United States: Qualcomm's Antitrust War And The Patent Licensing Issues

The antitrust war Qualcomm is now defending on three continents against government regulators as well as Apple and its iPhone manufacturers, Compal, Foxconn, Pegatron, and Wistron, is fascinating on so many levels.  On the international political plane, Qualcomm continues to portray itself as the poster child for Trumpian complaints that American companies are the victims of unfair treatment by governments in Asia and Europe.  In Washington, the case against Qualcomm is the ping-pong ball in the short-staffed Federal Trade Commission's one Democrat vs. one Republican (there are an unprecedented three vacancies on the five-member Commission) doctrinal battle over how aggressively to apply antitrust law to owners of standard-essential patents (SEPs), with acting chairwoman Maureen Ohlhausen using her defense of Qualcomm as a plank in her campaign platform as she seeks to be designated by President Trump to take the chair on a permanent basis.

Even at ground level, where American courts in San Diego and San Jose are now being called on to apply the law laid out in prior court decisions to the particular facts of the smartphone chip market, the multipronged attack on Qualcomm's patent licensing practices offers an unusually rich platter of meaty issues to feast upon for those who advise patent licensors and licensees.  Leaving aside the implications for the smartphone industry and the market for cellular baseband processors that Qualcomm now dominates, the new precedents that will be set in court—if the parties don't settle or a Republican-controlled FTC doesn't withdraw its case—will have broad and deep implications for patent owners and users—much as the US v. Microsoft case has had since it was decided almost two decades ago.

Here's a rundown of the most prominent issues as they are currently presented.  As in any hard-fought, high-stakes case, the parties may decide to shift their ground as the case progresses, facts emerge and the judges make preliminary rulings. Already the decision by Judge Koh back in June to deny Qualcomm's motion to dismiss the FTC's case and the September 7 decisions by Judge Curiel to deny Qualcomm's motions to bar Apple from pursuing its parallel cases in the UK, Taiwan, China, and Japan and to force Apple's manufacturers to resume paying license fees while the case continues have had foreboding messages for Qualcomm about where these cases might be heading.

Refusal to license competitors

Ordinarily a patent owner is free not to license its competitors.  But when Qualcomm signed on to be part of the cellular communications standard-setting process through organizations (SSOs) such as the European Telecommunication Standards Institute (ETSI), the Telecommunications Industry Association (TIA), and the Alliance for Telecommunications Industry Solutions (ATIS), and then declared certain of its patents "essential" to some of the SSO-adopted cellular standards—including the Universal Mobile Telecommunications System (UMTS), Code Division Multiple Access (CDMA), and Long-Term Evolution (LTE)—for 2G, 3G and 4G smartphones, it agreed to license those patents on reasonable and non-discriminatory ("RAND"—sometimes with "fair" thrown in it's called "FRAND") terms.  Now, the FTC is attacking Qualcomm for refusing to license competing chip manufacturers, instead licensing only chip purchasers.  Judge Koh ruled in June, in denying Qualcomm's motion to dismiss the complaint, that the FTC had stated a plausible theory that Qualcomm's policy was an antitrust violation if it could be proved.  And so the case goes forward.  A final ruling mandating that Qualcomm change its policy could shake up the cellular baseband processor manufacturing industry and perhaps lead to entry by new competitors.  It would also clarify whether a RAND commitment carries a duty to deal with competitors and not just users of the patented product.  For antitrust fans, Judge Koh's preliminary decision was interesting because it relied on a famous three-decades-old Supreme Court decision in the Aspen Skiing case.  That decision held that the owner of three ski mountains in Aspen had a duty to cooperate with the owner of the fourth mountain to continue selling all-mountain ski lift tickets.  It is considered by many to be the high-water mark in the law of monopolization, and its scope has been narrowed by later decisions.  A decision that a RAND commitment automatically puts an owner of one or more standard essential patents into Aspen Skiing territory, required to license competitors, could easily find its way to the Supreme Court.

