Qualcomm Inc. has asked U.S. Judge Lucy H. Koh of the Northern District of California to stay, pending appeal to the Ninth Circuit U.S. Court of Appeals, her decision that the company's modem chip licensing practices violate the Sherman Act and constitute unfair competition practices under the Federal Trade Commission Act.
Qualcomm calls the decision “irreparably flawed” and the FTC case's case “lacking any plausible theory of competitive harm.”
FTC Bureau of Competition Director Bruce Hoffman hailed the decision as "an important win for competition in a key segment of the economy." But a President Trump-appointed FTC commissioner criticized the decision as a "dangerous overreach."
Judge Koh's 233-page decision followed a four-week trial that ended in January.
The FTC’s 2017 complaint challenged what it called Qualcomm’s "unlawful maintenance of a monopoly in baseband processors, semiconductor devices that enable cellular communications in cell phones and other products.” It asserted that Qualcomm engaged 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.”
But, Qualcomm said in a statement, “Mobile handset makers repeatedly testified that Qualcomm had the best chips available, while even Intel testified that Qualcomm R&D drives the pace of cellular innovation. This is the very essence of competition – innovation and superior products. Contrary to the FTC’s claims, Qualcomm’s licensing model promotes, rather than harms, competition in the mobile chip industry, and more broadly the global mobile industry is thriving and competitive.
“After radically restructuring its business relationships [as would be required by the ruling], Qualcomm will not be able to return to its pre-injunction business in an orderly fashion,” a Qualcomm statement reads. “Nor will it be able to unwind licensing agreements it has renegotiated in the shadow of an order that is later overturned.”
Criticism of the judge's ruling has been sharp and quick. Tech industry analyst Patrick Moorhead, writing for Forbes.com, that Judge Koh discounted "pretty much all" of Qualcomm's witnesses as "lacking credibility," including National Medal of Technology and Innovation recipient Dr. Irwin Jacobs.
Moorhead called the case a "clown show," writing: "I still believe the case was initiated under questionable circumstances, is based on a flawed theory, isn’t substantiated with empirical evidence of harm, could paradoxically reduce competition, and may lead to serious national security issues."
The Wall Street Journal wrote that the decision will "cast a new cloud over the tech giant and set the stage for further upheaval in its dealings with the world’s smartphone makers."
One of the FTC Commissioners, Christine S. Wilson, appointed by President Trump, wrote in a Wall Street Journal Op-Ed that, "As one of the five commissioners who have since taken the helm of that agency, you might presume I am pleased with this decision. I am impressed by the persuasiveness of our legal team, which dutifully litigated the case my predecessors handed it. But I am dismayed that the judge took this opportunity to create new legal obligations, undermine intellectual-property rights, and expand the application of our antitrust laws beyond U.S. borders."
The New York Times wrote that the ruling will likely reduce licensing fees paid on the sale of smartphones, but "it's unclear if device makers such as Apple will pass on any of their savings and lower their prices."
The ruling is likely a good one for consumers, but the case is far from over.
Intellectual property rights are meant to incentivize innovation, but that must not come at the expense of robust competition, especially in a market as ubiquitous in our lives as smartphones. Qualcomm was mandated to license its chips on FRAND (fair, reasonable, and non-discriminator) terms, and the FTC has convinced a district court it violated those terms by illegally exploiting its position to maintain a monopoly. If Judge Koh’s ruling stands, competition should be spurred, and consumers should benefit. However, Qualcomm has stated compelling business justifications for a stay pending appeal, so it may be a while before we see that change.