Qualcomm points to innovation costs as shield to FTC's antitrust claims
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.
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.
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.
Comments
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?
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....
Qualcomm would rather license at the device level so that it can collect higher royalties and for other reasons.
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.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:
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.)