Qualcomm’s legal problems are growing. This afternoon the United States Federal Trade Commission, which has been investigating Qualcomm for possible anti-trust issues since 2014, has moved on to the next stage in their investigating by formally charging the company with multiple antitrust violations. This is the latest in a series of moves from national regulatory authorities, which has seen China, South Korea, and the European Union all fine, settle with, or investigate the company.

As with the cases against Qualcomm in other nations, much of FTC’s suit sounds similar: that Qualcomm refused to follow FRAND practices on its patents, and that it used its leverage to force device manufacturers to use its modems by making competing modems more expensive via royalties. Furthermore the FTC also alleges that Qualcomm worked to prevent the adoption of competing (non-LTE) technologies altogether.

The FTC summarizes their key points as follows:

  1. [Qualcomm] Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.
  2. Refuses to license standard-essential patents to competitors. Despite its commitment to license standard-essential patents on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.
  3. Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.

Points 1 and 2 are fairly straightforward. If Qualcomm was not licensing their patents out at all, or not licensing them under FRAND terms, then that would allow the company to discourage the use of competing modems, either via royalties or the risk of a lawsuit for violating their patents. Qualcomm holds a number of standards-essential patents for both CDMA and LTE, with both network technologies seeing heavy use in the roughly decade-long time period the complaint covers.

Similarly, once device vendors agree to use Qualcomm’s chips, Qualcomm is also accused of forcing them to accept the company’s patent licensing terms, which according to the FTC is not a standard industry practice. The end result being that device vendors would be locked into paying higher patent royalties.

But perhaps the most interesting – and certainly most novel – aspect of the FTC’s complaint is specifically the company’s agreement with Apple. In their complaint, the FTC alleges that Qualcomm forged a deal with Apple specifically to prevent competitors (e.g. Intel) from getting a foothold in the market and eroding Qualcomm’s dominance. This aspect of the FTC’s complaint also extends to competing technologies, with the FTC further accusing Qualcomm of forging agreements with Apple in part to prevent the adoption of WiMax, which is now a failed standard that was overtaken by the more Qualcomm patent-heavy LTE.

Ultimately in filing this complaint, the FTC is looking to force Qualcomm to halt what the commission sees as anticompetitive actions and to ensure a competitive market for cellular modems/basebands. It’s worth noting that as this is just the initial complaint, unless the FTC and Qualcomm were to settle early, this likely will be a multi-year legal battle just to prove or disprove the FTC’s complaints (and that doesn’t include any potential remedies/fines). At the same time, LTE is now well-entrenched and 5G technology is under development, so the market won’t be standing still one way or another while this case is going on.

Finally, in response to the FTC’s complaint, Qualcomm has issued their own press release denying the allegations against them. Along with refuting the FCC’s claim that they withheld chips, the company is also voicing their disagreement at the FTC’s underlying legal theory and what they see as a lack of evidence. The company is also questioning the timing of the suit, noting that it comes days before the new presidential administration takes power, insinuating that the suit was filed now to get the case started before the new administration (and its appointed FTC members) took control.

Source: United States FTC

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  • BrokenCrayons - Wednesday, January 18, 2017 - link

    If reverse engineering a binary blob is easily reverse engineered by a modest team, then wouldn't those same teams quickly discover any backdoors in the course of their work?

    I dont' think that backdoors are as commonplace as you're making them out to be and that binary blobs are as trivial to reverse engineer as you're implying. Nefarious backdoors would be getting a lot more attention if that were the case.
  • ddriver - Wednesday, January 18, 2017 - link

    They are rarely deliberately obvious. There are numerous ways to implement backdoors via deliberate flaws, which are not that easy to discover, and really only useful for the people who put them there in the first place.

    This is also why it is more complicated to discover them by reverse engineering. Plus they are not always direct exploits, they tend to be implemented as cascades between several "flaws" in a particular sequence and with particular data.

