Licensing to Vying Competitors: A Ruling against Qualcomm

Background of the Qualcomm Suit

Qualcomm Inc (QCOM.O) is an American multinational semiconductor and telecommunications equipment company, which designs and markets wireless telecommunication products and services. The major revenue generation of the company is from chip making and patent licensing businesses. In the 2017, an antitrust lawsuit was filed against QCOM.O by the U.S. Federal Trade Commission (FTC) against Qualcomm on the grounds of monopolization, agreements in restraint of trade, unfair methods of competition and violation of FRAND terms.

Preliminary Ruling by Judge Lucy Koh

The primary issue In Federal Trade Commission v. Qualcomm Incorporated [(5:17-cv-00220) District Court, N.D. California] was whether QCOM.O is liable for anti-competitive behavior when its chip business is combined with its patent licensing practices to maintain its monopoly over smart phones’ modem. Although, the case has not been finally decided yet. However, in the preliminary ruling, the Hon’ble court ruled that QCOM.O must license its essentials patents (on modem chips) to its vying chip firms. Furthermore, FTC has mainly 3 allegations against QCOM.C: (I) that it maintains a “no license, no chips” policy wherein it supplies its baseband processors only when the cell phone manufacturers agree to Qualcomm’s preferred license terms; (II) it refuses to license standard-essential patents to its competitors and; (III) it extracted exclusivity from Apple in exchange for reduced patent royalties.

Here, the Qualcomm agreed to two separate policies according to which it would offer patents on non-discriminatory terms. Such patents were essential to wireless standards and only accepted into the standards because of Qualcomm’s agreement to license to everyone. However, after observing the contracts the court opined that Qualcomm was not right in doing so. In furtherance of the same, the court also said if Qualcomm was not prevented from doing so and allowed to keep its standard essential patents to itself, it would monopolise the company’s position in the modem chip market and thus limit the healthy competitive practices in the market.

Other Legal Battles against QCOM.C

This is not the only suit against Qualcomm, it is encumbered with many such anti-competitive petitions all over the world. The company has already been penalized to pay fine in South Korea, China, Taiwan, European Union for its anti-competitive licensing act. In 2017, Apple and FTC initiated legal battles against Qualcomm. Besides that a case is also filed by an investor for duping its investors and inflating its stock price.

Conclusion

The above case is an example of a juncture, where the competition law and Intellectual Property Law converge. Both these branches of law are alleged to be contriving to each to each other and latter is said to be an exception of the former because the former discourages the monopoly whereas the latter creates it. However, the above propositions are not completely true in practicality as both the laws go hand in hand therefore should be dealt harmoniously. The present case seems to bolster the principle of compulsory licensing, however it is majorly about licensing of Standard Essential Patent which are to be governed by Fair, Reasonable, and Non-discriminatory (FRAND) terms. There is no straight jacket formula to determine FRAND terms therefore it differs from case to case. This ambiguity of FRAND terms often become the reason for many legal battles and put the licensors on higher pedestal by giving them unfettered leeway to decide FRAND terms. This leeway further limits the bargaining power of licensee.

The above ruling by the U.S. Court sets a mark in IP legal regime that even IP law does not appreciate the absolute monopoly because the absolute monopoly not only distorts the competition in the market but also derogates the objective of IP law i.e. to provide incentives to create and serve the interests of the public by promoting economic growth. However, the said case does not decide the appropriate quantum of charges/royalty charged by Qualcomm from other competitors.

Author: Lokesh Vyas, Intern at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at [email protected].