Qualcomm: The antitrust nightmare continues - this time at home with the FTC as part of a last-minute lawsuit before the new administration takes over.

My former employer, Qualcomm, has had a difficult last few years regarding antitrust issues. Starting with China in December 2013, the San Diego-based telecom and semiconductor giant has faced numerous governmental investigations regarding its licensing business.  After China, came South Korea (February 2015),  Taiwan and the European Union (December 2015), and now the good ol' USA launching antitrust investigations.

The FTC complaint filed yesterday, Tuesday, January 17 makes three allegations against Qualcomm:

1. That Qualcomm maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. 
2. That Qualcomm refuses to license standard-essential patents to competitors. 
3. That Qualcomm extracted exclusivity from Apple in exchange for reduced patent royalties. 

Qualcomm has posted on its website a response to the FTC complaint which states that "Qualcomm believes the complaint is based on a flawed legal theory, a lack of economic support and significant misconceptions about the mobile technology industry. The complaint seeks to advance the interests and bargaining power of companies that have generated billions in profit from sales of products made possible by the fundamental 3G and 4G cellular technology developed by innovators like Qualcomm."

Perhaps most interesting is the fact that the FTC complaint may be politically motivated.  FTC Commissioner Maureen Ohlhausen, who voted against the filing, explained in what she notes is a rare dissenting statement that the Commission’s 2-1 decision to sue Qualcomm is “an enforcement action based on a flawed legal theory that "lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide.”  Despite an appeal from members of Congress to refrain from “midnight litigation” with newly created theories that could damage innovation in the U.S., the FTC accelerated the investigation of Qualcomm and directed the filing of the complaint just days before the change of the Administration though only three of five FTC commissioners are in place.

Importantly, the complaint does not allege that Qualcomm charges above fair and reasonable royalties, but rather asserts that Qualcomm held back its IP from competitors and suppliers in an illegal manner.  However, the company states that the FTC is incorrect as Qualcomm has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms.  

I do not have a dog in this fight, but on first glance this appears on its face to be another of a long line of steps the Obama Administration has taken to undermine patent rights.  This is great for my practice in China as innovators are chases from the US to Asia, but it saddens me as an American.  Stay tuned as we learn more.

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