Qualcomm faces legal battles over chip technology

By Dee Thompson | Apr 21, 2017

SAN DIEGO — Tech giant Qualcomm is facing litigation on several fronts related to its exclusive patent on the chip essential to all iPhones.

The Federal Trade Commission (FTC) has brought an antitrust lawsuit against tech giant Qualcomm claiming Apple was forced to use their modem chips after Qualcomm illegally pushed away competition by drastically lowering licensing fees. 

Apple has now filed suit against Qualcomm in the United States District Court for the Southern District of California, but Qualcomm is counterclaiming, in what is turning into a complicated amount of litigation arising out of the same set of facts.

From 2011 to 2016 Apple and Qualcomm had an exclusive arrangement. Qualcomm supplied modem chips that allowed phones to hook up to cellular networks but Apple would face penalties if they bought chips from other suppliers because they wouldn’t receive rebate payments from Apple, according to the FTC. The rebates constituted billions of rebate dollars.

One issue is that since 2011, in order for Apple to use the chips called CDMA (code division multiple access) they had to use CDMA chipsets from Qualcomm, and Qualcomm charged them a premium because they were the only supplier Apple could use.

On April 10, Qualcomm filed its answer to Apple’s lawsuit, alleging that Apple “breached agreements and mischaracterized agreements and negotiations with Qualcomm, interfered with Qualcomm’s long-standing agreements with Qualcomm licensees that manufacture iPhones and iPads for Apple, encouraged regulatory attacks on Qualcomm’s business in various jurisdictions around the world by misrepresenting facts and making false statements, chose not to utilize the full performance of Qualcomm’s modem chips in its iPhone 7, misrepresented the performance disparity between iPhones using Qualcomm modems and those using competitor-supplied modems and threatened Qualcomm in an attempt to prevent it from making any public comparisons about the superior performance of the Qualcomm-powered iPhones.”

Don Rosenberg, executive vice president of Qualcomm and general counsel, argued that “Apple could not have built the incredible iPhone franchise that has made it the most profitable company in the world, capturing over 90 percent of smartphone profits, without relying upon Qualcomm's fundamental cellular technologies. Now, after a decade of historic growth, Apple refuses to acknowledge the well established and continuing value of those technologies.”

Professor Shubha Ghosh, a law professor at Syracuse University, told the Northern California Record that the antitrust action against Qualcomm by the Federal Trade Commission is not unforeseen, but it’s not entirely typical either.

“Antitrust is a strange beast," Ghosh said. "There’s a lot of unpredictability to it. This area particularly is a developing field of law within antitrust.” 

He said this is a complex litigation situation. 

“It’s an intersection of at least three different areas of law," he said. "There’s antitrust, there’s intellectual property and then there’s contract law. They may have viewed this as a straightforward contract matter and Qualcomm thought it had its contracts under control but it didn’t consider the possibility of antitrust.”

Ghosh, however, wouldn't speculate on who might prevail. 

“Qualcomm had an obligation to treat all users of its technology equally, and Apple is saying the terms of its contract are probably less favorable than what Qualcomm gave to other licensees," he said. "I’d have to take a hard look at their contract before I’d feel comfortable making any sort of judgment call.”

Qualcomm had the upper hand by holding an important patent in the cell phone industry. Ghosh said Qualcomm had the power to prevent anyone from using or making its patented chip, thus there wasn’t competition. 

“The kind of technology that Qualcomm has a patent for is exactly the technology that’s standard in the field," Ghosh said. "When you patent something that becomes essential, then the patent owner does suddenly get a lot of leverage. That’s where the antitrust laws come in and contract law comes in to try to limit that leverage.” 

Ghosh said Qualcomm had to obligation to license the technology.

“We do know what the technology standard is because a lot of the standard for the CDMA chip has been set by the industry," he said. "Where it becomes difficult is figuring out what the contract terms should be. So once you have a patent over something that’s the standard technology in the field, then you have an obligation to license that technology, but you have to do it on fair, reasonable and non-discriminatory terms."

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Apple Inc. Qualcomm U.S. District Court for the Southern District of California U.S. Federal Trade Commission

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