(Reuters) – Qualcomm Inc illegally suppressed competition in the market for smartphone chips by threatening to cut off supplies and extracting excessive licensing fees, a U.S. judge ruled, a decision that could force the company to overhaul its business practices.
FILE PHOTO: A sign on the Qualcomm campus is seen in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake
Qualcomm said it will immediately ask the judge to put the decision on hold and seek a quick appeal to the federal appeals court in California.
“We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law,” general counsel Don Rosenberg said in a statement.
The following are a few quotes from U.S. District Judge Lucy Koh’s 233-page decision.
** “In order to ensure Qualcomm’s compliance with the above remedies, the court orders Qualcomm to submit to compliance and monitoring procedures for a period of seven years. Specifically, Qualcomm shall report to the FTC on an annual basis Qualcomm’s compliance with the above remedies ordered by the court.”
** “Qualcomm’s failure to alter its unlawful licensing practices despite years of foreign government investigations, findings, and fines suggests an obstinance that a monitoring provision may address.
Other courts in FTC enforcement actions have held that compliance reporting requirements are not ‘unduly burdensome,’ even when the provisions require reporting for a period of twenty years.”
** “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 evidence demonstrates that Qualcomm’s anticompetitive conduct is ongoing and that an injunction is thus warranted.”
** “Qualcomm continues to refuse to provide patent exhaustion, refuse to sell modem chips to an OEM until the OEM signs a license, and engage in chip supply threats and cutoffs. Steve Mollenkopf (Qualcomm CEO) conceded at trial that Qualcomm does not sell chips to unlicensed OEMs.”
** “Qualcomm’s exclusive dealing agreements have foreclosed Qualcomm’s rivals from a substantial share of the CDMA and premium LTE modem chip markets.”
** “To permit Qualcomm to continue to charge unreasonably high royalty rates would perpetuate its artificial surcharge on rivals’ chips, which harms rivals, OEMs, and consumers, and would enable Qualcomm to continue to reap the fruits of its Sherman Act violation. Thus, the court finds it necessary to require Qualcomm to renegotiate those license agreements.”
** “Qualcomm’s own documents show that Qualcomm knew its licensing practices could lead to antitrust liability, knew its licensing practices violate FRAND, and knew its licensing practices harm competition, yet continued anyway — even in the face of government investigations in Japan, Korea, Taiwan, China, the European Union, and the United States.
This evidence of Qualcomm’s intent confirms the court’s conclusion that Qualcomm’s practices cause anticompetitive harm because ‘no monopolist monopolizes unconscious of what he is doing’.”
** “In addition, even though Intel is supplying modem chips to Apple, Aicha Evans (Intel Chief Strategy Officer) testified that Intel has never met its target margins and that Intel’s sales of modem chips to Apple have not yet been profitable.
When asked about the probable effect of losing Apple’s business in any given year, Evans testified that losing Apple’s business ‘would not be near death, that would be death’.”
** Cristiano Amon (Qualcomm President) not only approved the plan for QCT to cut off chip supply to Chinese OEMs who refuse to pay patent royalties to QTL, but Amon agreed to start communicating this plan to customers.
“Despite Amon’s own handwriting acknowledging 2015 chip supply threats, Amon testified under oath at his deposition and trial that he was unaware of QTL threats to cutoff chip supply.”
** “China’s National Development and Reform Commission investigated Qualcomm’s licensing practices and in 2015 imposed a rectification plan that altered some of Qualcomm’s licensing practices in China.
Presentation notes from a slide deck that Boston Consulting Group presented to the Qualcomm board of directors in 2015 explain that Qualcomm was able to avoid caps on non-SEP royalty rates, more aggressive rate cuts, and forced sales to non-licensees due to a $150 million payment to the Chinese government.”
Compiled by Vibhuti Sharma, Sayanti Chakraborty and Akanksha Rana in Bengaluru; Editing by Bernard Orr and Arun Koyyur