Qualcomm abused its position as a giant of the semiconductor industry to harm competition and charge cellphone makers excessive licensing fees, a federal judge has ruled, striking at the heart of the company’s business and potentially shaking up the smartphone industry.
In a decision issued late Tuesday, Judge Lucy Koh of Federal District Court in San Jose, Calif., found that Qualcomm’s patent-licensing practices violated antitrust law.
The decision was a victory for the Federal Trade Commission, which sued Qualcomm in 2017 over its patent practices. The agency accused the chip maker of charging “onerous” fees for the use of its patents, some of which were considered industry standards meant to be licensed on fair, reasonable terms.
“Qualcomm’s licensing practices have strangled competition” in the market for wireless modem chips for years, Judge Koh wrote in the public version of her ruling, parts of which were redacted to protect trade secrets.
Judge Koh ordered Qualcomm to strike new licensing agreements without the onerous terms, and said that the company must submit to seven years of monitoring by the trade commission.
Qualcomm said on Wednesday that it would immediately seek a stay of Judge Koh’s decision and an expedited appeal at the United States Court of Appeals for the Ninth Circuit.
“We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law,” Don Rosenberg, the company’s executive vice president and general counsel, said in a statement.
Judge Koh’s ruling comes about a month after Qualcomm and Apple agreed to settle a global legal battle over the royalties Qualcomm charges for its chips. It was unclear what impact, if any, the decision would have on the companies’ agreement.
Qualcomm is considered the industry leader in wireless modem chips, and it could become even more dominant as the race to develop next-generation 5G wireless networks accelerates.
The company pioneered a major strain of cellular technology that became a mainstay in the third major generation of mobile networks, and it went on to become the biggest maker of chips based on its patented technology.
Companies that sought to make 3G phones and later models were compelled to pay royalties to Qualcomm, whether or not they used its chips, under a formula that was historically based on 5 percent of a handset’s wholesale price.
Major phone makers, particularly Apple, have argued that Qualcomm’s royalty rates were disproportionate to the value of its inventions. The trade commission came to a similar conclusion, finding that phone makers had no leverage to negotiate for lower rates because Qualcomm could cut off shipments of chips that could not be obtained elsewhere.
Qualcomm denied using such an approach, but executives from handset makers like Huawei, Lenovo, Motorola and Sony testified at a trade commission trial in January that the possibility of hardball tactics influenced their royalty negotiations with Qualcomm