Qualcomm Said to Face U.S. Antitrust Case Over Licensing

Jan. 17, 2017, 8:09 PM

By Ian King, David McLaughlin and Susan Decker, Bloomberg News

U.S. antitrust officials are poised to sue Qualcomm Inc. for allegedly using unfair practices in the way it licenses its technology, people familiar with the matter said.

Qualcomm, the biggest maker of semiconductors for mobile phones, disclosed in 2014 that the Federal Trade Commission was investigating its licensing practices and said an enforcement action could lead to a fine or changes to its business.

The suit would be yet another regulatory challenge to Qualcomm’s most profitable business, technology licensing. The chipmaker gets most of its profits from selling the rights to use patents that are essential to all modern mobile phone systems. Qualcomm has argued that its licensing follows industry standards that have been in place for more than 20 years and are used by other companies.

Last month, South Korea, home to two of its largest customers, fined the company 1.03 trillion won ($890 million) and described its practices as monopolistic. The San Diego-based company said it will appeal that decision. Qualcomm is also the subject of investigations by the European Union and Taiwanese authorities.

The company’s shares fell 3 percent to $64.91 at 1:36 p.m. in New York. Representatives of the FTC and Qualcomm declined to comment.

Qualcomm is the biggest developer of the technology that underlies how mobile devices communicate. The company has been heavily criticized for its high royalty rate demands and licensing conditions. It’s resulted in a slew of regulatory investigations worldwide.

The chipmaker has argued that the beneficiaries of regulatory action — phone-makers — have struck new deals that acknowledge the validity of Qualcomm’s patents and that users of its technology benefit from its heavy spending on research and development.

Phones ‘Interoperate’

The FTC investigation focuses on a process where companies get together to develop industry standards so devices from different manufacturers can interoperate — so, for instance, data sent from an Apple Inc. phone can be received and understood by one made by Samsung Electronics Co.

Since the companies that develop those standards have the advantage of ensuring their patented inventions get included in the new specifications, they pledge to license the patents on “reasonable and non-discriminatory” terms.

The definition of that phrase has been purposefully left undefined. As a result, courts and regulators have been struggling to interpret what’s fair and reasonable, and it has been a key issue during the legal wars among smartphone manufacturers.

Import Bans

The FTC has been scrutinizing the use of foundational patents in licensing disputes, particularly in telecommunications. Weighing in on Google Inc.’s patent case against Microsoft Corp., the agency in 2012 advocated for limits in the ability of the U.S. International Trade Commission to impose import bans when so-called “standard-essential patents” are infringed.

It kept that position regarding an import ban imposed on Apple phones in a case brought by Samsung in 2013. President Barack Obama’s administration overturned the ban, citing concerns that some patent owners could engage in “hold up,”

meaning they would demand unreasonably high royalties under threat of withholding use of basic technology needed to make a phone work.

For more news, visit Bloomberg .

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