The Federal Trade Commission has filed suit against Qualcomm, alleging that the company exploited its position as the dominant provider of baseband radios for LTE devices. In its brief, the FTC argues that Qualcomm used its position to extort higher royalties from smartphone manufacturers. The FTC asserts that Qualcomm enforces a “No license, no chips,” policy in which it will not sell parts to a cell phone manufacturer unless the manufacturer agrees to its patent and licensing terms. The terms of these licenses apparently include substantially elevated license rates on chips manufactured by Qualcomm competitors, which amounts to an unfair tax to any company that wants to build a smartphone with a non-Qualcomm processor.
Qualcomm is also under investigation for refusing to license standards-essential patents to its competitors. It has long been recognized in patent law that organizations can benefit from creating a standard implementation for a technology or capability that everyone can take advantage of. 2G, 3G, HSDPA+, 4G, LTE — all of these technologies are implemented according to specific standards. When companies contribute IP to the formation of a standard, they are typically required to obey what are known as Fair, Reasonable, and Nondiscriminatory rules (FRAND):
Fair – terms are not anticompetitive and would not be considered unlawful if imposed by a dominant firm in its relative market.
Reasonable – the licensing rate for the patents themselves will not result in dramatic cost increases or make the industry uncompetitive. The licensing rate would not be unreasonable if all firms were charged the same rate.
Nondiscriminatory: Licensees are treated equally. Rates are allowed to vary based on external factors like order volume, length of contract, or the creditworthiness of the licensee. Whatever the variations are, however, all licensees must be treated equally.
