FTC abandons antitrust suit against Qualcomm
The US Federal Trade Commission (FTC) has abandoned its lawsuit against Qualcomm, in which it alleged that the chipmaker had demanded exorbitant licensing fees from smartphone manufacturers.
FTC Acting Chairwoman Rebecca Kelly Slaughter said in a statement on Monday, March 22, that the FTC faced “significant headwinds” in trying to overturn the appeals court ruling.
The FTC’s 2017 complaint also challenged Qualcomm’s alleged monopoly in baseband processors and semiconductor devices that enable cellular communications in smartphones and other products.
It asserted that Qualcomm had engaged in exclusionary conduct that taxed its competitors’ baseband processor sales, reduced competitors’ ability and incentive to innovate, and inflated prices paid by consumers for smartphones and tablets.
However, the FTC this week announced that it had declined to seek a US Supreme Court review of a US Ninth Circuit Court of Appeals decision holding that Qualcomm’s practices did not violate US antitrust law.
Slaughter: appeals court ‘erred’
In August, a trio of judges on a federal court of appeals panel in California reversed a lower court decision handed down in May 2019 by US District Judge Lucy Koh, who found in favour of the FTC.
Koh had ruled that Qualcomm’s practice of requiring phone makers to sign a patent licence agreement before selling them chips “strangled competition” and harmed consumers.
But the court of appeals later found that Qualcomm was not obliged to license its patents to rival chip suppliers and that it had the right to require phone makers to sign a licence agreement.
Circuit Judge Consuelo Callahan wrote that these aspects of Qualcomm’s business model are “chip-supplier neutral” and do not “undermine competition in the relevant antitrust markets”.
The court also vacated an injunction that would have required Qualcomm to change its IP licensing practices. The FTC’s subsequent request for en banc rehearing of the decision was denied.
Slaughter said in the statement that she continued to agreed with the trial court decision holding that Qualcomm had violated antitrust laws.
“The FTC’s staff did an exceptional job presenting the case, and I continue to believe that the district court’s conclusion that Qualcomm violated the antitrust laws was entirely correct and that the court of appeals erred in concluding otherwise.
FTC ‘will boldly enforce antitrust laws’
She added that she was particularly concerned about the potential for anticompetitive or unfair behaviour in the context of standard setting and that the FTC will closely monitor conduct in this arena.
“Now more than ever, the FTC and other law enforcement agencies need to boldly enforce the antitrust laws to guard against abusive behaviour by dominant firms, including in high-technology markets and those that involve IP,” she said.
In a statement, Don Rosenberg, general counsel of Qualcomm, welcomed the development. “Qualcomm got to where it is today by investing tens of billions of dollars in research and development and inventing technologies used by billions of people around the world. Now, more than ever, we must preserve the fundamental incentives to innovate and compete,” he said.
Last month, WIPR reported that consumer watchdog Which ? had launched a £480 million ($660 million) collective claim against Qualcomm on behalf of 29 million UK consumers.
Bristows competition partner Sophie Lawrance said: “The news that the FTC is not pursuing its Qualcomm case to the US Supreme Court means that all eyes will now turn to the UK class action recently started by the Consumers’ Association (Which?) in the UK’s specialist Competition Appeal Tribunal.
"Issues relating to the compliance of Qualcomm’s licensing programme with competition law will be central to the claim. While the claim will no doubt face many hurdles, a judgment finding that Qualcomm has breached UK competition law would have far-reaching implications, including beyond the shores of the UK.”
In its suit, Which? stated that the San Diego-based company’s refused to supply smartphone manufacturers such as Apple and Samsung with chipsets unless the companies acquire a separate licence and pay “substantial” royalties. These extra costs, Which? argued, placed an unfair burden on millions of UK consumers.
The group sought compensation on behalf of consumers who bought certain Apple and Samsung handsets since October 1, 2015.“This claim is about seeking redress for the millions of consumers who are the ultimate victims of Qualcomm’s anticompetitive conduct and who have paid too much for their smartphones as a result,” said Anthony Maton, Hausfeld’s global vice-chair and London managing partner at the time of launching the suit.
EU penalties
Over the past two years, the European Commission has imposed more than €1 billion ($1.2 billion) worth of fines on Qualcomm for violating EU competition law.
In July 2019, it announced a fine of €242 million for pricing a competitor out of the 3G chip market. According to EU regulators, Qualcomm sold chips below cost to Chinese smartphone makers Huawei and ZTE with the intention of eliminating British rival Icera.
This followed a penalty of €997 million in January 2018, after the commission found that Qualcomm had paid a customer not to buy from rivals.
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