We're thrilled to announce the return of GamesBeat Next, hosted in San Francisco this October, where we will explore the theme of "Playing the Edge." Apply to speak here and learn more about sponsorship opportunities here. At the event, we will also announce 25 top game startups as the 2024 Game Changers. Apply or nominate today!
(Reuters) — Qualcomm illegally suppressed competition in the market for smartphone chips by threatening to cut off supplies and extracting excessive licensing fees, a U.S. judge ruled, a decision that could force the company to overhaul its business practices.
The decision issued late Tuesday night by U.S. District Judge Lucy Koh in San Jose, California, caused Qualcomm shares to plunge 9.5 percent in early trading on Wednesday.
“Qualcomm’s licensing practices have strangled competition” in parts of the chip market for years, harming rivals, smartphone makers, and consumers, Koh wrote in a 233-page decision.
She ordered the San Diego-based company to renegotiate licensing agreements at reasonable prices, without threatening to cut off supplies, and ordered that it be monitored for seven years to ensure its compliance.
Qualcomm said it will immediately ask Koh to put her decision on hold, and also seek a quick appeal to the federal appeals court in California.
“We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law,” general counsel Don Rosenberg said in a statement.
Koh’s decision followed a 10-day non-jury trial in January, and is a victory for the U.S. Federal Trade Commission, which has accused Qualcomm in 2017 of violating antitrust law.
It is unclear whether the sanctions will be challenged by the U.S. Department of Justice, which had asked Koh on May 2 to hold a hearing on that matter if Qualcomm were found liable.
“The possibility certainly exists for Qualcomm to prevail upon appeal” given the government’s “somewhat schizophrenic” approach to the case, with the FTC and Justice Department appearing at odds, Bernstein analyst Stacy Rasgon wrote.
The Justice Department was not immediately available for comment on Wednesday.
Koh said Qualcomm engaged in “extensive” anticompetitive conduct targeting more than one dozen original equipment manufacturers including Apple, BlackBerry, Huawei, Lenovo, LG, Motorola, Samsung, and Sony, often by cutting off or threatening to cut off chip supplies or withholding technical support.
She also said Qualcomm’s monopoly power in modem chips enabled the company to sustain “unreasonably high” royalty rates not justified by its contributions to the marketplace.
“With practices that result in exclusivity and eliminate opportunities to compete for OEM business, Qualcomm undermines rivals in every facet,” she wrote.
She also found Qualcomm knew its licensing practices harmed competition “yet continued anyway” despite government investigations in China, Japan, Korea, Taiwan, the European Union and the United States.
“This evidence of Qualcomm’s intent confirms the court’s conclusion that Qualcomm’s practices cause anticompetitive harm because no monopolist monopolizes unconscious of what he is doing,” she wrote.
Koh also said testimony from some Qualcomm witnesses “lacked credibility,” faulting Chief Executive Steve Mollenkopf and others for giving “long, fast, and practiced narratives” and saying company emails and notes contradicted his testimony.
“It will be difficult for an appellate court to disturb the court’s findings regarding the truthfulness of the Qualcomm witnesses and conclusions reached based on those findings,” said Barbara Sicalides, a partner at Pepper Hamilton in Philadelphia, specializing in antitrust law.
Qualcomm makes cellphone processors and modem chips, but generates most profits by licensing its technology to mobile phone makers.
Rasgon, the Bernstein analyst, said Koh had indicated at trial she was leaning against Qualcomm, but some investors had hoped her views would be “softened” by the Apple settlement.
“Apparently not,” Rasgon wrote.
VentureBeat's mission is to be a digital town square for technical decision-makers to gain knowledge about transformative enterprise technology and transact. Discover our Briefings.