Back in May, Judge Lucy Koh (of Apple v. Samsung fame) made a ruling that still might change the way Qualcomm sells its chips to phone manufacturers. The judge ruled in favor of the Federal Trade Commission and against the chipmaker after a 10-day non-jury trial was held at the beginning of the year. The FTC argued that Qualcomm's "no license, no chips" policy is anti-competitive.
Other Qualcomm policies attacked in court included the way royalty payments are calculated based on the entire price of a phone instead of the chip being used. And Qualcomm was also cited for not licensing its standards-essential patents (SEP). These are patents that must be licensed by rivals to guarantee that their products meet technical standards; as a result, they are supposed to be licensed on a fair, reasonable and non-discriminatory fashion (FRAND). In its defense, Qualcomm says that the argument of royalties is an issue of contracts law that should not be heard in a forum designed for antitrust cases. And it also says that there is nothing wrong with getting compensated for the money it spends on R&D.
The FTC is opposed by Qualcomm, the DOJ, the Defense Department, and the Energy Department
In her decision, Koh said that Qualcomm needs to renegotiate its current contracts with phone manufacturers. In her written decision, Judge Koh said, "Qualcomm’s licensing practices have strangled competition in the CDMA and the premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process." As you might expect, Qualcomm has appealed the decision and even managed to get the Ninth U.S. Circuit Court of Appeals to issue a stay. This prevents Qualcomm from having to follow Koh's orders until all of its legal options have been exhausted. The firm did have a compelling reason to request a stay; it would be a waste of time and energy to renegotiate all of its contracts only to win on appeal and reverse all of the changes made.
And speaking of the appeal, the FTC is actually on the opposite side of the Trump administration. Before Judge Koh released her decision, Trump officials asked her to limit any penalties that she was planning to impose on the chipmaker. And now that the case is being heard in appeals court, the administration is concerned that a Qualcomm loss will negatively impact America's global leadership in technology and national security. And the Justice Department, under the leadership of U.S. Attorney General William Barr, has contradicted the FTC by stating that there is nothing anti-competitive about Qualcomm's business practices. That is unusual because the FTC and the DOJ both handle antitrust cases. The Justice Department is joined by the Defense Department and Energy Department which told the appeals court that a ruling against Qualcomm could affect the country's military and its energy and nuclear infrastructure.
But perhaps even more important to the Trump administration is the possibility that should Qualcomm lose on appeal, it will negatively impact the rollout of 5G in the states. The next generation of wireless connectivity will initially deliver download data speeds 10 times faster than 4G LTE and will lead to the creation of new businesses and industries. The nations that harness 5G first will have a big advantage in the global economy. Qualcomm's Snapdragon X50 and X55 modem chips allow smartphones to connect to 5G networks. The former is compatible with super zippy ultra-high mmWave spectrum while the latter works with both mmWave and sub-6GHz airwaves.
But as far as the FTC is concerned, Qualcomm and the Justice Department have not shown how Judge Koh's ruling "threatens national security in any way -- or how those considerations could justify allowing Qualcomm to continue to violate" U.S. antitrust law. The 9th circuit appeals court, located in San Francisco, could start hearing arguments in February and issue a ruling sometime in 2020. For Qualcomm, there is plenty at stake.