US watchdog sues Qualcomm for 'bribing' Apple to swallow chips

Snapdragon biz broke monopoly laws, FTC claims in bombshell lawsuit

Car on Monopoly board. PHOTO BY Kamira, editorial use ONLY VIA SHUTTERSTOCK

America's trade watchdog the FTC has sued Qualcomm, alleging the California-based biz trampled over US laws on fair competition.

The three-count complaint [PDF] accuses the chip designer of strong-arming smartphone makers (cough, cough, Apple) into dodgy deals by abusing its war chest of patents.

Qualcomm designs not only the Snapdragon processors used in countless Android-powered handhelds, but also the baseband electronics needed by phones and other devices to connect to cellular networks. Crucially, Qualcomm holds a ton of patents on the common protocols and technologies used by phones to communicate.

According to the FTC, phone makers were offered a discount if they just used Qualcomm's modems, effectively forcing them to pay extra if they want to use a rival's chipset. And Qualcomm crippled its rivals by refusing to fairly license and share its knowhow, resulting in features missing from competing chips, it is claimed. Thus, Qualcomm screwed over its competitors and made phone manufacturers an offer they couldn't refuse, it is alleged.

According to the FTC:

  • Qualcomm "maintains 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." Basically, it is claimed Qualcomm says to its customers: if you ship products with a mix of our modems and a rival's chips, you have to pay extra royalties to us. And if you just use a rival's chipset, that chipset will be hamstrung by being locked out of modern standards that we've patented – so tough luck, get your wallet out if you want to ship a decent product.
  • Qualcomm "refuses to license standard-essential patents to competitors." In other words, Qualcomm is supposed to license its patents fairly and at a reasonable cost to anyone who adopts the standards they cover – but these licenses were withheld from rival chip designers whose baseband processors competed with Qualcomm's. That effectively locked Qualy's competitors out of chunks of the mobile broadband market – it's why Intel's XMM 7360 modem in the iPhone 7 doesn't support CDMA phone networks.

    (Last year, Apple decided to use a mix of Qualcomm and Intel baseband electronics in the iPhone 7: the Intel modem lacked features found in its Qualcomm counterpart due to patent licensing, resulting in Intel-based iPhones unable to use some network carriers.)

  • Finally, Qualcomm "extracted exclusivity from Apple in exchange for reduced patent royalties." Qualy allegedly bribed Apple to take out a five-year exclusivity deal to use only its baseband chips in tens of millions of iOS handsets and tablets sold from 2011 to 2016. And before that, in 2007, Qualcomm also allegedly bribed Apple with rebates: if the iGiant stuck just to Qualcomm's chips, and didn't implement the Intel-championed WiMAX standard, it would get a fat refund. Funnily enough, that WiMAX standard is now dead.

"By threatening to disrupt cell phone manufacturers' supply of baseband processors, Qualcomm obtains elevated royalties and other license terms for its standard-essential patents that manufacturers would otherwise reject," the FTC alleged.

"These royalties amount to a tax on the manufacturers' use of baseband processors manufactured by Qualcomm's competitors – a tax that excludes these competitors and harms competition.

"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."

The complaint, filed in the northern district of California on Tuesday, seeks a court order that would require Qualcomm to cease all of the infringing activities or run the risk of further penalties. The FTC authorized the filing via a 2-1 vote, with commissioner Maureen Ohlhausen dissenting.

Qualcomm says it will "vigorously defend" against the charges.

"The portrayal of facts offered by the FTC as the basis for the agency's case is significantly flawed," the chip designer told The Register in an email.

"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."

The words Qualcomm, patent, licensing and dispute are never far apart: the processor designer coughed up a billion dollars in China to make a row over licensing there go away, for example, and it is suing Apple, Samsung, Intel, Broadcom and others for allegedly ganging up on it in South Korea. ®

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