Qualcomm points to innovation costs as shield to FTC's antitrust claims

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in iPhone
The U.S. Federal Trade Commission has rested its case against Qualcomm, with the chip maker saying that innovation is expensive, and its licensing practices are justified based on that alone.

Qualcomm office building showing company logo


The ongoing trial in San Jose, California continued on Tuesday with the FTC finishing off presenting evidence that Qualcomm was monopolizing the wireless chip business. Applying "excessive" royalty rates to wireless patents helped push up the cost of devices for consumers, as well as made it harder for other companies to compete, the regulator claims.

The FTC argues that Qualcomm's "no license, no chips" policy, which requires mobile device producers to agree to license patents from Qualcomm when using its chips, gives Qualcomm a vast amount of leverage in its negotiations with firms, while also preventing competition from taking place, reports CNet.

University of California professor of economics Carl Shapiro testified as an expert for the FTC on Qualcomm's policy, advising he came to the conclusion that Qualcomm had a monopoly on CDMA modem chips and LTE modems through 2016, suggesting "It's my view they harmed competition in those two markets."

While commending Qualcomm for its technological achievements, Shapiro notes "what's really important is that companies who aren't quite as good or who don't have the scale are not impeded from trying to catch and threaten and challenge the leader."

Shapiro also testified that Qualcomm abused its market power to demand an "unusually high amount" for patent royalties, calling it "a very heavy hammer that Qualcomm is bringing down, at least as a threat, in those negotiations."

The patent royalties argument echoes comments made by CEO of IP licensing company 284 Partners Michael Lasinski on Monday, who called Qualcomm's fees "far too high to be consistent with their FRAND operations," and must be licensed in a fair and reasonable manner.

Ericsson licensing executive Christina Petersson's video testimony claims a fair royalty rate for multimode LTE is around 6 percent to 8 percent per device, though Lasinski erred towards the lower end of the scale as phones now do a lot more than when Ericsson first came up with that licensing range.

In testimony from Apple Chief Operating Officer Jeff Williams on Monday, Apple wanted to pay a licensing fee of $1.50 per device, as based on a 5 percent charge per modem, but ended up paying $7.50 per device. Even this figure wasn't enough for Qualcomm, which allegedly wanted to raise it further.

The trial then switched control over to Qualcomm, which claimed consumers used devices with its chips due to them being the best, and denying claims it stopped supplying processors to customers that are fighting the company over patent licenses.

Qualcomm co-founder Irwin Jacobs took to the stand to cover the early years of Qualcomm's existence, including explaining how the idea of CDMA arrived on a trip to San Diego.

The chip company licensed its technology to enhance its development of CDMA, charging an initial fee and royalties based on sales to companies including AT&T, Motorola, and Nokia. "Everything was negotiated, we wanted something low enough that it did not impede progress should this become a commercial product, we wanted to see this used as broadly as possible worldwide, insisted Jacobs.

"The industry began to realize it was important to provide mobile internet access, data communications," according to Jacobs. "Essentially all third-generation network technology is based on CDMA."

Qualcomm SVP in charge of 4G and 5G operations Durga Malladi also spoke at the trial, highlighting the innovation of Qualcomm in 3G, 4G, and 5G mobile technology. At the time of the evidence cutoff for the trial in March 2018, Qualcomm was the only firm capable of producing processors that could be used on millimeter wave 5G networks.

While fast, 5G has issues in that it can easily be impeded by objects and the landscape, and works over shorter distances, issues Qualcomm has worked to fix. "We are interested in moving the needle quite significantly when it comes to a lot of the communications problems we want to solve," insists Malladi.

Closing arguments are set for February 1.
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Comments

  • Reply 1 of 21
    wood1208wood1208 Posts: 1,882member
    Now you know why Mr. Trump is hard with Chinese who had been stealing everything possible from rest of world from IP to copying and selling back to rest of world making lots of money. $4 trillion is trade surplus.
    hodarjbdragon
  • Reply 2 of 21
    1st1st Posts: 317member
    that's silly argument - if you become a standard, it should be access to all - by default, you already have the advantage of volume. charge excessive fee not only abuse the standard, but also impede the innovation (by grab extra money other than chip fee) from their customers. Qcom uses their size and advantage of standard is high way robbery. IMHO. who ever is going to use their 5G should keep eyes open (including standard setting committee - should put limiting clause to prevent such a behavior).
    olschasmjbdragon
  • Reply 3 of 21
    hodarhodar Posts: 261member
    I have a problem with buying chips, then buying a license to use the chips.
    Here, buy my car, not pay me a license fee when you drive it.  Buy my home appliance, but you owe me money if you use it.  Buy a truck, but every time you put tires on it, you owe me money.

