Qualcomm shares dip as FTC files claim of anticompetitive licensing tactics

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The FTC is accusing Qualcomm of imposing “onerous and anticompetitive supply and licensing terms” on hardware manufacturers, in violation of the FTC Act.

Shares of Qualcomm slid Tuesday after the Federal Trade Commission accused the company of using anticompetitive tactics to “maintain its monopoly” as the dominant vendor of semiconductors for phones and other mobile gadgets. Qualcomm argued against the complaint, setting the stage for a potentially explosive legal battle between the tech giant and the government.

In a 32-page complaint (PDF), the FTC said the chipmaker imposed “onerous and anticompetitive supply and licensing terms” on hardware manufacturers, violating the FTC Act on several fronts: Qualcomm maintains a “no license, no chips” policy, selling its baseband processors only to manufacturers that agree to its licensing terms, the agency said, and it refuses to license standard-essential patents to competitors despite committing to do so. Qualcomm is also accused of offering Apple reduced patent royalties in an exclusive agreement preventing the iPhone vendor from working with Qualcomm’s competitors over a five-year span.

“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,” the FTC said in a press release. “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.

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“By excluding competitors, Qualcomm impedes innovation that would offer significant consumer benefits, including those that foster the increased interconnectivity of consumer products, vehicles, buildings, and other items commonly referred to as the Internet of Things.”

The complaint stems from an FTC probe Qualcomm first acknowledged in late 2015. Shares of the company sank 4% Tuesday afternoon following the FTC’s announcement.

In a release, Qualcomm rejected key elements of the complaint, arguing that the FTC was acting without all the information and was trying to rush the investigation ahead of the arrival of President Trump's incoming administration. 

“This is an extremely disappointing decision to rush to file a complaint on the eve of Chairwoman Ramirez’s departure and the transition to a new Administration, which reflects a sharp break from FTC practice,” said Don Rosenberg, Qulacomm's executive vice president and general counsel, in a release from the company.

Added Qualcomm: "The portrayal of facts offered by the FTC as the basis for the agency’s case is significantly flawed. In particular, 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."

Qualcomm continues to fight legal battles around the world. In April, Nvidia sued Qualcomm in London, alleging it had unfairly forced Nvidia to pull the plug on the Icera business it bought in 2011. The company is also preparing to defend itself against antitrust charges in South Korea.

“The FTC is seeking a court order to undo and prevent Qualcomm’s unfair methods of competition in violation of the FTC Act,” the agency said. “The FTC has asked the court to order Qualcomm to cease its anticompetitive conduct and take actions to restore competitive conditions.”

The agency voted 2-1 to file the complaint, with Commissioner Maureen K. Ohlhausen issuing a dissenting statement. A sealed version of the complaint and a public, redacted version were filed in the U.S. District Court for the Northern District of California on Tuesday.

Article updated Jan. 17 with comment from Qualcomm.