The US Federal Trade Commission (FTC) has filed suit against mobile chip giant Qualcomm, claiming that the company has adopted anti-competitive practices in an effort to maintain a monopolistic position in the smartphone market.
Sitting at the top of the baseband processor market, Qualcomm's cellular networking chips pop up in almost every smartphone around - even when Qualcomm's fully-integrated system-on-chip (SoC) products don't power the device. The company, naturally, claims this is a result of the quality of its products; the FTC, on the other hand, believes that it has more to do with anti-competitive behaviour surrounding how it licences its products.
In its complaint against the company, the FTC has outlined three primary issues. Two of these issues are general: that Qualcomm 'maintains a “no licence, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred licence terms,
' which include a bump to royalty payments should a company launch any products with non-Qualcomm baseband processors, and that the company 'refuses to license standard-essential patents to competitors
' despite its legal requirement to licence such patents - deemed essential to the creation of a baseband processor - under fair, reasonable, and non-discriminatory (FRAND) terms.
The final aspect of the FTC's complaint against Qualcomm is rather more specific: It alleges that the company 'extracted exclusivity from Apple in exchange for reduced patent royalties,
' demanding that Apple use Qualcomm as the sole source of baseband chips for its iPhone and iPad family of products from 2011 through to 2016. 'Qualcomm recognised that any competitor that won Apple’s business would become stronger,
' the complaint claims, 'and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.
The case has been divisive even within the FTC itself: While two of the three members voted for the filing, Commissioner Maureen K. Ohlhausen voted against while claiming in a dissenting statement
(PDF warning) that the case is 'based on a flawed legal theory [...] that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine US intellectual property rights in Asia and worldwide.
Qualcomm, naturally, is claiming it is innocent, while using Commissioner Ohlhausen's statement as legal fodder. 'The portrayal of facts offered by the FTC as the basis for the agency’s case is significantly flawed,
' the company has stated
on the matter. 'In particular, Qualcomm has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms. The FTC’s allegation to the contrary - the central thesis of the complaint - is wrong.
'This is an extremely disappointing decision to rush to file a complaint on the eve of Chairwoman Ramirez’s departure and the transition to a new Administration, which reflects a sharp break from FTC practice,
' claimed Don Rosenberg, executive vice president and general counsel at Qualcomm Incorporated, in the company's public response. 'In our recent discussions with the FTC, it became apparent that it still lacked basic information about the industry and was instead relying on inaccurate information and presumptions. In fact, Qualcomm was still receiving requests for information from the agency that would be necessary to an informed view of the facts when it became apparent that the FTC was driving to file a complaint before the transition to the new Administration. We have grave concerns about the two Commissioners’ decision to bring this case despite a lack of evidence supporting the allegations and theories in the complaint. We look forward to defending our business in federal court, where we are confident we will prevail on the merits.
Apple has not publicly commented on the matter, nor confirmed whether or not it is the original source of the complaint.