Qualcomm Found Guilty of Violating Fair Trade Practices

The worldwide lawsuit war between Apple and Qualcomm might be over after they dropped the lawsuits against each other but Qualcomm faces another battle. The FTC has filed a case against the company on antitrust abuse and illegal behavior counts.

Judge Lucy Loh, a US District Court Judge ruled on 21st May that Qualcomm had broken the Federal Trade Commission Act. The ruling, which will have a substantial impact on its business structure and earnings, will be appealed by the company.

In a statement on Wednesday, the executive vice president and general counsel of Qualcomm, Don Rosenberg said, “We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law”.

In the ruling, Judge Koh has mostly agreed with the FTC and has placed multiple restrictions on Qualcomm, the major being that it can no longer use the strategy “no license, no chips” under which customers, while purchasing Qualcomm’s microprocessors, had to license its patent. It can no longer sign exclusive deals with companies such as Apple and can’t refuse to license its patents according to FRAND (Fair, Reasonable, and Non-Discriminatory) terms.

The judge wrote, “Qualcomm’s licensing practices have strangled competition in the CDMA and premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process”.

Qualcomm has been hit with the following restrictions under the ruling:

  1. Qualcomm must not condition the supply of modem chips on a customer’s patent license status and Qualcomm must negotiate or renegotiate license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical support or access to the software.
  2. Qualcomm must make exhaustive SEP licenses available to modem-chip suppliers on fair, reasonable, and non-discriminatory (“FRAND”) terms and to submit, as necessary, to arbitral or judicial dispute resolution to determine such terms.
  3. Qualcomm may not enter express or de facto exclusive dealing agreements for the supply of modem chips.
  4. Qualcomm may not interfere with the ability of any customer to communicate with a government agency about potential law enforcement or regulatory matter.
  5. In order to ensure Qualcomm’s compliance with the above remedies, the Court orders Qualcomm to submit to compliance and monitoring procedures for a period of seven (7) years. Specifically, Qualcomm shall report to the FTC on an annual basis Qualcomm’s compliance with the above remedies ordered by the Court.

It was discovered that there were exclusivity deals between Qualcomm and Apple, Blackberry, LGE, Samsung and Vivo. Shockingly, it paid Samsung $100 million to silence the company during an investigation into alleged antitrust violations. Qualcomm has a history of misconduct as Koh noted:

“Qualcomm’s failure to alter its unlawful licensing practices despite years of foreign government investigations, findings, and fines suggests an obstinance that a monitoring provision may address.”

Lastly, Qualcomm cannot charge higher royalty rates from its consumers if they decide to use its chips and its competitor’s and Judge Koh stated there was evidence the company had done this.

Interestingly, they aren’t the only ones to do this. Intel did this allegedly against AMD, Microsoft did it too, charging OEMs for licensed windows regardless of the OS on PCs sold.

Qualcomm has already stated that it will appeal the ruling and has requested a stay of the ruling, meanwhile. The 5G modem market is rapidly dwindling, Intel has withdrawn after plans to provide 5G to Apple fell through, chances of Huawei silicon being welcomed to the US are low for now and this leaves Samsung and MediaTek as closest competitors but even then Qualcomm could potentially corner majority of the market regardless of FTC’s decision.

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