SAN JOSE, Calif. (CN) – The Federal Trade Commission won a landmark victory against computer chip manufacturer Qualcomm in a case with widespread implications on how technology companies will license their products.
U.S. District Judge Lucy Koh found the royalty rates Qualcomm charges its customers are “unreasonably high,” suppressing competition and harming consumers.
“”In combination, Qualcomm’s licensing practices have strangled competition in the CDMA and premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process,” Koh wrote in a 233-page doorstopper. “Qualcomm’s conduct ‘unfairly tends to destroy competition itself.”
Koh ordered Qualcomm to strike new agreements that don’t overburden manufacturing companies that use their chips, like Samsung, Apple, LG Electronics, Sony and some of the other biggest names in technology.
Specifically, Koh ordered Qualcomm to cease a practice of threatening chip supply to customers that refused to sign licensing agreements demanding high rates.
“Qualcomm must not condition the supply of modem chips on a customer’s patent license status and Qualcomm must negotiate or renegotiate license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical support or access to software,” Koh wrote.
Qualcomm said it will immediately seek to stay that order and others while it appeals to the Ninth Circuit.
“We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law,” Don Rosenberg, general counsel for Qualcomm, said in a statement.
Qualcomm said the evidence presented in court showed a thriving competitive chip manufacturing industry that belies claims the company was choking out competition.
The tech giant has long been considered the leader in making chips for smartphones and other wireless devices that connect to cellular networks. Qualcomm wants to position itself as the dominant company in the race to 5G, with billions of dollars at profit at stake.
Koh’s ruling comes about a month after Apple and Qualcomm agreed to settle their global patent dispute which also centered on royalties and licensing agreements.
Qualcomm’s business model relating to its LTE chips used primarily in smartphones centered on two aspects – selling the chips themselves and patenting the technology of the chips and charging royalties of as much as 5% per smartphone.
During the trial, Qualcomm executives repeatedly testified that the two aspects of the business were kept separate and the company never put pressure on chip supply in order to exact high licensing fees.
But Koh found that testimony contradicted a long trail of emails, memos and other written correspondences provided as evidence.
“The court largely discounts Qualcomm’s trial testimony prepared specifically for this litigation and instead relies on these witnesses’ own contemporaneous emails, handwritten notes, and recorded statements to the IRS,” she wrote.
Apple has long bristled at what it considered to be excessive royalties under a concept called FRAND, which requires companies that invent technology which becomes an industry standard must charge rates that are fair, reasonable and nondiscriminatory.
Koh agreed, ordering Qualcomm to make its licensing available to modem-chip suppliers with rates set according to FRAND.
Whether that order stands will be up to the Ninth Circuit.