Although Apple’s war with Qualcomm ended well over a year ago when it decided it had to play nice in order to ensure a supply of much-needed 5G modem chips for this year’s iPhones, the chipmaker had to continue facing the wrath of the U.S. Federal Trade Commission for pretty much the same unfair trade practices that was at the core of Apple’s fight.
In fact, the FTC first brought a lawsuit against Qualcomm back in 2017 over its royalty licensing practices that basically forced Apple and other smartphone makers to use its chips exclusively if they didn’t want to otherwise pay exorbitant fees. Basically, the FTC’s claim, brought under antitrust laws, accused Qualcomm of abusing its dominant market position to maintain a monopoly on smartphone modem chips by refusing to sell its chips to those companies that used competitors products unless they payed even higher patent royalties for those devices.
The practice, which the FTC dubbed a “no-license, no-chip policy,” was basically a “tax” on the use of competitors’ chips, and according to the FTC’s case, stifled competition in the smartphone market, with the increased costs being passed onto consumers.
As such matters often do, the FTC case took a couple of years to wind its way through the courts, but last year it looked like Apple’s position was vindicated when U.S. District Judge Lucy Koch ruled that Qualcomm did in fact violate antitrust laws by illegally suppressing competition, in a practice that effectively amounted to extortion, “undermining rivals in every facet” of its dealing with them. In short, Judge Koh pretty much confirmed exactly what Apple had been saying for years, even going back to the days when Steve Jobs was at the helm.
In fact, Apple’s need to acquiesce to Qualcomm in order to assure a supply of 5G modem chips pretty much confirmed that Qualcomm has made itself the only game in town, ostensibly by using predatory royalty licensing agreements such as these, and it was enough to push Intel out of the 5G modem business entirely.
Of course, it’s obvious that Apple is simply biding its time by playing nice with Qualcomm for now, since it’s a well-known fact that Apple has its own 5G modem chips in the works, which it’s been able to bolster through its acquisition of Intel’s 5G business, but in the meantime Qualcomm not only retains its dominance in the chip industry, but it’s just been given a green light by the courts to continue this practice in the U.S.
A Huge Win for Qualcomm
Following Judge Koh’s ruling last year, Qualcomm naturally appealed the decision to a higher court, and in fact the earlier ruling had even given Qualcomm leave to do so, with Judge Koh deferring her order for Qualcomm to renegotiate its terms with its customers.
This week, however, the U.S. Ninth Circuit Court threw out Judge Koh’s verdict entirely, effectively stating that Qualcomm hasn’t technically violated any antitrust laws as a result of its licensing policies.
In the ruling, Judge Consuelo M. Callahan disagreed entirely with the FTC’s position that Qualcomm was pushing out rival chipmakers through its “tax” and stated that there was no anti-trust violation involved in its practices. However, Judge Callahan did suggest that just because Qualcomm’s behaviour wasn’t in violation of antitrust laws didn’t mean that there might not be an issue here for the patent courts to rule on — Qualcomm could still be violating the concept of fair licensing terms for its patents, but the Ninth Circuit Court’s ruling focused specifically on the policy being brought up as an antitrust violation, so any analysis of patent law was outside of the scope of the decision.
Under patent law, there’s a concept known as FRAND — fair, reasonable, and non-discriminatory — which refers to companies licensing patents in such a way as to create a level playing field, and it seems entirely possible that Qualcomm has been using its patents “unfairly” in that sense, but according to Judge Callahan, that does not make its behaviour anticompetitive.
That said, other courts in other countries don’t see Qualcomm’s practices in quite the same manner, and the chip making behemoth has faced fines averaging around $1 billion in courtiers such as China ($975 million), South Korea ($854 million), Taiwan ($774 million), and the European Union ($1.2 billion) for anticompetitive practices in those countries, so it definitely sounds like Qualcomm is squeaking by on a very technical interpretation of the letter of the law here, while still violating the spirit of the law.
In a statement provided to The Verge, Qualcomm naturally celebrated the decision, saying “The Court of Appeals unanimous reversal, entirely vacating the District Court decision, validates our business model and patent licensing program and underscores the tremendous contributions that Qualcomm has made to the industry. We thank the panel for its thoughtful consideration of this important case.”
The FTC’s Bureau of Competition told Bloomberg that “the court’s ruling is disappointing and we will be considering our options,” which could potentially include an appeal to the U.S. Supreme Court, which would be the only step remaining in this case, although it’s as yet unclear whether it will take this action.
Meanwhile, Qualcomm will not only be allowed to continue the practice of charging higher licensing fees to smartphone makers that insist on also using competitors chips, but may even be encouraged to increase these fees, which could hurt Apple and other smartphone makers in the short term, but could also accelerate Apple’s plans to get its own chips ready, eliminating its reliance on Qualcomm entirely.