Qualcomm gets trial in case that threatens its dominance

Bloomberg

Two years after the US Federal Trade Commission sued Qualcomm Inc, unleashing a series of existential challenges to the company’s business model, the chipmaker is about to get its chance to square the record.
Lawyers for the regulatory agency and the company are set to begin presenting arguments on January 4 in a 10-day non-jury trial over claims that Qualcomm is abusing its strength in market for smartphone components to force Apple and others to pay inflated license fees.
While the two sides have said they’re in settlement negotiations, US District Judge Lucy Koh in San Jose, California, refused to delay proceedings and narrowed scope of Qualcomm’s arguments in pre-trial rulings.
The case challenges San Diego-based Qualcomm’s business model, casting a shadow over one of the fundamental reasons it’s been so successful in the smartphone era. Losing to the FTC would threaten billions of dollars the company makes in licensing fees, which have been used to develop better chips and invent technology. Any cut to Qualcomm’s ability to pay for industry-leading research and design jeopardises its future competitiveness as well as its current profits.
After the FTC filed its complaint in January 2017, Apple quickly followed with a similar suit, accusing Qualcomm of holding the industry ransom with patents that underpin how modern phone systems work. That move spawned a global web of litigation involving the two companies, with Qualcomm saying in October that Apple owed it $7 billion in unpaid
licensing fees.
Qualcomm has also been subject to regulatory action in other countries, something it says Apple engineered through unfair lobbying. It’s appealing a decision in Korea, won a reversal of a judgment against it in Taiwan and paid a fine in China. The European Union also has an open investigation.
In the FTC case, Qualcomm argues the US simply has its facts wrong and has failed to demonstrate any evidence of anti-competitive behaviour by the chipmaker against its rivals.
Nonetheless, Qualcomm has taken a couple of pre-trial hits from the judge. While a key part of the government’s case is its allegation that the company tried to force Apple to use its chips exclusively, Koh ruled that Qualcomm can’t point to Apple’s growing dependence on Intel Corp to prove otherwise.
Currently Qualcomm doesn’t give licenses to its chipmaker rivals such as Intel and MediaTek. Qualcomm argues they don’t need the licenses because it gets paid by the handset makers and it’s never sued them for using its technology. The FTC contends that Qualcomm’s refusal to license patents to competitors including Intel and Samsung was part of a scheme to maintain its monopoly.
Koh concluded in November that Qualcomm is required to license patents under commitments the company made to industry groups to provide them on fair and reasonable terms.
Intel and Samsung have supported the FTC in friend-of-the-court filings, arguing Qualc- omm’s defense is outdated since its years of “dominance through innovation and hard work” have been replaced with monopolistic practices. Those practices “suppress competition and harm consumers,” Intel said in a May 2017 filing.