    Qualcomm makes excellent modems, no one disputes that.  They could charge a premium for the chips, and quietly continue to dominate - but this idea of using your product to leverage your customer, does nothing to encourage your customer from finding another supplier.

    The worst thing you can do, is NOT LOSING your customer.  The worst thing you can do is make your customer your enemy.

    May I reference Gillette as a current example.  Not content to compete by making a superior product, Gillette decided to insult and mock their customers, and the customers are now angry.  This means that DorkoUSA, Harrys and Dollar Shave Club are facing unprecedented demand.  Making a razor sharp metal is not rocket science, once gone; odds are that the Gillette customers will be gone for life.
    olsMplsPracerhomie3jbdragonEsoteric
  • Reply 4 of 21
    Gillette mocked men acting as assholes. I loved their ad. People who felt insulted by it probably have these macho attitude...
    battiato1981chasm
  • Reply 5 of 21
    MplsPMplsP Posts: 1,221member
    wood1208 said:
    Now you know why Mr. Trump is hard with Chinese who had been stealing everything possible from rest of world from IP to copying and selling back to rest of world making lots of money. $4 trillion is trade surplus.
    Qualcomm is based in San Diego
    gatorguy
  • Reply 6 of 21
    MplsPMplsP Posts: 1,221member
    Qualcomm argues that the chip makers should pay royalties, then the manufacturers should again pay royalties on the chips. Using this argument, we should all be paying royalties every time we use the phone to access the cellular network.

    Yes, R&D is expensive. Cry me a river - that’s the same issues every other chip maker is dealing with yet somehow they manage to survive without illegal extortion tactics. Does Intel charge Apple twice for its chips? Do they refuse to sell their processors just because a manufacturer use an nvidia graphics chip instead of Intel’s?
    battiato1981jmey267
  • Reply 7 of 21
    GeorgeBMacGeorgeBMac Posts: 4,181member
    Ahh!  The old "Innovation" argument!
    That's the same bullshit line pharmaceutical companies have been using to justify their own price gouging -- telling us it's all in our best interests!   ROFL....
    chasmjbdragon
  • Reply 8 of 21
    GeorgeBMacGeorgeBMac Posts: 4,181member
    wood1208 said:
    Now you know why Mr. Trump is hard with Chinese who had been stealing everything possible from rest of world from IP to copying and selling back to rest of world making lots of money. $4 trillion is trade surplus.
    Or, is it to distract from his other troubles?
  • Reply 9 of 21
    MplsP said:
    Qualcomm argues that the chip makers should pay royalties, then the manufacturers should again pay royalties on the chips. Using this argument, we should all be paying royalties every time we use the phone to access the cellular network.

    Yes, R&D is expensive. Cry me a river - that’s the same issues every other chip maker is dealing with yet somehow they manage to survive without illegal extortion tactics. Does Intel charge Apple twice for its chips? Do they refuse to sell their processors just because a manufacturer use an nvidia graphics chip instead of Intel’s?
    Qualcomm doesn't argue - not anywhere I've seen anyway - that chip makers should pay royalties in addition to device makers paying royalties. Indeed, that's part of the problem with what Qualcomm had been doing. It refused to license other chip suppliers. It's now been told that, when it comes to its SEPs, it has to license them.

    Qualcomm would rather license at the device level so that it can collect higher royalties and for other reasons.
  • Reply 10 of 21
    Gillette mocked men acting as assholes. I loved their ad. People who felt insulted by it probably have these macho attitude...
    If you don’t see how this is toxic towards their customers, pay attention to Gillette’s sales in the near future.
  • Reply 11 of 21
    gatorguygatorguy Posts: 20,297member
    carnegie said:
    MplsP said:
    Qualcomm argues that the chip makers should pay royalties, then the manufacturers should again pay royalties on the chips. Using this argument, we should all be paying royalties every time we use the phone to access the cellular network.

