Qualcomm to Appeal Court Loss to FTC on Wireless Modem Licensing; Stock Falls

Qualcomm will appeal a wireless modem intellectual property ruling in favor of the FTC and against the company. U.S. District Judge Lucy Koh in San Jose issued (in Pacer) a permanent injunction Tuesday night. The stock closed down 11 percent Wednesday at $69.31. Earlier this year, Koh held a 10-day bench trial in FTC v. Qualcomm.

Some tech and consumer groups cheered the outcome of the closely watched trial. The case began during the waning days of the Obama administration and over the dissent of the then-sole Republican FTC member who became acting chair during the first year of Donald Trump's presidency (see 1701200002).

Qualcomm vowed to "immediately seek a stay" of the ruling and "an expedited appeal" at the 9th U.S. Circuit Court of Appeals. “We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law,” said Qualcomm General Counsel Don Rosenberg Wednesday.

The injunction came because the chipmaker's "unlawful practices continue and there is a significant risk that Qualcomm will be dominant in 5G," and the violations are likely to recur, in the judge's view. She said the company can't condition a modem chip supply deal on a customer's patent license status. She required the defendant "renegotiate license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical support or access to software."

Qualcomm must make exhaustive standard-essential patent licenses available to modem-chip suppliers on fair, reasonable and nondiscriminatory (FRAND) terms and can't get exclusive deals to supply the semiconductors, Koh ruled. "Qualcomm may not interfere with the ability of any customer to communicate with a government agency about a potential law enforcement or regulatory matter."

The company must report to the FTC annually over seven years on its compliance with these requirements. "Qualcomm’s failure to alter its unlawful licensing practices despite years of foreign government investigations, findings, and fines suggests an obstinence that a monitoring provision may address," said the final paragraph of the 229-page ruling.

The trade commission and a Democratic member cheered the ruling. "Staff will remain vigilant in pursuing unilateral conduct by technology firms that harms the competitive process," said Competition Bureau Director Bruce Hoffman. "Abusive" IP licensing practices can hurt national security interests, said Commissioner Rohit Chopra. "Qualcomm’s customers and competitors will finally be able to negotiate licenses without the threat of having Qualcomm cut off their chip supply."

Koh noted in great detail now how the company in her words coerces OEMs to sign patent license agreements, sometimes cutting off those would-be partners or threatening to. Companies she said had faced anticompetitive conduct by the defendant included Apple, BlackBerry, Huawei, Lenovo, LG Electronics, Samsung, Sony and ZTE. Intel, MediaTek and Nokia were among other firms mentioned in the judge's recounting of the chipmaker's business practices. None of those companies had any immediate comment.

Qualcomm wouldn't sell Apple modem chips or share samples until Apple signed a license; eliminated an Intel-supported competing standard; tried to make Apple cross-license its entire patent portfolio to Qualcomm; and used "monopoly power to enter exclusive deals with Apple that foreclosed Qualcomm’s rivals from selling modem chips to Apple from 2011 to September 2016." That's according to Koh's summary of the two companies' relationship following 20-plus pages of recounting details.

“This ruling shows the FTC is using its antitrust authority to crack down on anti-competitive practices and that the court system is upholding the law," said Computer & Communications Industry Association CEO Ed Black Wednesday. "We support the court’s determination that Qualcomm used anti-competitive tactics to harm competitors and consumers." It's a "win" for 5G, he added.

CCIA and ACT|The App Association had backed the commission's case. Qualcomm must "finally live up to its voluntary" FRAND licensing commitments and can't "refuse to license its standard-essential patents," said ACT President Morgan Reed. "When honored, the FRAND promise is essential to a well-functioning standards system."

Public Knowledge said the case points to the importance of FRAND terms. "Qualcomm's technologies were only included in industry standards because it agreed to license its patents" on that basis, said PK Senior Counsel John Bergmayer. "Companies who contribute their technologies to standards are entitled to fair compensation but cannot be allowed to use their patents -- which the entire industry, because of standards, must use -- for anticompetitive ends."