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Experts Duel in FTC-Qualcomm Licensing Spat

A trial that will test the federal government’s case against chipmaker Qualcomm entered its final stages Monday, with the outcome expected to hinge on competing testimony by two key expert witnesses.

SAN JOSE, Calif. (CN) – A trial that will test the federal government’s case against chipmaker Qualcomm entered its final stages Monday, with the outcome expected to hinge on competing testimony by two key expert witnesses.

On Monday, the Federal Trade Commission’s expert witness Carl Shapiro defended the methodology of his study which concluded that between 2006 and 2016, Qualcomm established monopoly power in the market of computer chips connecting smartphones to cellular networks and used that power to leverage higher royalties and harm its competitors.

Qualcomm denies the assertions, claiming it never had monopoly power and to the extent it did, never used that power to leverage higher royalties. It also says competitors like Intel lagged behind because they weren’t as efficient with their research and development spending.

But the government says that isn’t the case, and accuses Qualcomm of cheating. It has based a large portion of its case on the expert testimony of Shapiro, a professor of economics at University of California, Berkeley.

"Qualcomm's strategy has been to keep effective, real royalties paid by OEMs [original equipment manufacturers] from falling, and they've used chip tactics and other strategies for doing that," he said during the trial on Monday.

OEMs include smartphone manufactures like Apple, Samsung, LG and others who use Qualcomm processors to connect their devices to cellular networks.

Qualcomm processors are generally considered to be the vanguard of wireless technology, as it was the leader in 4G LTE and rumored to be ahead of competitors in the race to 5G.

At the heart of the trial is Qualcomm’s “no license, no chips” policy, purportedly used by Qualcomm, which knew companies relied on its chips, to extract high royalty fees.

Apple, which is battling Qualcomm over licensing fees and patent issues in courts around the globe, sent two executives to testify on behalf of the FTC, saying it had few to no options when negotiating its license fees. Qualcomm says company had significant leverage, including the option to simply not pay them.

Meanwhile, the FTC claims Shapiro’s study shows markets for two different types of modem chips were hurt by Qualcomm’s policy.

But Aviv Nevo, a professor at the University of Pennsylvania and Qualcomm’s expert witness, said he conducted a thorough economic analysis of the markets during the time span established by the FTC and said the agency’s theory doesn’t hold water.

“FTC’s theory is just not borne out by market data,” Nevo testified Friday. He also noted the industry is thriving and that in theory royalty rates should have risen relative to an increase in market share, which he says is not confirmed by the data.

On redirect, the FTC’s attorney attempted to make the case that Nevo cherry-picked data by focusing only on certain aspects of the royalties, oversimplifying what are in practice extremely complex contracts.

Nevo countered by saying he studied only the parts of the contracts on which the FTC based its theories. He also threw cold water on several of Shapiro’s conclusions, saying Shapiro used arbitrary time periods and failed to use real-world data, instead relying on hypothetical scenarios.

On Monday, Shapiro fired back by calling Nevo’s analysis “all messed up” and “sloppy.”

Shapiro also said Qualcomm didn’t use market power to raise royalties but instead to keep them from falling, meaning Nevo’s analysis is insufficient to show how the company used monopoly power. Shapiro also said the data does not account for how Qualcomm negotiated the royalty rates used in the models, likening it to a kayak race where you judge the final results without noting one team puts rocks in the path of the other.

The competing testimonies of the expert witnesses figure to factor heavily in U.S. District Judge Lucy Koh’s decision on whether to grant the injunctions the FTC seeks to halt Qualcomm’s licensing practices.

Closing arguments are slated for Tuesday and Koh will rule from the bench at some point after the trial concludes.

Follow @@MatthewCRenda
Categories / Business, Government, Technology, Trials

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