03-09-2020 | | By Sam Brown
Recently Qualcomm announced their successful appeal whereby the FTC concluded that Qualcomm had violated anti-trust laws. What did Qualcomm do, what factors went into the appeal, and why are carmakers unhappy with the appeal?
Qualcomm is one of the world’s largest developers and manufacturers of mobile chips and employs over 37,000 globally. Recently, an investigation led by the Federal Trade Commission concluded that Qualcomm had violated antitrust laws and that Qualcomm would have to change its commercial practice. To put it simply, Qualcomm not only produce silicon mobile devices, but they also hold patents surrounding cellular technology, and the global standards for 3G incorporate Qualcomm patents. Instead of using the patent rights to retain manufacturing capabilities, Qualcomm also enforces a royalty policy on companies that integrate their devices into products. This means that manufacturers are not only charged for purchasing the chip itself; they are then charged again for the intellectual property in the chip. Since Qualcomm own patent rights over CDMA2000, TD-SCDMA, and WCDMA, they are in a powerful position to effectively force companies into paying the royalties. Thus, the FTC believed that Qualcomm is acting in anti-competitive practices as no other company can integrate the critical technologies needed for cellular systems without Qualcomm’s say so.
Feeling that the ruling by the FTC was unfair, Qualcomm appealed to the Ninth Circuit Court to overturn the decision. After one year of consideration, the court found in favour of Qualcomm and stated that its practices were hypercompetitive instead of being anti-competitive. Why exactly the court came to this decision is not entirely clear. Still, there has been speculation that it relates to the widespread ban on Chinese equipment in future cellular infrastructure. Since Qualcomm is one of the few western major players in 5G technology, financially attacking the company could result in technological stagnation.
Qualcomm’s victory has sent shockwaves through the tech world, and some have not been happy with the outcome. A group of carmakers, including Tesla, Ford, and Daimler, along with several tech firms including Intel and MediaTek, have banded together to pressure the FTC to challenge the appeal. The next generation of cars and tech will most likely be reliant on 5G cellular networks (self-driving cars, cross-communication, etc.), and Qualcomm’s use of royalties will dissuade companies from developing such products. Not only do the firms and the FTC jointly believe that Qualcomm is guilty of anti-competitive practices, some believe that the Ninth Circuit Court of Appeals have misunderstood what antitrust laws are. However, according to Prof Mark Lemley, director of the Stanford Program in Law, stated that if the firms want to sue Qualcomm, then they would have to avoid Ninth Circuit courts which cover the western coast of the US.
The real culprit of this situation is patent law and how it works. The goal of a patent is to provide the patent holder with the right to capitalism on inventions and provides a window of time for them to prototype, produce, and sell their invention. The same patent also prevents any other individual from producing the same describe method or product until the patent expires, or if the original patent holder decides to license the patent out. However, while patents provide an incentive for research and development into new products, they can also hold the industry back, and thus stifle technological development. One classic example is the 3D printing industry; 3D printing has been around for the better part of 40 years, but key patents with long expiration dates prevented the technology from being developed. The net result was 3D printing technology remaining expensive and undeveloped for many years. Now that the patents have expired, 3D printing technology is increasingly becoming cheaper and more developed.
In the case of cellular technologies, patenting aspects of a standard are arguably very bad for innovation. Unlike phones, printers, or cars, wireless standards touch most aspects of technology, and such systems need to be unified globally (in a similar way to the IBM standard that allowed hardware and software to be movable to different machines). When a global standard incorporates patented technologies, the result is an industry that is difficult to enter, expensive to develop, and will see patent holders take advantage of their position.