Qualcomm, the world's leading mobile chipmaker, has now been dragged to court by U.S. antitrust officials for alleged anti-competitive practices. Particularly, the Federal Trade Commission accused it of violating the FTC Act in the manner it licenses its technology to crush rivals, stifling innovation in the process.
In the complaint filed before a federal district court, FTC stated that Qualcomm is using its stable of patented technology to impose supply and licensing terms on smartphone manufacturers that weakens competition.
Qualcomm's No License, No Chips Tactic
According to FTC, Qualcomm is using unfair tactics. The company purportedly has a penchant for threatening to disrupt processor supply if it is not getting what it wants in its contracts with smartphone manufacturers.
As a result, terms reportedly include elevated royalties on its baseband processors, which incur taxes for OEMs when they use chips manufactured by Qualcomm's rivals. FTC has distilled its strategies into what it calls as no license, no chip position.
These purportedly achieve at least two outcomes. First, OEMs are forced to drop chips by competing manufacturers. Secondly, it could jack up the cost of a device that uses a non-Qualcomm chip, which means that customers ultimately bear the brunt of Qualcomm's anti-competitive practices.
Withholding Standard-Essential Patents
FTC also cited Qualcomm's patents, which have been adopted by standard-setting organizations based on the company's commitment that they will be licensed within a fair, reasonable, and non-discriminatory fashion or what is known in the industry as FRAND terms. According to FTC, Qualcomm is violating this commitment by refusing to license standard-essential patents to its rivals.
Overall, these conditions are believed to be throttling innovation. FTC, through the lawsuit, is seeking to correct the so-called unfair tactics and methods, asking the court to promptly stop them and restore competitive conditions. It is not yet known whether FTC will ask for indemnity. Back in 2014, however, Qualcomm has already revealed that it is being investigated by the agency and stated that it might be slapped with a fine and forced to change its operations.
Qualcomm: Flawed Legal Theory
The chipmaker maintains that its practices are necessary so it can cover the cost of its research and development. Qualcomm further noted that the technologies it was able to develop so far are benefitting their users. In a latest statement, the company maintained that the FTC complaint is based on a flawed legal theory, riddled with misconceptions about the mobile technology industry.
Qualcomm has also indicated that the FTC complaint has been rushed to beat the transition to the new administration. It stated that it is looking forward to defending itself in court.
One should note, however, that South Korea — where Samsung and LG, two of its largest customers, are headquartered — has fined Qualcomm a whopping $890 million for its tactics. The company has also been charged by antitrust authorities in Europe, a development that has been reported as early as 2014.