Qualcomm prevails in appeals court antitrust ruling

This decision puts an end to several years of turmoil for Qualcomm and the chipmaker is now poised to benefit from the anticipated boon in sales of 5G smartphones. (Getty Images)

The U.S. Court of Appeals for the Ninth Circuit reversed a 2019 antitrust verdict by a federal judge who sided with the Federal Trade Commission and said that Qualcomm had abused its monopoly position and overcharged mobile phone makers for its patents. This decision, coupled with a patent licensing deal that Qualcomm struck with China’s Huawei last month, are big victories for the San Diego company.  Qualcomm’s shares were up more than 2.3% at the opening of trading today.

The appeals court decision also puts an end to disagreements that split the FTC and the Department of Justice, with the DOJ noting that the federal judge’s ruling could jeopardize Qualcomm’s leadership in 5G. 

Qualcomm has faced a lot of scrutiny for its business practices over the years. The company sells wireless chipsets but also makes the majority of its profits from royalties that it charges for its cellular patents.  These royalty payments have been the basis for most of its litigation over the years.

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Yesterday’s decision by the U.S. Court of Appeals was part of an ongoing battle that started when Apple challenged Qualcomm over the royalties the company collects for its technology innovations. The two companies agreed to dismiss all litigation in April 2019 and forged a six-year license agreement as well as signed a deal for Qualcomm to supply Apple with chipsets.

Despite the settlement, the FTC still argued that Qualcomm’s dominant position in this chip business allowed it to charge high royalty rates for its patents and said that any smartphone companies that objected to those rates ran the risk of being denied chips that they needed for their smartphones.

In May 2019 District Court Judge Lucy Koh sided with the FTC and issued a decision that would have forced Qualcomm to negotiate its licensing deals with phone makers and also license its technology to other chip makers. But Qualcomm appealed that decision and the three-judge Appeals Court panel concluded yesterday that Qualcomm didn’t have to license its technology to competitors. In addition, the panel ruled that Qualcomm’s policy of not supplying chips to any handset maker that hadn’t licensed its patents was not the equivalent of an illegal surcharge on chips sold by competitors.

This decision puts an end to several years of turmoil for Qualcomm and the chipmaker is now poised to benefit from the anticipated boon in sales of 5G smartphones. Qualcomm said during last month’s earnings call with investors that it was anticipating sales between 175 million and 225 million units this year.  

Qualcomm has had a few tumultuous years recently. In 2016 the company tried to purchase rival NXP Semiconductors for $44 billion, but that deal fell apart when Chinese regulators wouldn’t approve the deal. In addition, Broadcom launched a hostile takeover for Qualcomm in 2017. The Trump Administration blocked that deal in 2018 citing that the deal might impair national security.

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