FTC rests case versus Qualcomm, arguing it’s a monopoly in mobile chips

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Carl Shapiro, a University of California teacher of economics and a professional witness for the FTC, took the standJan 15 in the trial versusQualcomm


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The United States Federal Trade Commission on Tuesday provided its last witnesses and proof in its case versusQualcomm Now it depends on Qualcomm to safeguard itself in the coming days versus claims it’s a monopoly in cordless chips.

The FTC, assisted by chipmaker Intel and iPhone supplier Apple, submitted fit 2 years back, implicating Qualcomm of requiring clients like Apple to deal with it solely and charging extreme licensing charges for its innovation. The United States thinks Qualcomm has a monopoly on modem chips and hurt competitors by attempting to keep its power. Qualcomm’s “excessive” royalty rates avoided competitors from going into the marketplace, increased the expense of phones and in turn harmed customers, who dealt with greater handset costs, the FTC stated.

Qualcomm has actually argued the FTC’s claim is based upon “flawed legal theory.” It’s stated that clients pick its chips due to the fact that they’re the very best which it has actually never ever stopped supplying processors to clients, even when they’re fighting over licenses.

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The trial kicked off Jan. 4 in US District Court in San Jose, California. Testimony covers negotiations and events that occurred before March 2018 and can’t encompass anything after that date. 

During the first six days of the trial, the FTC presented witnesses from companies like Apple, Samsung and Ericsson and experts from intellectual property consultancies and universities. It even called Qualcomm CEO Steve Mollenkopf. The trial has revealed the inner workings of tech’s most important business — smartphones — showing how suppliers wrestle for dominance and profit.

The FTC rested its case shortly before 3:30 p.m. PT on Tuesday. The FTC took a quick break during its presentation of witnesses to allow Qualcomm co-founder Irwin Jacobs to testify. Jacobs, who spoke on behalf of Qualcomm, talked up the company’s long history in CDMA mobile technology. 

Qualcomm’s second witness took the stand after the FTC rested its case. Durga Malladi, Qualcomm’s senior vice president of 4G and 5G, detailed Qualcomm’s innovation in the mobile market.  

Closing arguments in the trial will take place Feb. 1. 

‘No license, no chips’

Key to the FTC’s argument is Qualcomm’s so-called “no license, no chips” policy. Qualcomm sells processors that connect phones to cellular networks, but it also licenses its broad portfolio as a group. For a set fee — based on the selling price of the end device, typically a phone — the manufacturer gets to use all of Qualcomm’s technology. It’s phone makers who pay the licensing fee, not chipmakers. 

To get access to Qualcomm’s chips, which are broadly considered to be on the bleeding edge of wireless innovation, a phone maker first has to sign a patent licensing contract with Qualcomm. Qualcomm has long been the leader in 4G LTE, and it’s ahead of rivals in the nascent 5G market. The highest-end phones, like those from Samsung, have tended to use its modems. 

The FTC has argued the no license, no chips policy gives Qualcomm too much leverage in negotiations and prevents competitors from entering the wireless chip market. Huawei, Intel, Lenovo and others testified during the trial that Qualcomm required them to sign licenses before being able to buy the company’s chips. 

And Apple, which has been fighting Qualcomm in patent and licensing lawsuits around the globe, sent two executives to testify on behalf of the FTC. Apple believes Qualcomm’s fees are too high; it thinks it should pay a fee based only on the value of Qualcomm’s connectivity chips, not the entire device. 

Apple, arguably the most powerful company in technology, said it felt it had no options when it came to negotiating over Qualcomm’s licensing fees. 

Tony Blevins, Apple’s vice president of procurement, on Friday testified that Apple wanted to build an Intel communication chip into its iPad Mini 2, released in fall 2013, but Qualcomm’s hardball business methods crushed the plan. Apple didn’t like relying solely on Qualcomm for modem chips, Blevins said, but in exchange for exclusive use of its chips, Qualcomm offered Apple rebates that reduced costs so they were no longer “exorbitant.”

And Apple Operating Chief Jeff Williams on Monday testified that his company felt that it had to sign contracts for amounts it thought too high — a royalty of $7.50 per iPhone — in order to maintain access to Qualcomm’s chips. 

