FTC charges Qualcomm with monopolizing key semiconductor device in cell phones
Qualcomm is the world’s dominant supplier of baseband processors – devices that manage cellular communications in mobile products.
The FTC alleges that Qualcomm has used its dominant position as a supplier of certain baseband processors to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors.
Qualcomm also holds patents that it has declared essential to industry standards that enable cellular connectivity.
These standards were adopted by standard-setting organizations for the telecommunications industry, which include Qualcomm and many of its competitors.
In exchange for having their patented technologies included in the standards, participants typically commit to license their patents on what are known as fair, reasonable, and non-discriminatory, or “FRAND,” terms.
When a patent holder that has made a FRAND commitment negotiates a license, ordinarily it is constrained by the fact that if the parties are unable to reach agreement, the patent holder may have to establish reasonable royalties in court.
According to the complaint, by threatening to disrupt cell phone manufacturers’ supply of baseband processors, Qualcomm obtains elevated royalties and other license terms for its standard-essential patents that manufacturers would otherwise reject.
These royalties amount to a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors, a tax that excludes these competitors and harms competition. Increased costs imposed by this tax are passed on to consumers, the complaint alleges.
By excluding competitors, Qualcomm impedes innovation that would offer significant consumer benefits, including those that foster the increased interconnectivity of consumer products, vehicles, buildings, and other items commonly referred to as the Internet of Things. ■