Qualcomm “strangled competition” in the lucrative market for smartphone modems to command “unreasonably high royalty rates” for its intellectual property, a judge in California has ruled, in a decision that reopens longstanding complaints over the chipmaker’s business model.

Tuesday’s decision came little more than a month after the San Diego-based company settled a multibillion-dollar lawsuit with Apple over complaints of anti-competitive behaviour. Qualcomm’s stock was down by as much as 12 per cent in pre-market trading in New York on Wednesday. 

Judge Lucy Koh in San Jose ruled in favour of the US Federal Trade Commission, which brought the antitrust case in January 2017, and ordered sweeping changes to the way Qualcomm sells its chips to the likes of Apple and Samsung, and to how it licenses its patent portfolio to rivals such as Intel. 

“Qualcomm has used its monopoly power . . . to engage in a wide variety of anticompetitive acts against [manufacturers],” Ms Koh wrote. “The evidence demonstrates that Qualcomm’s anticompetitive conduct is ongoing.” 

The FTC case set off a string of legal challenges against the chipmaker that many investors had hoped were now close to resolution, following a settlement with Apple last month.

But in an unusual intervention earlier this month ahead of the ruling, the US Department of Justice warned that an “overly broad remedy” in the case “has the distinct potential to harm rather than help competition”. 

Qualcomm’s dominance in the supply of modem chips that underpin smartphone connectivity meant that even large manufacturers such as Samsung were forced to agree unfairly high royalty rates, the judge said. “Qualcomm’s ability to charge monopoly prices on premium LTE modem chips over an extended period also shows that competitors were not able to quickly increase output,” she added. 

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“In combination, Qualcomm’s licensing practices have strangled competition in the CDMA and premium LTE modem chip markets for years, and harmed rivals, OEMs [original equipment manufacturers] and end consumers in the process,” Ms Koh wrote, making them an “unreasonable restraint of trade”, in breach of the US Sherman act.

The judge ordered Qualcomm to renegotiate its current licensing agreements and to license its patents to rival chipmakers at fair prices. She also ordered Qualcomm to submit to monitoring for the next seven years to ensure it abides by the remedies.

The ruling comes as President Donald Trump seeks to position Qualcomm as a national champion, forming a vital bulwark against China’s Huawei in the transition to next-generation 5G mobile networks. 

The White House sees 5G — a new networking standard, in the development of which Qualcomm has played a central role — as a core component of US national security. The Trump administration has pushed other countries to keep Huawei’s equipment out of their mobile infrastructure.

Qualcomm did not immediately respond to a request for comment on the ruling. 

Via Financial Times