“We were staring at an increase of over $1 billion per year in licensing, so we had a gun to our head,” Williams said as he explained why Apple signed another licensing agreement in 2013, despite being unhappy with the terms. 

Apple wanted to use Qualcomm’s 4G LTE processors in its 2018 iPhones, but the chipmaker wouldn’t sell to it, Williams said. Qualcomm did continue providing Apple with chips for its older iPhones, including the iPhone 7 and 7 Plus, but it wouldn’t give Apple chips for last year’s iPhone XSXS Max and XR, Williams said.

“We have been unable to get them to support us on new design wins past that time [when Apple filed a lawsuit against Qualcomm],” Williams stated. “This has been a challenge.”

Williams’ remarks appear to oppose statement from Qualcomm’s Mollenkopf fromFriday He stated on the stand that since spring 2018, Qualcomm still was attempting to win an agreement providing chips for iPhones, however that it had not “had any new business” from Apple considering that its previous agreements ended. Because of the trial’s proof date restrictions, he wasn’t permitted to talk about the existing state of Qualcomm’s organization with Apple.

Mollenkopf likewise affirmed that Qualcomm’s practices of providing a license prior to offering chips to business is just the very best method to get things provided for the entire market, not simply for his business. That’s due to the fact that Qualcomm’s patent licenses cover lots more innovation a phone may utilize than just what remains in his business’s modem chips, which let phones talk with mobile networks.

“We just offer to business with a license due to the fact that not all the IP [intellectual property] is covered in the chip. What we wish to do is ensure the [phone makers] are covered,” Mollenkopf stated. He indicated the security structure utilized when phones link to a network as an example. “It’s not embodied in the chip, it’s not in the phones, but it’s in all these things,” Mollenkopf stated. “There’s a tremendous amount of IP we generate that makes the system work.”

A heavy hammer

Carl Shapiro, a teacher of economics at the University of California in Berkeley, took the stand Tuesday to examine the effect of the no license, no chips policy and Qualcomm’s royalty rates on handset makers, chip competitors and customers. He concluded that Qualcomm had monopoly power over CDMA modem chips and over premium LTE modem chips through 2016.

“It’s my view they harmed competition in those two markets,” he stated.

“Qualcomm should be commended for its technological achievements,” Shapiro included. “But…what’s really important is that companies who aren’t quite as good or who don’t have the scale are not impeded from trying to catch and threaten and challenge the leader.”

He affirmed that Qualcomm is utilizing its market power and its monopoly power over chips to draw out an “unusually high amount” for royalties for patents. That raises the expense for competitors, compromises them as rivals and strengthens Qualcomm’s monopoly power, Shapiro stated.

Losing access to Qualcomm’s modems would enforce expenses on handset makers, consisting of not having the ability to provide to customers.

“That’s a very heavy hammer that Qualcomm is bringing down, at least as a threat, in those negotiations,” Shapiro stated.

Michael J. Lasinski, CEO of IP seeking advice from company 284 Partners, on Monday affirmed that Qualcomm’s licensing charges are “far too high to be consistent with their FRAND operations.” Standard important patents need to be certified in a reasonable, affordable, and non-discriminatory way.

An Ericsson licensing executive, Christina Petersson, stated in video statement that a reasonable royalty rate for multimode LTE need to be 6 percent to 8 percent per gadget. Lasinski stated he identified it ought to be 6 percent due to the fact that there’s a lot more entering into a phone than when Ericsson developed its rate.

Qualcomm’s rates tend to be greater than that quantity. Apple wished to pay $1.50 per gadget in royalties to Qualcomm, based upon a 5 percent charge for the expense of each $30 modem linking iPhones to mobile networks. Instead, it wound up paying $7.50 per phone, a quantity Qualcomm later on wished to raise, Apple’s Williams affirmed.

Qualcomm has actually argued that its broad patent portfolio and developments validate its charges. CEO Mollenkopf, who took the stand Friday, protected the business’s licensing practices, stating the method his business offers chips to smart device makers is finest for everyone included.

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