US trade watchdog, mobe makers queue to smack Qualcomm as antitrust trilogy opens

The first of three major trials this spring involving Qualcomm has opened in Silicon Valley, with phone makers chipping in... no pun intended.

Apple has filed its own barrage of litigation against Qualcomm, and so have consumers in a $5bn class-action lawsuit [PDF] – but first on the block is the FTC’s attempt to force Qualcomm to reform how it sells vital baseband chipsets used in smartphones.

In 2017, the trade watchdog sued Qualcomm, accusing the processor design giant of anti-competitive behavior in the way it strong-arms device makers into paying for its 3G and 4G/LTE Snapdragon cellular modems. The FTC wants the technology at the heart of the components licensed on FRAND (fair, reasonable and nondiscriminatory) terms, without exclusivity clauses in contracts.

Up until now, Qualcomm charges manufacturers extra if they use a mix of Snapdragon and non-Snapdragon parts, a la Apple in its latest iPhones. If you purchase fewer Snapdragons, because you're using Intel cellular modems instead, for example, then Qualcomm makes you pay for the shortfall in orders, one way or another, it is claimed. This, the FRAND issue, and that Qualcomm apparently refuses to license standards-essential patents to competitors, is what has irritated the FTC.

As Lenovo’s Ira Blumberg told the court in video deposition screened on Friday last week, “Qualcomm has in the past retaliated against customers who have attempted to challenge its legal terms by either delaying, or cutting off supply of chips. We don’t know if Qualcomm would follow through on their threat to cut off supply, but we can’t take that risk.”

The FTC opened fire [PDF] on Qualy after two years of private discovery. The agency objected to the Qualcomm’s intellectual-property agreements sitting alongside contracts for silicon: what the regulators called a “no license, no chips” strategy.

The watchdog argued that Qualcomm collects higher royalties than companies with similar patent portfolios and therefore extracted a “tax.” The FTC also asserted that Qualcomm’s five-year exclusivity agreement with Apple “foreclosed the most 24 effective means of competing in the market for premium LTE modem chips, and successfully excluded competitors for five years.”

Late last year, in a preliminary judgment, Judge Lucy Koh, overseeing the FTC legal battle, told Qualcomm to license its wireless communications tech to rivals, allowing the likes of Intel and MediaTek to create cellular modems that compete against the Snapdragon family on an equal footing: with licenses in hand, these rivals would be able to design chipsets without having to avoid Qualcomm-patented features and protocols, meaning better components and better devices across the board, in theory.

How can we be a monopoly when world+dog is now making LTE modems?

Qualcomm, which has coughed up millions of documents for the FTC’s probing officials, fiercely contests the allegations.

It argues that its market share (34 per cent) is reasonable, and its profits are in line with other chip designers, so, where's the harm? It claims its competitors sell more 4G modems than ever, R&D investment in 4G modems is greater than ever across the industry, while the cost of its own LTE chips has fallen steadily from $23.74 apiece in 2012, to $13.37 in Q2 last year.

In other words, if you're building a phone, there is a choice in supplier and price, according to Qualcomm. According to the FTC, Qualcomm's firm grip on wireless patents limits that choice because the other chips have to tiptoe around Qualy's intellectual property, potentially skipping over features and protocols to their detriment.

This is a dynamic market, though, Qualcomm hit back. The San Diego-based biz noted that Apple had considerable market power itself. In November, Qualcomm highlighted that Apple, which switched from Infineon to Qualcomm modems from 2011 for some iPhone 4 models, was Qualcomm-only until 2016's iPhone 7 landed, which used Intel and Qualcomm parts – that'll be the aforementioned five-year exclusivity period.

“After being first to market with a multimode LTE modem chip in 2009, starting in 2014 Qualcomm’s share of sales of LTE baseband processors has rapidly declined as Intel, Samsung, MediaTek, and HiSilicon released competitive LTE modem chips and gained share of sales over time,” Qualcomm insisted as the FTC trial, which kicked off last week, loomed. The message being: there's plenty of competition, see?

Friday saw video deposition from chip rival MediaTek and major Qualcomm customers including Samsung, Huawei, and Lenovo, which acquired Motorola Mobility in 2014. Huawei testified that it, too, had an exclusivity clause with Qualcomm which would have raised its royalties to Qualcomm if it had sourced its cellular modems from a third party.

The trial continues. ®

Bootnote

There are mountains of files submitted to the case, though one [PDF, page 4] stuck out from mid-December: a photograph, taken by an FTC rep, of ex-Qualcomm president Derek Aberle's front-gate duct-taped to prevent officials from serving a subpoena in person. Aberle has no intention of testifying, so the watchdog produced the pic and asked the court if it could mail him the paperwork instead...