Published: 1/17/17

On January 17, 2017, the Federal Trade Commission (FTC) filed a complaint against Qualcomm Inc. for allegedly engaging in monopolistic tactics concerning its baseband processors—semiconductor devises that enable cellular communications in cell phones and other products.  The FTC alleges that Qualcomm used its dominant position as a supplier of certain baseband processors to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and weaken competitors.  The FTC also alleges that Qualcomm violated a number of “Fair, Reasonable, and Non-discriminatory” (FRAND) agreement provisions when licensing certain standard essential patents (SEPs).  In addition, the FTC asserts consumer-protection related claims concerning its overall monopoly and market power in both code division multiple access (CDMA) and long-term evolution (LTE) baseband processors, and its practices overall effects on competition.

The core allegations in the FTC complaint against Qualcomm include that the company:

  • Maintained a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.
  • Refused to license SEP to competitors. Despite its commitment to license SEPs on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.
  • Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.
  • Garnered monopoly power over CDMA and premium LTE baseband processors. Qualcomm, due to its superior position in both markets, has threatened loss of access to baseband processor to raise the all-in prices of baseband processors, prices that include both nominal processor prices and license fees.  Moreover, Qualcomm enjoys dominant shares of relevant markets with substantial barriers of entry to new entrants in that respective space.  Thus, giving it a monopoly in these markets.
  • Employed anticompetitive practices that cause harm to competition. Qualcomm’s anticompetitive practices have excluded competitors, increased consumer prices, and suppressed innovation. These practices have relaxed the constraints on competitors’ market entry and expansion by foreclosing their ability to impose all-in prices they would have otherwise enjoyed.  Additionally, Qualcomm has raised its OEMs’ all-in costs of using competitors’ baseband processors, which has artificially decreased demand for their respective baseband processors; thus, substantially diminishing both its competitors’ ability to compete and their incentive to invest and innovate.  

 

The FTC is seeking injunctive relief for the aforementioned allegations. 

The full text of the complaint filed the FTC can be found here.