Qualcomm Can’t Duck Consumer Action Over Chipset Prices

SAN JOSE, Calif. (CN) – A federal judge has allowed consumers to pursue their antitrust claims against computer chip giant Qualcomm, finding claims that they paid more for smartphones because the company jacked up the prices on the chips have merit.

U.S. District Judge Lucy Koh allowed the central claims made by a group of smartphone purchasers against Qualcomm to move forward. She did, however, grant Qualcomm’s request to dismiss Sherman Act antitrust claims “to the extent those claims seek damages.”

“Plaintiffs have adequately alleged that their injuries in the handset market are inextricably linked to the injuries that Qualcomm’s anticompetitive behavior inflicts in the modem chip market,” Koh wrote in a 45-page order issued Nov. 10.

Plaintiffs Sarah Key, Andrew Westley, Terese Russell, and Carra Abernathy make claims that run parallel to those made by the Federal Trade Commission, which has also sued the chip manufacturer in federal court.

The claims in both cases amount to three assertions: Qualcomm refuses to license its standard essential patents to competing modem chip manufacturers; it both threatens and incentivizes cellular device manufacturers like Apple and Google to exclusively use its product; and abuses its leverage to get royalties that are above market rate, according to the lawsuits.

Qualcomm manufacturers chips that are used in advanced cellular technology, allowing smartphones to communicate with cellular networks. In some instances, Qualcomm boasts an 80 percent market share of a specific chip. Since the chips are foundational pieces of technology in the cellular market they are protected by standard essential patents.

On the one hand, Qualcomm benefits by owning the patent for technology that is fundamental to the operation of a widely used tool. But the rules on standard essential patents also require Qualcomm to issue the chips to anyone willing to pay the agreed-upon royalties.

The plaintiffs say Qualcomm abuses its market-share power and has driven up the cost of smartphones in general, harming them specifically and consumers in general.

In requesting dismissal of the class action, Qualcomm’s attorneys argued the plaintiffs have not shown an injury and therefore lack standing. The attorneys also said Qualcomm never used its market share as a means of coercion.

Koh disagreed with all of Qualcomm’s arguments except one – that the plaintiffs can’t seek damages under the federal Sherman Act and California antitrust law at the same time.

The judge said the plaintiffs have adequately shown financial injury due to the anticompetitive behavior, regardless of whether they were the primary or secondary purchasers of the technology, to survive Qualcomm’s motion to dismiss.

“Contrary to Qualcomm’s suggestion, Plaintiffs’ status as indirect purchasers is not determinative as to whether they have established antitrust injury,” Koh wrote.

Koh also said Qualcomm’s arguments in regard to standing were unpersuasive, saying it focused “on one aspect of plaintiffs’ theory of the exclusivity arrangement without acknowledging the overall nature of the arrangement.”

Finally, Koh held the plaintiffs made a sufficient showing at the current stage of proceedings that Qualcomm used its market share to act coercively, particularly with its exclusivity deal with Apple, which may have resulted in higher prices for consumers.

Unless a settlement occurs, Koh’s order sets the stage for certifying the case and a possible trial in the near future.

Qualcomm also suffered a legal defeat in the Southern District of California this past week in a case brought by Apple.

On Nov. 8, a federal judge in San Diego dismissed Qualcomm’s counterclaims in a $1 billion civil lawsuit by iPhone maker – and chipset purchaser – Apple.

U.S. District Judge Gonzalo Curiel tossed Qualcomm’s counterclaims, over what it says was an unfair competition law violation by Apple when it threatened to stop doing business with the chipset maker, in a 47-page redacted order.

Apple had threatened to sever its business relationship with Qualcomm if it went public with information that iPhones made with its chipsets are allegedly superior than those equipped with Intel chipsets. The judge found Qualcomm made no showing Apple engaged in immoral or unethical behavior, stating: “The court will not sanction the use of the [unfair competition law] to prohibit conduct that at its core promoted pro-competitive activity through the development of Intel as an alternative chip supplier.”

Qualcomm was given leave to amend its counterclaims.

CNS reporter Bianca Bruno contributed reporting to this story from San Diego.

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