    Yes, R&D is expensive. Cry me a river - that’s the same issues every other chip maker is dealing with yet somehow they manage to survive without illegal extortion tactics. Does Intel charge Apple twice for its chips? Do they refuse to sell their processors just because a manufacturer use an nvidia graphics chip instead of Intel’s?
    Qualcomm doesn't argue - not anywhere I've seen anyway - that chip makers should pay royalties in addition to device makers paying royalties. Indeed, that's part of the problem with what Qualcomm had been doing. It refused to license other chip suppliers. It's now been told that, when it comes to its SEPs, it has to license them.


    @carnegie ; That was an interesting preliminary finding by Judge Koh too. 

    Under the F/RAND contractual obligations as defined by the the SSO's (Standard-setting Organizations) there is no requirement to license competing manufacturers of chips. So you might then ask what about the "discriminate" in F/RAND?

    What is required is that patent owners of SEPs not discriminate against applicants wanting to utilize the technology in an end product. But that's not what a company like Intel would be doing, instead creating a chip that enables the function rather than creating an end-product. 

    Qualcomm notes in their pre-trial filings that SSO's themselves require licenses be offered to only otherwise fully-compliant end-user devices. They were not being un-F/RAND-ly by refusing a license to competing chip manufacturers, at least under the contract they signed with the standards bodies. FWIW that's where the origin and obligations of F/RAND lies, not in some government agency or courtroom.

    Qualcomm isn't the only SEP licensor to hold the same understanding. Here's what Nokia says about it:

    "Nokia’s understanding has been from the beginning that the various Organizational Partners’ IPR Policies do not require SEP owners to license cellular SEPs at the component level. Based on experience in the industry, Nokia believes that its understanding in this regard is consistent with the decisive ETSI IPR Policy as well as long-standing industry practice, and Nokia has never understood any 3GPP or 3GPP2 Organizational Partner’s IPR Policy to mandate licensing of cellular SEPs at the component level… Nokia is not aware of prior positions being taken over the years that the IPR Policies of ATIS or TIA are incompatible or materially different than ETSI IPR’s Policy, under which licensing at the end user product level (rather than at the component level) has been the longstanding expectation and industry norm. 

    The argument being made now (by the FTC) that the ATIS and TIA IPR policies unambiguously impose an incompatible requirement to license at the component level is, therefore, novel."

    So the courts themselves are still trying to reach some consensus on what F/RAND means in more than simple generalizations, and they are nowhere close to doing so yet. That's why we keep seeing various agencies/judges struggling with the questions for a decade or more, perhaps making "novel" rulings in the process.
    edited January 16
  • Reply 12 of 21
    Gillette mocked men acting as assholes. I loved their ad. People who felt insulted by it probably have these macho attitude...
    If you don’t see how this is toxic towards their customers, pay attention to Gillette’s sales in the near future.
    Oh, I will. It will be interesting to watch. In my case, I was planning to leave for a competitor, but now I will keep buying from Gillette.

    Sorry for the offtopic.

    Back to Qualcomm, I hate their business practices, not just their licensing. They have a dark, dark history of abuse, corruption, and monopolistic attitude. Another macho company abusing power... But karma is a real bitch.
  • Reply 13 of 21
    GeorgeBMacGeorgeBMac Posts: 4,181member
    Gillette mocked men acting as assholes. I loved their ad. People who felt insulted by it probably have these macho attitude...
    If you don’t see how this is toxic towards their customers, pay attention to Gillette’s sales in the near future.
    There is a very fine line between being pro-female (rights) and anti-male.   Many seem to think that there is no line -- that they are one in the same.
    raulcristian
  • Reply 14 of 21
    "Former Qualcomm licensing president Marvin Blecker had been confronted, in a videotaped deposition, with an internal email in which a colleague confirmed to him that Qualcomm's chip division had actually held product shipments to a customer who had not yet accepted Qualcomm's license terms. It had been Qualcomm's mantra all the time that they had never actually carried out the "No License-No Chips" threat against existing customers." This is why the FTC will win the case. This appeared in a Foss patents article.
    edited January 16 raulcristianGeorgeBMacEsoteric
  • Reply 15 of 21
    gatorguy said:
    carnegie said:
    MplsP said:
    Qualcomm argues that the chip makers should pay royalties, then the manufacturers should again pay royalties on the chips. Using this argument, we should all be paying royalties every time we use the phone to access the cellular network.

