Qualcomm was once known as a major innovator, one of the prime developers of modern cellular technology. Now Qualcomm has become the Snidely Whiplash of the patent world, holding much of the telecommunications industry hostage to Qualcomm’s aging patent portfolio. Well, Qualcomm may finally be getting its just deserts. Already in trouble in Korea, Japan, Taiwan, and Europe for its anti-competitive practices, Qualcomm is now facing the Federal Trade Commission in U.S. District Court.
Recently the FTC filed a legal brief arguing against Qualcomm’s motion to dismiss the FTC’s case. Unusually, the Court also received amicus briefs opposing Qualcomm’s motion and supporting the FTC’s case moving forward. These briefs came from a diverse group of associations and companies, including ACT | The App Association, the American Antitrust Institute, Intel, and Samsung.
In the 1990’s, Qualcomm was the major developer of Code Division Multiple Access (CDMA) technology. It pushed hard to get CDMA adopted by vendors. As CDMA was largely Qualcomm’s proprietary technology, it eventually had to agree to create a standard, and it agreed to license its CDMA patents on fair, reasonable, and non-discriminatory (FRAND) terms. (A FRAND commitment means that the patent owner agrees to license to anyone and won’t take advantage of its position in setting prices.)
A large industry was built based on Qualcomm’s promises, as CDMA was widely adopted. Based on a growing body of evidence included in the FTC’s filings, as well as findings by the Korean Fair Trade Commission, it seems that Qualcomm hasn’t kept those promises. As CDMA has largely been supplanted by 3G and 4G, the once-great Qualcomm now makes the bulk of its profits by abusing its patents instead of being at the forefront of modern telecommunications innovation.
The FTC laid out Qualcomm’s predatory licensing tactics in its complaint. Instead of treating all companies the same, Qualcomm refuses to license to other chip makers so that it has a virtual monopoly on CDMA chips. And instead of licensing on FRAND terms, Qualcomm forces its customers to buy licenses they don’t need and massively overcharges them for those licenses. Qualcomm charges a percentage of the price of the entire device as the royalty, regardless of the device. In practice, this means that say, Apple pays far more for each new iPhone 7 than it pays for the iPhone 5, even though Apple licenses the exact same technology and the same chips from Qualcomm.
How does Qualcomm get away with this? Why would the market allow this? Qualcomm continues to take advantage of the fact that not all cell phone networks have been upgraded to 3G or better, meaning there are still many CDMA-only areas around the country. As a result, cell phones need to be backwards-compatible to work with CDMA networks.
In short, Qualcomm is using patents on technology that is over two decades old to extract billions of dollars from innovating companies every year. Last year alone, Qualcomm made $6 billion in profit on licensing, most of which came from Qualcomm’s CDMA patents.
Qualcomm has become like a former high school football star, using its past glories to justify its loutish behavior. Except that instead of just getting loudly drunk and boring people with old football stories, Qualcomm is ignoring its commitments and extracting billions of dollars that could otherwise be used by today’s innovators. The American Antitrust Institute echoed this point in its brief, noting that Qualcomm’s actions as charged by the FTC impair Qualcomm’s rivals by raising their costs in order to protect and enhance Qualcomm’s monopoly power.
No one denies Qualcomm’s place in telecommunications history, but Qualcomm has been paid many times over at this point. Enough is enough. Qualcomm shows no intention of acting responsibly; it is up to the FTC and the courts to bring Qualcomm in line to protect innovation and fair access to technology.