In its complaint for equitable relief filed over two years ago in the Northern California District Court, the FTC claims that Qualcomm
engages in “exclusionary conduct that taxes its competitors’ baseband processor
sales, reduces competitors’ ability and incentive to innovate, and raises
prices paid by consumers for cell phones and tablets.” Testimony wrapped up a few weeks ago and now
the case is in the hands of Judge Lucy Koh, a 2010 Obama appointee to the
District Court. A decision is expected in
a few weeks. The question is what will
that decision be?
Presenting this case as a violation of Section 5(a) of
the FTC Act and not Section 2 of the Sherman Antitrust Act significantly lessens
what the government must prove to win the case.
To prove monopolization or unreasonable restraints of trade under
Section 2, there would need to be evidence that the defendant has possession of
market power in the relevant market AND there is “willful acquisition or maintenance
of that power as distinguished from growth or development as a consequence of a
superior product, business acumen, or historic accident.” To prove unfair methods of competition under
Section 5, the FTC, using its 2015 Enforcement Principles, would need to show
that an act or practice is “likely to cause harm to competition or the competitive
process, taking into account any associated cognizable efficiencies and
business justifications.”
In this case, the FTC alleges that Qualcomm’s unfair
methods of competition include 1) using its dominant market position in CDMA
and premium LTE baseband processors to withhold its products unless the OEMs
(e.g. Apple) accept a license to standard-essential patents, including paying royalties
on separate patent licenses when using a competitor’s processor in their mobile
devices (“no license-no chips”); and 2) consistently refusing to license its
cellular standard-essential patents to its competitors, in violation of
Qualcomm’s FRAND (fair, reasonable and non-discriminatory) commitments.[1] The FTC claims that “by forcing OEMs to pay for
the patent licenses regardless of whether they use the baseband processors
supplied by Qualcomm or a Qualcomm competitor—enables Qualcomm to raise the
all-in prices of processors without spurring substitution or attracting entry.” Some of these higher costs are likely to be
passed onto consumers in the form of higher prices or reduced handset features.
Based on what is necessary to meet the unfair business
practices standard under Section 5(a) and the evidence presented in the case,
it is highly likely that Qualcomm will be revising its business practices in
2019.
https://www.ftc.gov/system/files/documents/cases/170117qualcomm_redacted_complaint.pdf
[1] Baseband processors (chips, modems) allow
cell phones and other mobile devices to communicate with an operator’s cellular
network. Consequently, they must comply
with the cellular communications standards (e.g. CDMA, LTE) that the network
supports. “By making a FRAND commitment,
a patent holder accepts the benefits of participating in standards development
and of seeking incorporation of its patented technologies into a standard, but
agrees in exchange not to exercise any market power resulting from its patents’
incorporation into that standard.”
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