Industry Voices -- Lee: Qualcomm's antitrust win is a win for innovation


Leonard Lee

On the 28th of October, Qualcomm had a great day. The 9th Circuit Court of Appeals handed the FTC what can only be considered a definitive defeat to end their long antitrust pursuit against Qualcomm. The FTC’s en banc petition issued on September 25 was denied by Judge Rawlinson and Judge Callahan. The court’s dismissal was expressed in a surprisingly brief two-page order.

According to the order, not a single judge sought to request a vote to rehear the FTC’s case. Don Rosenberg, EVP and general counsel of Qualcomm stated on a call that the circuit court did not require Qualcomm respond. Mr. Rosenberg emphasized how the court’s decision served to strongly validate the company’s position and arguments in defense of its licensing model and unique business model.

This win will likely be the final nail in the coffin that will put this 4-year saga to a long overdue end. It establishes an important legal precedent that will provide clarity to the competitive dynamics of licensing models similar to Qualcomm’s. The lack of clarity has been a problem that has afflicted Qualcomm as it has faced what seems to be a continuous stream of antitrust challenges across the globe.  

Qualcomm’s licensing and overall business model is not well or broadly understood. Qualcomm’s licenses its patents to competing chip manufacturers for free in order to meet the requirements for FRAND (fair, reasonable, and nondiscriminatory) in its commitments to ATIA, TIA and other organization involved in establishing the standards for mobile wireless technologies including 5G.

In return, chip manufacturers agree to sell their chips to OEMs that have a licensing agreement with Qualcomm and pay a licensing royalty. This arrangement has been dubbed the infamous “no license, no chips” policy which allows Qualcomm to monetize their IP without being limited by patent exhaustion. Ironically, Qualcomm would be exposed to antitrust risk if it licensed its patents directly to chip makers.

The findings and conclusions of the appellate court’s opinion issued on August 11 established that the FTC had failed to prove how “Qualcomm’s alleged breach of its contractual commitment itself impaired the opportunities of rivals.” It also determined that the district court had failed to sufficiently qualify that Qualcomm’s licensing royalty constituted an “anticompetitive surcharge” on rival chip suppliers. 

In essence, the appellate court found that Qualcomm’s licensing business model was “chip-supplier neutral” and that any alleged breach of FRAND commitments to standard-setting organizations was a matter of contract or tort law. The court’s decision effectively confirms the legal viability of Qualcomm’s business model which is comprised of their IP licensing business and their semiconductor business.

The appellate court’s decision to vacate the district court’s ruling against Qualcomm clearly supports the convention that being a monopoly is not intrinsically a violation of the Sherman Act. It also clarifies the precept that hypercompetitive behavior does not constitute anticompetitive behavior.

The end of the FTC’s case against Qualcomm is timely and will no doubt have bearing on the current congressional antitrust investigations of “big tech” involving Apple, Amazon, Facebook and Google. We are already hearing Google arguing that their dominant position in the search market has been a result of hypercompetitive behavior.

The appellate court rightly recognized that Qualcomm is a technology company. Their inventions serve as the foundation of mobile network wireless technology standards past, present and well into the era of 5G and beyond.

If this legal saga has indeed been closed it is a win for technology companies that invent and develop foundational technologies which may otherwise be difficult to monetize. The decision can also arguably be considered a win for innovation as technology companies are better able to capture an equitable share of the economic value that their inventions foster.

Without a doubt, Qualcomm is hoping that the dismissal of the FTC’s en banc petition will establish a legal guide for any future antitrust challenges the company faces outside of the US. If anything, the US courts have done Qualcomm a great favor in clarifying its licensing business in the context of antitrust. It was a good day for Qualcomm.

 Leonard Lee is the founder and managing director of neXt Curve, a research advisory firm focused on Information and Communication industry and technology research. He has worked as an executive consultant and industry analyst at Gartner, IBM, PwC and EY and has advised leading companies globally on competitive strategy, product and service innovation and business transformation. Follow Leonard on LinkedIn:

“Industry Voices” are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce staff. They do not represent the opinions of Fierce.