Qualcomm’s licensing terms are anti-competitive, US judge rules

A US judge has ruled in favor of the Federal Trade Commission (FTC) in its dispute with Qualcomm. As a result of the ruling, Qualcomm must stop bundling patent licensing deals with its hardware (often referred to as its “no license, no chips” policy), and agree to grant patents on fair terms to other modem-chip suppliers. Qualcomm said that it intends to launch an appeal.

In the ruling, Judge Lucy H. Koh says that “Qualcomm’s licensing practices have strangled competition” in parts of the modem market, harming “rivals, OEMs, and end consumers.” In the end, Koh decided that the company’s royalty rates were “unreasonably high.”

The judge also took issue with Qualcomm’s exclusivity arrangements, in which customers agree to exclusively use Qualcomm’s chips in exchange for a discount. Apple agreed to exclusively use Qualcomm modems in its iPhones between 2011 and 2016 as part of a similar agreement. The chipmaker has already been fined $1.2 billion EU for this practice.

In order to ensure that it complies with the new rules, Qualcomm must agree to be monitored for seven years.

Many of these practices were also the subject of a recent lawsuit between Apple and Qualcomm, which Apple filed in the wake of the FTC’s original announcement of its intention to sue Qualcomm. However, less than a week after court proceedings started, Apple and Qualcomm announced that they had reached a settlement, and would be ceasing all ongoing litigation between the two companies. In response, Qualcomm’s main chipmaking rival Intel said that it would exit the 5G modem business.

The chipmaker must also not stop its customers from cooperating with government investigations, and not retaliate against any partners who cooperate. As part of its lawsuit, Apple argued that Qualcomm withheld $1 billion in retaliation for its cooperation with South Korean regulators investigating Qualcomm.

In response, Qualcomm said it would appeal the ruling. “We strongly disagree with the judge’s conclusions, her interpretation of the facts, and her application of the law,” said Qualcomm’s executive vice president and general counsel, Don Rosenberg.

During the hearing Qualcomm argued that the cellular market is healthy and competitive, and said that its customers were large enough to be able to resist any alleged anti-competitive practices. However, Judge Koh pointed to numerous suppliers who have had to exit the market over these practices, and that those who have remained, such as MediaTek, have been harmed by them, because anyone who purchased them would also have to pay patent royalties to Qualcomm.

The FTC is just the latest regulator to have sued Qualcomm over its alleged anticompetitive practices. Qualcomm was forced to pay $975 million in China, $853 in South Korea, and $93 million in Taiwan.

CNBC notes that Qualcomm’s shares dropped 13% in response to the news. In the past, as much as three quarters of the chipmakers revenue has come from its licensing division.

Update May 22nd, 9:07AM ET: Added a statement from Qualcomm in response to the ruling.