Why Apple, FTC Are Suing Qualcomm Over Anti-Competition Complaints

Mobile chip maker Qualcomm is fighting separate legal actions by Apple, the U.S. Federal Trade Commission and the Korea Fair Trade Commission that it overcharged for its chips and patent licensing fees.

Apple and Qualcomm have been working with each other for many years. Apple relies upon Qualcomm, which makes a wide range of chips and wireless components for the iPhone and iPad.

The Apple-Qualcomm litigation started with the U.S. Federal Trade Commission (FTC), which on Jan. 17 filed charges against the chipmaker. In its lawsuit, the FTC accused Qualcomm of using anti-competitive tactics to create a monopoly in the mobile chip business. The FTC said that Qualcomm, which is the most prominent mobile chipmaker in the world, used its market power to hurt competitors and influence customer buying decisions.

At the center of the Qualcomm complaint is a so-called “no license, no chips” policy Qualcomm enforced with its customers. According to the FTC, the policy required customers to pay higher patent licensing fees for Qualcomm patents if they were buying chips from competitors. The move meant cell phone manufacturers would need to pay more for competing chips than for Qualcomm processors. It all but forced some companies to buy from Qualcomm, the FTC says.

Apple was cited as one of the victims in Qualcomm’s alleged scheme. According to the FTC, Qualcomm signed an exclusivity pact with Apple that reduced the royalties the iPhone maker would need to pay to license Qualcomm patents. In return, Apple wasn’t allowed to look for baseband processors from other manufacturers. That prevented Qualcomm competitors from competing for Apple’s business.

Qualcomm is no stranger to complaints that its corporate practices run afoul of competition rules. The European Union has already looked into the possibility of anticompetitive business practices, and Qualcomm has been hit with fines in both South Korea and China that both neared $1 billion. The FTC is now saying that Qualcomm must “cease its anticompetitive conduct and take actions to restore competitive conditions.”

Apple on Jan. 20 filed its own lawsuit against Qualcomm. The lawsuit, which attempts to recoup $1 billion in damages, claims Qualcomm has been “charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined.” Apple also said that Qualcomm hasn’t paid back $1 billion in rebates the company had promised the iPhone maker.

Apple also said in its lawsuit against Qualcomm that the $1 billion in rebates it was owed might have been held back out of spite. Specifically, Apple said that Qualcomm only decided to withhold the rebates after it learned the iPhone maker held discussions about the chipmaker’s policies with Korea’s antitrust office, the Korea Fair Trade Commission. Apple added that Qualcomm tried to “extort” Apple into lying about its discussions with the KFTC.

Apple also claimed that Qualcomm attempted to pressure wireless carriers into pushing smartphones and tablets not made by Apple. The company said Qualcomm’s maneuver was a response to Apple working with Intel on chips, rather than Qualcomm products.

Qualcomm’s general counsel Don Rosenberg issued denied all of Apple’s complains. He called Apple’s complaint “baseless” and said that the company “intentionally mischaracterized” its agreements with Qualcomm. He added that Apple has urged “regulatory attacks on Qualcomm’s business” and said he the company will fight the “meritless claims” in court.

It looks like Qualcomm faces a long and potentially expensive legal battle. The most critical legal battle will be with federal authorities. If the FTC wins it case it could be required to make major changes to its business practices and pay a hefty fine. An FTC win would also lend credence to Apple’s charges in this separate case. It remains to be seen if this litigation permanently damages Qualcomm’s relationship with Apple and other mobile device makers.