No license-no chips

Under the patent "exhaustion" doctrine, once you buy a patented product you are free to use it and re-sell it as you see fit, without further permission (license) of the patent owner:  the first sale "exhausts" the patent.  Qualcomm allegedly skirts this rule by refusing to sell its chips to anyone who won't also buy a package license to a large slew of its patents, which Qualcomm argues are needed to make a smartphone in addition to the patents covering the chips themselves.  The FTC argues that this tying of the license package to the chips has the effect of diminishing demand for competitors' chips.  The theory is that Qualcomm is skewing the overall price toward the license and away from the chips:  once the supposedly elevated price for the license is paid, regardless of whether a Qualcomm or Qualcomm competitor processor is used, you might as well buy Qualcomm's chips (which Qualcomm can sell at a lower price than it otherwise would, thereby squeezing the profit margins of competing chip manufacturers).  The number of competitors in this corner of the semiconductor industry has declined over the years.  Whether a defeat or retreat by Qualcomm on this policy would induce new firms to enter the market is a key question.  From the public's point of view, the possibility of new competition in this market is perhaps the most important gain that could come from this litigation.

Portfolio licensing

In earlier times, it was considered suspect under antitrust law for a patent owner to license its patents in a bundle, rather than patent by patent. In fact, compelled "tying" was per se illegal.   By now, the law is clear that there can be strong efficiency advantages to portfolio licensing, and so there is no longer a presumption against bundled licenses.   For instance, it may not be clear which patents are actually infringed by a given product, and a package license permits the parties to avoid complex royalty calculations and expensive litigation by setting one price that covers the licensees' products regardless of whether they implicate one patent or many.  Today, the law generally accepts that these benefits make portfolio licensing procompetitive and safe from antitrust attack—at least when the patent owner also offers to license the individual patents à la carte as an alternative.  Now, however, Apple is faulting Qualcomm for allegedly refusing to license particular patents and insisting that licensees must pay for the entire portfolio for a royalty computed as a percentage of revenue the licensee derives from the licensed product.  Until now, one effect of this practice has been to disincentivize manufacturers from attacking individual Qualcomm patents: since the user likely needed at least one of Qualcomm's patents, and the fee was the same if the product infringed one patent or many; there was nothing gained by picking at parts of the Qualcomm portfolio.

Qualcomm's patents

It is generally acknowledged that Qualcomm's inventions are key pillars of the smartphone revolution. Qualcomm has declared thousands of its patents to be essential to the 2G, 3G and 4G standards.  Since, as noted above, cell phone purveyors commonly obtain portfolio licenses to use any or all of the Qualcomm patents—and pay for them as a percentage of revenue regardless of how many patents their devices actually employ—the cell phone manufacturers have not had a strong incentive to question particular patents within the formidable portfolio. Now Apple has decided to pick apart Qualcomm's bundle by asking the court for declarations that certain Qualcomm patents are not in fact implicated by Apple products at all.  The attack only asks for scrutiny of 15 patents out of thousands, so this attack by itself apparently does not threaten the Qualcomm empire; it is one more weapon against which Qualcomm has to mount a defense.

Computing RAND fees

One very fair way to look at Apple's beef with Qualcomm is that it really is just a price negotiation being conducted by other means.  Apple says that it has been attempting to obtain a license directly from Qualcomm for years, but that they've never been able to arrive at an agreed price: instead Qualcomm has been licensing Apple's contract manufacturers.  In its complaint, Apple argues that Qualcomm's prices violate its RAND commitment because they are not "reasonable" (the "R" in RAND).

One proof that Qualcomm's license prices are not reasonable at 5% of revenue, according to the FTC, is that the 5% rate has remained the same over the years even while Qualcomm's relative share of SEPs reading on the iPhone has declined as we moved from 2G to 3G to 4G standards and more and more features unrelated to Qualcomm's inventions were added to smartphones.  The FTC makes this simple-sounding argument:  if Qualcomm deserved 5% of revenue when its patents made up a high share of the declared essential patents to make a 2G phone, how can it still be reasonable to charge 5% of revenue for a 4G phone that has so many additional features and capabilities such that Qualcomm's share of the essential patents is only 13% of the whole?  Of course patents are not fungible—by definition each one is original—so they can't be valued by the pound and simply counting the number of patents, as opposed to considering their relative commercial or practical importance, seemingly should not be the litmus test.  Contrariwise, one might ask, is it logical to say that the right to use one patent is more valuable than another if both are "essential"?  Yet, by the same token, 5% of a $600 product that could do a, b, and c is different from 5% of a $1000 product that can do a, b, c, d, e, and f where the licensor's technology only enabled a, b, and c.  Whether this is a true antitrust question and not just a contract dispute about enforcing the promise to charge RAND, who decides whether a price is "reasonable", and by what methods, are all up in the air.  There are very few precedents in which a court decided a RAND price—including the decision in the Microsoft v. Motorola case, which was treated as a contract dispute—but the law is far from settled and the facts and expert testimony could take us almost anywhere in this case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions