U.S. antitrust officials
are poised to sue Qualcomm Inc. for allegedly using unfair practices in the way
it licenses its technology, people familiar with the matter said. According to
information from Bloomberg, Qualcomm, the biggest maker of semiconductors for
mobile phones, disclosed in 2014 that the Federal Trade Commission was
investigating its licensing practices and said an enforcement action could lead
to a fine or changes to its business.
The United States
Federal Trade Commission said Qualcomm forced Apple to use its modem chips by
lowering its licensing fees and pushing competition out, according to a
newly-unsealed antitrust suit brought against the chipmaker by the federal
agency.
The suit would be yet
another regulatory challenge to Qualcomm’s most profitable business, technology
licensing. The chipmaker gets most of its profits from selling the rights to
use patents that are essential to all modern mobile phone systems. Qualcomm has
argued that its licensing follows industry standards that have been in place
for more than 20 years and are used by other companies.
In the last month of
2016, South Korea, home to two of its largest customers, fined the company 1.03
trillion won ($890 million) and described its practices as monopolistic. The
San Diego-based company said it will appeal that decision. Qualcomm is also the
subject of investigations by the European Union and Taiwanese authorities. The
company’s shares fell 3 percent to $64.91 at 1:36 p.m. in New York. Representatives
of the FTC and Qualcomm declined to comment.
Qualcomm is the biggest
developer of the technology that underlies how mobile devices communicate. The
company has been heavily criticized for its high royalty rate demands and
licensing conditions. It’s resulted in a slew of regulatory investigations
worldwide.
The chipmaker has argued
that the beneficiaries of regulatory action -- phone-makers -- have struck new
deals that acknowledge the validity of Qualcomm’s patents and that users of its
technology benefit from its heavy spending on research and development.
The FTC investigation
focuses on a process where companies get together to develop industry standards
so devices from different manufacturers can interoperate -- so, for instance,
data sent from an Apple Inc. phone can be received and understood by one made
by Samsung Electronics Co. Since the companies that develop those standards
have the advantage of ensuring their patented inventions get included in the
new specifications, they pledge to license the patents on “reasonable and
non-discriminatory” terms.
The definition of that
phrase has been purposefully left undefined. As a result, courts and regulators
have been struggling to interpret what’s fair and reasonable, and it has been a
key issue during the legal wars among smartphone manufacturers.
The FTC has been
scrutinizing the use of foundational patents in licensing disputes,
particularly in telecommunications. Weighing in on Google Inc.’s patent case
against Microsoft Corp., the agency in 2012 advocated for limits in the ability
of the U.S. International Trade Commission to impose import bans when so-called
“standard-essential patents” are infringed.
It kept that position
regarding an import ban imposed on Apple phones in a case brought by Samsung in
2013. President Barack Obama’s administration overturned the ban, citing
concerns that some patent owners could engage in “hold up,” meaning they would
demand unreasonably high royalties under threat of withholding use of basic
technology needed to make a phone work.
Credit:
Bloomberg
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