FTC Accuses Qualcomm for Forcing Apple into iPhone LTE Chip Contracts

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Jan 18, 2017
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The Federal Trade Commission has all the pointers to conclude that Qualcomm misused its position in the broadband chip producing business to get advantage unlawfully. The chip manufacturer is said to have constrained smartphone makers to consent for anti-competitive business arrangements, which kept phone makers from utilizing modems from Qualcomm’s rivals.

Apple is one of the prominent Qualcomm accomplices that was supposedly compelled to go into a binding agreement for modem chips, which in turn kept Apple from using any other chip for many years. Just a year ago, Apple added Intel to iPhone supply. As we know, Intel is one of Qualcomm’s closest rivals, and it has been bidding for Apple’s business for several years.

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In its accusation, the FTC clarifies that Qualcomm doesn’t just make the modem chips it offers to smartphone makers, but it additionally holds many licenses that are necessary for these components (chipsets). Some of these licenses were pronounced fundamental to industry guidelines that empower cellular connectivity.

According to industry guidelines, Qualcomm ought to permit these licenses on “fair, reasonable, and non-discriminatory, or ‘FRAND,’ terms,” yet the chipmaker neglected to do as such.

In the complaint, FTC wrote:

According to the complaint, by threatening to disrupt cell phone manufacturers’ supply of baseband processors, Qualcomm obtains elevated royalties and other license terms for its standard-essential patents that manufacturers would otherwise reject. These royalties amount to a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors, a tax that excludes these competitors and harms competition. Increased costs imposed by this tax are passed on to consumers, the complaint alleges.

Qualcomm apparently follows a “no license, no chip” policy. That implies cell phone producers who picked modems from different organizations need to pay higher royalties.

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The complaint further reads:

According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. ‘No license, no chips’ is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.

Apple is one of Qualcomm’s most critical clients, the complaint clarified, which is the reason why Qualcomm forced an exclusive deal. Throwing light on the deal with Apple, the complaint notes:

Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.

Also, Apple’s deal with Qualcomm involved “substantial incentive payments.” The complaint further notes the agreement conditions:

In all, Qualcomm’s 2011 and 2013 agreements with Apple provided for billions of dollars in conditional rebates from Qualcomm to Apple.

A report by Business Insider says,”Not using a competitive wireless technology backed by Intel, agreeing not to sue Qualcomm over royalties, and using Qualcomm chips in forthcoming iPhones and iPads.”

Meanwhile, Qualcomm denied all the antitrust allegations. The company stated:

“The complaint is based on a flawed legal theory, a lack of economic support and significant misconceptions about the mobile technology industry. Qualcomm has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms. The FTC’s allegation to the contrary — the central thesis of the complaint — is wrong.”

Amidst all the accusations drawn for Qualcomm, we would like to point out that this is not the first time when the company has come under the antitrust radar. In 2005, Qualcomm was fined around $2 billion in Asia for the same issue.

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