US Court Finds Qualcomm Engaged in Anticompetitive Behaviour in the Modem Chip Market

On May 21, 2019, the United States District Court for the Northern District of California (Court) issued a decision in Federal Trade Commission v Qualcomm Inc., concluding that the defendant Qualcomm Inc. (Qualcomm) engaged in anticompetitive behavior in breach of the Sherman Antitrust Act. The Court held that Qualcomm illegally limited competition in the modem chip market by charging original equipment manufacturers (OEMs) “unreasonably high royalty rates” to license their standard essential patents.

Judge Lucy H. Koh of the Court found that the royalty rates charged by Qualcomm to OEMs were sustained by the monopoly on modem chips held by Qualcomm, and not the value of Qualcomm’s patents. The Court further stated that the royalty fees imposed an “artificial and anticompetitive surcharge” on the price of rivals’ modem chips, as Qualcomm received royalties on any handset sold by the OEMs which had license agreements with Qualcomm, regardless of the origin of the modem chip. Additionally, the Court held that Qualcomm’s refusal to license its standard essential patents to rival chip manufactures breached the antitrust duty to deal under the Sherman Act.

As a result of the ruling, Qualcomm must stop bundling patent licensing deals with its hardware and agree to grant patents on fair terms to other modem-chip suppliers.  Judge Koh also ordered that Qualcomm must agree to be monitored for seven years.  Qualcomm said that it intends to launch an appeal. 

The decision comes just weeks after Qualcomm and Apple Inc. issued a joint statement announcing that a settlement between the two companies had been reached and that all litigation between the companies worldwide had been dropped.

Summary By: Henry Mah