    There is the big difference between simply breaking the code and crashing the executable, and breaking it in a way that opens a functional backdoor while retaining stable operation.

    It is much easier to reverse engineer the actual algorithms and such, because they constitute direct intent. Naturally, such backdoors can be so complex that they can just as well be hidden in plain view, and implemented in open source as well. Thus I did not say open source is a guarantee for the lack of backdoors, just that binary blobs make much more sense to hide nefarious intent better than to hide intellectual property.
  • coburn_c - Tuesday, January 17, 2017 - link

    Sounds like Qualcomm didn't pay someone off like they were told to. Good for them.
  • beginner99 - Wednesday, January 18, 2017 - link

    At that will come out of this is that it was totally worth it for QC to do this. The fine will be lower than the profits and the company is too large to give it a fine that will actually hurt it so that people lose jobs.

    The fine should be much more subtle. Jail for top-managers. No control over your company? Well your fault. In reality they all knew exactly what they were doing. If you fuck with patent and licensing law, all affected and related patents run out immediately.

    You have to hit them where it hurts and cash isn't it. Top-managers will walk away from this once again with 0 damage taken. That's were you need to apply the lever. If you can't be penalized there is no reason you should not try illegal stuff.

    Same with VW. They had record sales this year...
  • Murloc - Wednesday, January 18, 2017 - link

    well they did arrest VW managers in the US and VW has advised their employees not to travel to the US.
  • jjj - Wednesday, January 18, 2017 - link

    It's much worse than that.More from the FTC:
    a. Qualcomm's royalties are disproportionately high relative to the value contributed by its patented inventions, and often are several times higher than the royalties of other SEP licensors that have made similar technical contributions;
    b. Qualcomm has continued to calculate royalties as a percentage of a handset's price, even though handsets today offer a number of features—including cameras, high-resolution touch-screen displays, powerful applications and graphics processors—other than cellular connectivity;
    c. Qualcomm's standard royalty rate has not fallen, even though many of Qualcomm's patents related to CDMA technology have expired

    The Korea regulator's accusation (PDF warning) goo.gl/1vWq3Z

    Not sure why nobody in the press has ever tried to explain the practice properly. Every phone we buy costs a few extra % because of Qualcomm's outrageous practices.

    Just refusing to license standard essential patents to other chip makers is well beyond outrageous. And the amount of undeserved profits are staggering.
  • Oxford Guy - Wednesday, January 18, 2017 - link

    Qualcomm's guy was just on NPR yesterday bragging about how it's practically impossible for anyone to touch a mobile device and such and not end up dealing with one of their chips.

    The irony.
  • JoeyJoJo123 - Wednesday, January 18, 2017 - link

    And this would be the third government body that sues Qualcomm (after Korea and the EU) for its corporate practices. Sue these dirtbags into the ground and destroy the company, for all I care.
  • Ariknowsbest - Thursday, January 19, 2017 - link

    The state the baseband market is today is mostly due to market consolidation and technological advances. In the era of 3G my devices used various baseband units from TI, Icera,  infineon, ST-Ericsson, and Qualcomm in the transion between 3G (WCDMA/HSPA+) and 4G (LTE). I switched to 4G in late 2010, the modem actually had a Samsung baseband. Between 2011-2016 I have only owned Snapdragon or Gobi based devices from various manufacturers. Late 2016 I got an Honor 8 with their in-house baseband and haven't noticed any any changes compared to SD808 performance, speeds are the same.

    Before when devices used 1000s of components there was room for more players, but when more and more features are integrated on the SoC and other chips. Its natural that a handful of companies take become victorious. Baseband chips are rather capital intensive, R&D, licensing, cutting edge fab technologies, reference and validation cost. Most baseband vendors license IP packages from companies like Ceva, while Qualcomm have their own dsp for example, and on top a leading patentportfolio. Other vendors were slow to integrate the baseband on their SoC and the market for discrete modems were in decline.

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