Second Supplier Adds Wrinkle to Apple-Qualcomm Fracas

SAN DIEGO (CN) – A federal judge Friday afternoon heard arguments for and against dismissing an antitrust case against cellphone chipset maker Qualcomm, during which attorneys posed novel legal questions as to what standards should apply.

There was no mention at Friday’s court hearing of another multimillion-dollar fine for San Diego-based Qualcomm this week in ongoing global antitrust investigations and lawsuits which claim the chipset maker illegally double-dips by charging customers both for the technology and royalties.

Qualcomm was fined $774 million by the Taiwan Fair Trade Commission for antitrust violations. This week’s fine follows an $853 million fine by the Korean Fair Trade Commission last year over the same issue and a lawsuit by the Federal Trade Commission which survived dismissal this summer.

U.S. District Judge Gonzalo Curiel, who is presiding over the San Diego action by Apple, last month denied injunctions to prevent Apple from bringing other lawsuits against Qualcomm in international courts.

But the heart of the concern at Friday’s court hearing involved what rules Curiel should use to adjudicate the case.

Legal issues raised by a phone conversation held between Qualcomm and Apple executives in which the iPhone maker threatened to retaliate against Qualcomm if it publicly disclosed supposedly superior performance of iPhones outfitted with its chipsets when compared with those by another Apple contractor – Intel – dominated much of the 2 ½-hour hearing.

Qualcomm attorney Evan Chesler told Curiel that Apple threatened to discontinue doing business with Qualcomm if it went public with the information, which the chipset supplier believes amounts to a violation of California’s unfair competition law. It countersued Apple over the matter.

Apple apparently also threatened to use its marketing department to dispute any performance arguments Qualcomm planned to make publicly about the superiority of its technology.

“They have an enormous presence in the market and retaliation can mean all kinds of things. There’s a difference between retaliating and choosing not to do business with us,” Chesler said.

Curiel asked what rules should apply since Qualcomm’s relationship with Apple is neither as direct competitor nor consumer, but as a supplier. There apparently has been no clarity from the state Supreme Court on the matter.

Apple attorney Karen Dunn disputed the conversation between the two executives violated the unfair competition law.

“Qualcomm wants protection under the unfair competition law for a business conversation which is the type of thing that happens every day in business,” Dunn said.

She said Apple is pro-competition by having two chipset manufacturers supply iPhone parts, and that iPhones sold to customers do not come with a disclosure as to whether a Qualcomm or Intel chipset is inside the phone.

“The harm being alleged is ‘we couldn’t publicly disparage your product,’” Dunn said. “It really takes the unfair competition law and uses it for a purpose I can’t ever imagine it was intended to be used for.”

Chesler fired back that had Qualcomm not been silenced, there would have been a higher demand for the chipset technology based on the fact that “speed is very important in this business.”

He added, “Their view was, ‘You can say what you want to the marketplace, but if you do, we will retaliate.’ What counsel calls disparagement is what we call the truth. That’s what trials are for.”

Curiel also heard arguments over Qualcomm’s motion to dismiss Apple’s first amended complaint over nine of Qualcomm’s patents at issue in the litigation.

Apple attorney Lauren Degnan said Qualcomm has “never shown us the standard essential patents we should pay a dime for,” adding: “They want a lot of money but how do we know how much we should pay?”

She echoed others’ concerns in the technology industry that Qualcomm’s business model of charging royalties on top of the chipset technology is “a really weird and uncommon” business model. She said when chipsets are purchased from other manufacturers the purchase price includes “all the rights you need.”

Qualcomm attorney Stephen Swedlow disputed that Qualcomm doesn’t want its patents to be examined and said the company plans to defend the value of its entire portfolio of nearly 2,000 patents.

Curiel took the matter under advisement and will issue a written order on the motions.

 

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