Qualcomm loses bid to quash FTC antitrust lawsuit
A Northern California federal judge has denied Qualcomm Inc.’s motion to dismiss the U.S. Federal Trade Commission antitrust lawsuit against the San Diego wireless technology company, which means the case will go forward.
The suit, filed in January, alleges that Qualcomm uses its dominant market position in cellular modems to coerce smartphone makers to pay too much to license its large portfolio of cellular patents.
Qualcomm had said the lawsuit should be dismissed, arguing that it was based on a flawed legal theory and failed to show how the mobile market had been harmed by Qualcomm — a view that acting FTC Chairwoman Maureen Ohlhausen shares.
But U.S. District Court Judge Lucy Koh ruled late Monday that the case should proceed, stating in a written decision that the FTC had done enough to assert anti-competitive conduct by Qualcomm in the way that it licenses patents.
The lawsuit is to be heard in federal court in Northern California. No trial date has been set.
The decision is a blow to Qualcomm, but not an unexpected one. Motions to dismiss are rarely granted, and a handful of tech companies, including Samsung and Intel, filed motions supporting the FTC.
“We look forward to further proceedings in which we will be able to develop a more accurate factual record and the FTC will have the burden to prove its claims, which we continue to believe are without merit,” Qualcomm General Counsel Don Rosenberg said in a statement.
The company says that the patent licensing platform enables smartphone makers to easily enter the market with new devices without having to invest billions in core cellular technology, benefiting consumers.
Qualcomm’s patent fees top out at 5% of the device price — but caps, volume discounts and other programs can lead to a lower percentage. Apple, which sells its top-tier iPhone 7 models for more than $700, pays Qualcomm on average $10 per phone in patent fees across its smartphone portfolio, according to estimates from Canaccord Genuity analyst Mike Walkley in a May research note.
Qualcomm not only licenses its smartphone patents, it also is a top supplier of cellular radios and other chips used in smartphones.
The FTC contends that Qualcomm won’t sell chips to smartphone makers unless they first license its thousands of patents. Because these smartphone makers fear that Qualcomm will cut off their chip supply, they don’t negotiate hard enough to lower patent license fees, according to the FTC.
Qualcomm also refuses to license its patents to rival chip makers such as Intel or MediaTek, which the FTC claims is required because Qualcomm’s patents are included in cellular technology standards.
If Qualcomm licensed its patents to Intel or MediaTek, that would allow smartphone makers to buy chips that already include Qualcomm’s patent fees, according to the FTC. And Intel and MediaTek are in a better position than smartphone makers to negotiate tougher terms.
Qualcomm counters that the FTC is misreading its business model and the depth of its intellectual property, which totals 130,000 patents globally and covers smartphone technology well beyond cellular radios.
Chips sales and patent licensing are separate operations, according to Qualcomm. Smartphone makers owe patent fees to Qualcomm even if they buy chips from Intel or MediaTek. The company says that would be the case even if it offered patent licenses to rivals.
That’s because its patents cover systemwide technology that not only pushes more data across crowded cellular airwaves but also has a variety of other uses, including precise GPS navigation, audio and video compression for streaming, power management for longer battery life, graphics, app store operations and camera imaging operations.
Shares of Qualcomm fell $1.13, or 2%, to $55.43 on Tuesday.
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