January 19, 2017

Qualcomm’s latest regulatory challenge: Will new FTC complaint fizzle out under Trump?

By ITU News

Qualcomm is vigorously denying allegations in a new United States Federal Trade Commission (FTC) complaint issued this week. The FTC charges the semiconductor and telecommunications equipment company with using its dominant market position to impose “onerous and anticompetitive supply and licensing terms” on mobile phone manufacturers and to weaken competitors.

The FTC claims Qualcomm used anticompetitive tactics to “maintain its monopoly in the supply of a key semiconductor device used in cellphones and other consumer products.” It also alleges that Qualcomm gave Apple Inc. ‘rebate payments’ of royalties, conditioned upon Apple’s exclusive use of Qualcomm processors in its devices. The FTC noted in its complaint that these agreements “effectively foreclosed Qualcomm’s competitors from gaining baseband processor business at Apple.”

“By excluding competitors, Qualcomm impedes innovation that would offer significant consumer benefits,” says the FTC.

Qualcomm believes the lawsuit is based on “a flawed legal theory, a lack of economic support and significant misconceptions about the mobile technology industry.” The vendor denies withholding chip supply in order to obtain agreement to unfair or unreasonable licensing terms.

“The intellectual-property-rights policies of the cellular standards organizations do not require licensing at the component level, and the FTC does not have the authority to rewrite industry policy. That is for the industry, not a regulator, to decide,” said Don Rosenberg, EVP and general counsel for Qualcomm. “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.”

Indeed, the FTC complaint may be reconsidered following the 20 January inauguration of US President-elect Donald Trump. But it it adds to increasing regulatory pressure from key governments worldwide. For instance, it comes on the heels of the USD 853 million fine that the Republic of Korea’s antitrust regulator slapped on Qualcomm for allegedly violating antitrust laws.

“Qualcomm derives the bulk of its profits from licensing its technology, but that business has been under attack by regulators off and on for more than 10 years,” writes MartketWatch columnist Therese Poletti.

“In 2015, a whopping $975 million fine and royalty rate cut in China emboldened regulators worldwide.”

Ms. Poletti referenced investor jitters over this key source of profit for Qualcomm, saying the new FTC lawsuit “puts a dark cloud over a chip company that had managed to battle back from a steep stock drop.” However, Wall Street analysts are predicting that a Trump-led FTC would withdraw the complaint.

Meanwhile, Qualcomm is diving into the highly attractive connected car market with its Data Drive Platform, which will collect, analyze and share data from vehicle sensors. The move follows a rapid increase in the semiconductor content per vehicle, growth which is expected to continue as the autonomous car market develops.

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Qualcomm's latest regulatory challenge: Will new FTC complaint fizzle out under Trump?

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