OPINION: FTC, Don’t Settle With Qualcomm

Justin Sullivan/Getty Images

Steve Pociask President, American Consumer Institute
Font Size:

The Federal Trade Commission (FTC) filed a complaint early last year claiming that Qualcomm, one of the world’s largest manufacturers of cellular chips, engages in anticompetitive behavior, including refusing to license its competitors, charging excessive royalties and cutting favorable deals with manufacturers who agree not to buy chips from Qualcomm’s competitors.

The FTC argued that Qualcomm abused standard essential patent, which must be licensed under fair, reasonable, and non-discriminatory terms. By engaging in monopolistic behavior, the FTC says Qualcomm has been able to charge “disproportionately high” royalties to smartphone manufacturers and ultimately inflate the prices consumers pay.

By hurting wireless competition and unnecessarily raising costs, Qualcomm’s behavior threatens to undermine U.S. competitiveness in next-generation 5G technology, which promises to bring significant economic benefits to American consumers.

Evidence suggests that the FTC’s case is strong. In the past, Qualcomm has faced numerous regulatory penalties and lawsuits by tech companies and governments all over the world alleging anticompetitive tactics to boost its profits and maintain its monopoly position.

Last year, Qualcomm paid a $940 million settlement with BlackBerry in a dispute over excessive licensing fees, and this year the European Union imposed $1.2 billion in fines for illegally stifling competition.

Judge Lucy Koh, the same judge overseeing the FTC’s case, recently certified an estimated class of 240 million individuals who bought cell phones in the U.S. at allegedly inflated prices due to Qualcomm’s chip licensing policies.

These consumers are making essentially the same antitrust argument against Qualcomm as the FTC. In her judicial order, Judge Koh wrote, “ … The extensive documentary evidence suggests that Qualcomm imposed an industry-wide above-FRAND royalty rate on OEMs [original equipment manufacturers].”

Qualcomm’s attempts to quickly squash the FTC’s case fell flat. In denying Qualcomm’s motion to dismiss in June 2017, Judge Koh noted that the “FTC has adequately alleged that Qualcomm’s conduct violates” federal law.

Now, news reports suggest that the FTC is considering a settlement with Qualcomm, instead of seeing this case through. Judge Koh quickly denied the motion, but the mere fact that the FTC sought to delay adjudication is concerning.

It’s unclear why the FTC is open to a settlement, but there is some evidence that high-ranking FTC officials hold minority views sympathetic to Qualcomm’s position. Or, perhaps Qualcomm’s lobbying efforts in D.C. are paying off and the FTC is feeling pressure to drop the case.

Whatever its motivation, the FTC’s interest in a settlement with Qualcomm is misguided and could hurt both the mobile chip industry and consumers.

The FTC should continue its investigative work and pursue a court ruling on the allegations against Qualcomm. It is unlikely that a settlement would address the likely problems — anticompetitive risks and the exercise of market power — that the FTC should be focused on.

As the App Association, a trade group representing thousands of app developers, noted in a recent letter urging the FTC to continue its lawsuit, a judgment by a federal court “would provide much-needed legal certainty” to all those involved in using standard essential patents.

A court ruling against Qualcomm would send a strong message that its tactics will not be tolerated by the FTC, which has a long record of defending policies to create fairness and nurture competition.

The FCC should stick to its guns. The sooner Judge Koh resolves this case, the better for the industry and consumers.

Steve Pociask is president and CEO of the American Consumer Institute.  Follow us on Twitter.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.