    Yes, R&D is expensive. Cry me a river - that’s the same issues every other chip maker is dealing with yet somehow they manage to survive without illegal extortion tactics. Does Intel charge Apple twice for its chips? Do they refuse to sell their processors just because a manufacturer use an nvidia graphics chip instead of Intel’s?
    Qualcomm doesn't argue - not anywhere I've seen anyway - that chip makers should pay royalties in addition to device makers paying royalties. Indeed, that's part of the problem with what Qualcomm had been doing. It refused to license other chip suppliers. It's now been told that, when it comes to its SEPs, it has to license them.


    That was an interesting preliminary finding too. 

    Under the F/RAND contractual obligations as defined by the the SSO's (Standard-setting Organizations) there is no requirement to license competing manufacturers of chips. So you might then ask what about the "discriminate" in F/RAND?

    What is required is that patent owners of SEPs not discriminate against applicants wanting to utilize the their technology into an end product. But that's not what a company like Intel would be doing, instead creating a chip that enables it rather than creating an end-product. 

    Qualcomm notes in their pre-trial filings that SSO's  themselves require licenses be offered to only otherwise fully-compliant end-user devices. They were not being un-F/RAND-ly by refusing a license to competing chip manufacturers, at least under the contract they signed with the standards bodies. FWIW that's where the origin and obligations of F/RAND lies, not in some government agency or courtroom.

    Qualcomm isn't the only SEP licensor to hold the same understanding. Here's what Nokia says about it:

    "Nokia’s understanding has been from the beginning that the various Organizational Partners’ IPR Policies do not require SEP owners to license cellular SEPs at the component level. Based on experience in the industry, Nokia believes that its understanding in this regard is consistent with the decisive ETSI IPR Policy as well as long-standing industry practice, and Nokia has never understood any 3GPP or 3GPP2 Organizational Partner’s IPR Policy to mandate licensing of cellular SEPs at the component level… Nokia is not aware of prior positions being taken over the years that the IPR Policies of ATIS or TIA are incompatible or materially different than ETSI IPR’s Policy, under which licensing at the end user product level (rather than at the component level) has been the longstanding expectation and industry norm. 

    The argument being made now (by the FTC) that the ATIS and TIA IPR policies unambiguously impose an incompatible requirement to license at the component level is, therefore, novel."

    So the courts themselves are still trying to reach some consensus on what F/RAND means in more than simple generalizations, and they are nowhere close to doing so yet. That's why we keep seeing various agencies/judges struggling with the questions for a decade or more, perhaps making "novel" rulings in the process.
    What do you mean by preliminary finding? If you're referring to the decision Judge Koh made in November (which I suspect you are), that was a partial summary judgment. It wasn't, e.g., a preliminary injunction such as we often see where a court isn't making a determination on the merits but rather assessing the likelihood of success on the merits and weighing it against a number of other factors. That's something a court would then revisit and make a final decision on, perhaps after more briefing and having evidence presented. Here we're talking about a final (from this court) decision on that issue. That decision can, of course, be appealed. But it wasn't preliminary unless you're just using that term in a generic sense (i.e. it came before the trial), in which case I don't see the relevance in emphasizing it.

    That said, this is about interpreting the contractual commitments which Qualcomm has made. There is often room for competing interpretations, even when considering the same contract terms. And different IPR policies use different language. But the ones at issue here seem fairly clear to me on this point. Do you disagree? (I'm not asking if someone else disagrees, I'm asking if you disagree.)

    It makes sense that Nokia would argue to the contrary, it has similar motivations (to those of Qualcomm) for not wanting to have to license modem suppliers. The issue is, based on the terms of the IPR policies at issue, do you think Nokia is right? Qualcomm argued that it didn't have to license modem suppliers even though it had itself made contrary arguments, with regard to one of the IPR policies at issue in the present case, when it was sued by Ericsson. So I'm inclined to question the sincerity of the position it took in this instance. I think it knew it would lose on this point because I think it knows it has a contractual obligation to license other modem suppliers.

    I would specifically ask you about this:
    What is required is that patent owners of SEPs not discriminate against applicants wanting to utilize the their technology into an end product.

    Where do the IPR policies at issue here limit the scope of the applicants, which SEP holders must license to, to those "wanting to utilize the [sic] their technology into an end product?" I see no such limitation of scope in those policies.

    I'd note that the KFTC also directed Qualcomm to license modem suppliers. And I wouldn't call Judge Koh's interpretation of the contracts at issue here novel. (Note: I'm aware of the recent decision from the Eastern District of Texas in HTC v [something or other I don't recall how to spell now]. It isn't particularly relevant when it comes to the propriety of Judge Koh's decision as it considered different contract terms and, for reasons not applicable in this case, applied a different choice-of-law. I trust you wouldn't argue that Judge Koh should have applied French law, instead of California law, in interpreting the contract terms at issue. Both parties - the FTC and Qualcomm - thought California law was appropriate in this case.)

