow of law, and that the ensuing royalties are ‘elevated.’

“But the complaint fails to allege that Qualcomm charges more than a reasonable royalty. That pleading failure is no accident; it speaks to the dearth of evidence in this case. Although the complaint frames its price-squeeze claim as a “tax”, it overlooks the fact that reasonable royalties are not an exclusionary tax, even if paid by competitors. And it includes no allegation of below-cost pricing (presumably of chipsets) by Qualcomm, even if one infers an antitrust duty to deal with chipset manufacturers. Pacific Bell Tel. Co. v. Linkline Comm’cns, Inc., 555 U.S. 438, 451-52 (2009).”

The fact that a third of the FTC’s executive committee disagrees so strongly with this action makes it look pretty shaky. It is, however, the latest in a sequence of actions against Qualcomm generally alleging it abuses its strong position in mobile chips. At the end of last year Korea’s equivalent of the FTC fined Qualcomm $850 million over a similar set of accusations to these, so even if the FTC has rushed this action it may be a case of ‘no smoke without fire’.