Qualcomm ‘strangled competition’, judge rules

Qualcomm, the largest manufacturer of smartphone microchips and modems in the world, violated antitrust law and illegally “strangled competition”, a US federal judge in California has ruled.

Judge Lucy Koh’s decision followed a ten-day non-jury trial in January, and strikes at the foundations of the San Diego-based company’s business model. It could, Bloomberg speculates, even “upend the smartphone industry”.

Investors have been shaken, with the tech giant’s stocks plunging 11.4% on Wednesday in the wake of the news.

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Qualcomm announced it would seek a stay on the ruling’s order that it immediately strike new licensing agreements, and launch an expedited appeal. “We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law,” the company’s general counsel, Don Rosenberg, said in a statement.

The suit was brought by the US Federal Trade Commission (FTC), an independent agency responsible for protecting consumers. It stated that Qualcomm charges licence fees for its patents that are inflated beyond industry standards, and does so deliberately to harm competitors.

Judge Koh agreed: “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.”

Reuters describes how “Qualcomm argued during the trial that it achieved market dominance through technological leadership. The company began its licensing business in the 1980s and 1990s, decades before it began selling chips, and has charged broadly similar patent rates since then.”

The company also argued “that the FTC failed to show harm to competition, arguing that the chip industry is thriving and prices are declining”.

Nevertheless, reports The New York Times, as a result of her finding the judge “ordered Qualcomm to strike new licensing agreements without the onerous terms, and said that the company must submit to seven years of monitoring by the trade commission”.

As CNN outlines, this is not the only antitrust suit Qualcomm faces: “The ruling comes five weeks after Qualcomm reached a settlement in a similar but separate antitrust case brought by Apple (AAPL). That agreement included an unspecified payment from Apple to Qualcomm, and the two companies announced a six-year license contract under which Apple will continue to buy Qualcomm chips.”

The Financial Times contextualises this blow to Qualcomm, pointing out its timing at a sensitive moment in which the worlds of trade, technology and geopolitics are awkwardly entwined.

“The ruling comes as President Donald Trump seeks to position Qualcomm as a national champion, forming a vital bulwark against China’s Huawei in the transition to next-generation 5G mobile networks. The White House sees 5G - a new networking standard, in the development of which Qualcomm has played a central role - as a core component of US national security. The Trump administration has pushed other countries to keep Huawei’s equipment out of their mobile infrastructure,” says the newspaper.