Qualcomm Must Renegotiate Contracts, After Losing Antitrust Case

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The Federal Trade Commission has now won an antitrust case against Qualcomm as the U.S. District Judge Lucy Koh has ruled in FTC's favor. Koh said that the chipmaker has stifled competition in the CDMA and premium LTE modem chip industry, pushed some rivals out of the market, and exploited smartphone vendors.

The chip maker's "no license, no chips" strategy has received a lot of criticism as under the current business module, it doesn't sell its chips to companies unless they also pay licensing fees for the patents it owns. Moreover, this module also allows the San Diego-based company to make money off innovations which aren't even related to its patents, such as cameras and smartphone screens. The patent-licensing business is the manufacturer's largest source of income, raking in more revenue than hardware sales.

The antitrust proceedings began in 2017, with FTC accusing Qualcomm of abusing its market dominance and charging more than what its patents are actually worth. The company makes money even when smartphone manufacturers use chips from rivals, which makes competing products less compelling.

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In a 233-page ruling, Koh has instructed Qualcomm to follow five orders, including the renegotiation of existing license agreements with device makers so as to remove any provisions which may threaten to halt chip supply or suspend technical support. The court observed that the royalty fees charged by Qualcomm are exorbitant and has asked it to stop bundling licenses with its products. The company has also been ordered to grant patents to other modem makers on fair terms and it has also been asked to not prevent its clients and competitors from cooperating with government agencies.

The chip manufacturer's exclusivity deals, under which customers are bound to use only Qualcomm's chips in return for a discount has also been frowned upon. The chip giant currently has such exclusivity arrangements with many industry bigwigs, including Apple, Samsung, BlackBerry, and Vivo. Koh believes that such agreements are a threat to competition.

To make sure that it is complying with the orders, Qualcomm has been ordered to submit monitoring reports to the FTC for the next seven years.

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Qualcomm stands it grounds and plans to obtain a stay of the order. The company says that it has used the same licensing approach since its early days, so it's not like the strategy was designed after it became a leading chipmaker. The San Diego based manufacturer further argued that the revenue made from the fees is ploughed back into the business for research and development. Qualcomm also said that its customers are too powerful to be bullied by it and that the cellular market is competitive, as is evident by the fact that its market share has actually fallen in recent years.

As the U.S. government gears up to compete with China in the 5G space, Qualcomm is considered an important stakeholder and the judge's ruling can put a dent in its earnings and consequently reduce its competitiveness when it comes to the next generation of wireless technologies. In the wake of the news, the company's shares plunged more than 10 percent.