FTC-Qualcomm Antitrust Case Reaches Endgame

SAN JOSE, Calif. (CN) – Closing arguments in the Federal Trade Commission’s antitrust case against Qualcomm wrapped up Tuesday afternoon, with the government saying the company prevented rivals from fairly competing in the emerging field of cellular technology while Qualcomm argued they simply innovated faster than its competitors.

“Qualcomm earned its place through superior innovation and better products,” said Qualcomm attorney Bob Van Nest during closing arguments.

Van Nest hammered repeatedly the fact that the FTC failed to meet its burden of proof, saying the government fell short in its obligation to prove it had monopoly power to leverage higher royalty rates from its customers to the detriment of other chip manufacturers.

Jennifer Milici, who argued the closing on behalf of the FTC, said she disagreed with Qualcomm saying “the record is full of such evidence” of how Qualcomm used the threat of chip supply to tacitly encourage smartphone makers such as Samsung, Apple, Lenovo, Sony and others to pay high royalties on its standard patents.

The FTC’s argument hinges on the “no chips, no royalties” policy, where it either explicitly and implicitly threatened to cut off a supply of chips that smartphone makers needed for basic functioning unless it agreed to pay royalties that are far above a normal rate.

This scheme caused Qualcomm to use the profits from its artificially high royalties to pour more money into research and development and stay ahead of other competitors, as Qualcomm led the evolution from 3G to 4G and is widely believed to be ahead on the race to 5G, according to the FTC.

“Qualcomm basically said if we can’t reach an agreement you won’t be able to buy chips,” Milici said. “The customers viewed them as threats.”

Qualcomm says they never cut off chip supply and said in the one instance where an explicit threat to stop sending chips to Sony if the royalties weren’t paid occurred, that Qualcomm CEO Steve Mollenkopf immediately told Sony they would not cut off chip supply if royalties weren’t paid.

Qualcomm further pointed to the expert testimony of Professor Aviv Nevo, who said royalties did not rise even after the company had gained high market shares, which according to the company shows it did not use monopoly power to obtain high royalties.

But Milici said Qualcomm may have not used its monopoly power to create higher royalties, but instead used it to keep royalties the same, even after other competitors began to enter the same market.

“Qualcomm used its monopoly power to put up roadblocks that inhibited the power of other competitors attempting to challenge its dominance,” she said.

But Qualcomm says the FTC’s assertion is merely hypothetical and that the actual reason that other competitors fell short due to a host of reasons that had nothing to do with the company.

At the end of the closing arguments, U.S. District Court Judge Lucy Koh thanked both sides and said she would begin deciding the case, but said it would take longer than a couple weeks.

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