  • Reply 16 of 21
    chasmchasm Posts: 1,283member
    If you don’t see how this is toxic towards their customers, pay attention to Gillette’s sales in the near future.
    Yes, do. Especially their sales of razors aimed at millennial men ... and all generations of women.
    edited January 16
  • Reply 17 of 21
    MplsPMplsP Posts: 1,221member
    Gillette mocked men acting as assholes. I loved their ad. People who felt insulted by it probably have these macho attitude...
    If you don’t see how this is toxic towards their customers, pay attention to Gillette’s sales in the near future.
    There is a very fine line between being pro-female (rights) and anti-male.   Many seem to think that there is no line -- that they are one in the same.
    What about simply being pro-human? I guess I don't see how following the golden rule should be an issue, unless you view 'men's rights' as the right to trample on women's rights.
    raulcristian
  • Reply 18 of 21
    Qualcomm is full of BS. A couple points to keep in mind. 1) When Qualcomm started licensing tech, they weren't exactly sure how much to charge in royalties. They settled on 5% of a phone's price in the early 2000's when most phones were like $100-$200 dollars. 2) Qualcomm has made the best chips for a few decades. They have been the only ones who make good enough chips for use in top of the line phones like iPhones. They deserve to be paid for that and phone makers have been willing to compensate them. 3) However, Qualcomm double dipped and forced phone makes to also continue paying them 5% of the selling price of phones as royalties. They've done to this to virtually every phone maker. Meaning, that of most of the iPhones, Galaxies, etc. sold over the past few decades, Qualcomm has extracted 5% of the selling price. If a phone maker increased the price of a phone to put on an aluminum case, Qualcomm got 5% of that extra revenue. 4) Today top phones are $1000, so 5% is a heck of a lot more than it used to be. Also, in an industry where profit margins for most companies (not Apple) are single digits, 5% is the difference between thriving and surviving. By law, Telecom companies that produce tech for use in international standards like LTE agree to license that tech at fair and reasonable terms. In what world is 5% of the selling price fair and reasonable? Makes no sense. Just greedy. Nowadays, anyone who can afford it (Apple, Facebook, Samsung, Huawei) is making their own chips so they don't have to put up with Qualcomm's BS. That is a huge waste of replication of effort thanks to Qualcomm. Yes Qualcomm advanced technology, but their economics have been damaging to society.
  • Reply 19 of 21
    GeorgeBMacGeorgeBMac Posts: 4,181member
    MplsP said:
    Gillette mocked men acting as assholes. I loved their ad. People who felt insulted by it probably have these macho attitude...
    If you don’t see how this is toxic towards their customers, pay attention to Gillette’s sales in the near future.
    There is a very fine line between being pro-female (rights) and anti-male.   Many seem to think that there is no line -- that they are one in the same.
    What about simply being pro-human? I guess I don't see how following the golden rule should be an issue, unless you view 'men's rights' as the right to trample on women's rights.
    LOL... You simply restated my position in order to attack it.   I guess you proved my point.
  • Reply 20 of 21
    GabyGaby Posts: 53member
    Ahh!  The old "Innovation" argument!
    That's the same bullshit line pharmaceutical companies have been using to justify their own price gouging -- telling us it's all in our best interests!   ROFL....
    The thing that makes me laugh is you only have to look at any public companys’ expenditure compared to their revenue/profits and it’s pretty obvious that their pricing and business model has absolutely no bearing on any of it. I mean if they were barely scraping by they could be forgiven for charging slightly higher rates but that is simply not the case. Granted this does not only apply to them but many others, but don’t tell lies and insult our intelligence. Their decisions are based on greed alone. It’s like the BBC in the uk justifying the price of tv license, but then look at all the money they rake in every year. And they have the audacity to send their goons to peoples houses to terrorise and intimidate and forcibly relieve them of their hard earned money.  It’s ludicrous. And Qualcomm not only wants to sell you their modem, they expect that you exclusively use only their chips at least for which they offer one for the purpose you need. Then they expect each of the  contract manufacturers to pay a license, and also the end company itself. So they expect to financially rewarded at every stage. But the kicker for me is learning they expect IP cross licensing as well!!  :o
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