In the football world, there’s a penalty in the rule book called “piling on.” This occurs after a player with the ball has been tackled, is already on the ground and continues to be hit by other opposing players after the whistle has been blown.
Smartphone processor-maker Qualcomm isn’t a football player, but it must be feeling a bit groggy at this point. The San Diego-based chipmaker was hit hard in 2014 by Chinese antitrust regulators, who accused the company of antitrust violations in conducting its patent-licensing business.
Qualcomm in February 2015 settled to the tune of $975 million, which apparently has opened a legal door for the “piling on” that has followed.
On Dec. 27, the company was belted for similar alleged antitrust reasons by South Korea’s Korean Fair Trade Commission and fined $852.9 million. On Jan. 17, the Federal Trade Commission joined the crowd; no word yet on how much that fine might be.
Apple Action the Most Recent
The latest action in this game of legal tackle occurred Jan. 20, when Apple—one of Qualcomm’s gnarliest competitors—filed the largest dollar-total lawsuit yet: a $1 billion (£807m, €934m) action over the same licensing practices.
It is arguable that Qualcomm may be getting close to becoming a monopoly. The company provides the electronic brains for most of the billions of Android and iOS smartphones and tablets around the world. Having such marketing and sales power in any industry can be dangerous, as the company is finding out.
The suit, filed in federal district court in San Diego, claims that Qualcomm used its “monopoly position” as a manufacturer of baseband chips, a critical component used in cellphones, to seek “onerous, unreasonable and costly” terms for patents, and that Qualcomm blocked Apple’s ability to choose another supplier for chipsets.
The suit seeks $1 billion in rebate payments that Apple contends Qualcomm has withheld as retribution for Apple’s participation in an investigation by South Korea’s antitrust regulator, the litigation noted earlier in this story.
In its response to the Apple action, Qualcomm provided the following statement:
“While we are still in the process of reviewing the complaint in detail, it is quite clear that Apple’s claims are baseless,” said Don Rosenberg, Qualcomm Executive Vice-President and General Counsel. “Apple has intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed and shared with all mobile device makers through our licensing program.
“Apple has been actively encouraging regulatory attacks on Qualcomm’s business in various jurisdictions around the world, as reflected in the recent KFTC (Korean Fair Trade Commission) decision and FTC complaint, by misrepresenting facts and withholding information. We welcome the opportunity to have these meritless claims heard in court where we will be entitled to full discovery of Apple’s practices and a robust examination of the merits.”
Dismisses South Korea Regulators’ Charges
Qualcomm also has dismissed South Korea’s commission’s charges, saying its business practices haven’t influenced the sales of other chip suppliers.
The FTC, which works with the Justice Department to enforce antitrust law, claimed that Qualcomm used its dominance in supplying base-band processors used in smartphones and tablets to arm-twist licensees and extract elevated royalties for patents in what the complaint dubbed a “no license-no chips” policy.
The company commented Jan. 17 on the FTC litigation: “Qualcomm believes the complaint is based on a flawed legal theory, a lack of economic support and significant misconceptions about the mobile technology industry. … The portrayal of facts offered by the FTC as the basis for the agency’s case is significantly flawed. 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.”
Qualcomm Expanding Its Business
Qualcomm manufactures LTE modems and ARM-based systems on a chip for various Android phones. Earlier this month, the company announced that it is moving into the server chip business with a new 10nm Centriq 2400 processor, which will compete directly for business with Intel’s vast installed base.
Smartphones and tablets sold by rivals Apple and Samsung comprise nearly half of Qualcomm’s revenue, which was reported as $23.5 billion in its latest fiscal year earnings.
What a lot of people don’t realize is that Qualcomm also makes a significant portion of its revenue from licensing deals based on a large portfolio of wireless IT patents. This patent licensing business makes up a non-trivial 32.8 percent of the company’s total revenue, according to the company’s latest earnings report.
A three-year investigation in South Korea led to the Dec. 27 announcement of its fine. According to the industry regulator, Qualcomm should have shared more patents with other chip makers, including Samsung, Intel and MediaTek.
Based on all of this news, one tends to think Qualcomm indeed has been causing some sort of animosity around the world in twisting arms to sell chips and licenses. It isn’t often that a company piles up litigation like this from multiple nation-states and prominent international organizations, especially inside such a small time window.
We at eWEEK will continue to monitor this story as it unfolds.