Why The FTC Is Right To Go After Qualcomm For Manipulating Cell Phone Costs

Posted by The Federalist

Why The FTC Is Right To Go After Qualcomm For Manipulating Cell Phone Costs

By Timothy J. Muris

In a recent opinion article, my friend Geoff Manne claims that the Federal Trade Commission’s case against Qualcomm risks doing “more to undermine intellectual property rights” than any past commission has. I disagree, as the FTC lawsuit (and Apple’s separate case) protects both competition and innovation.

In January 2017, the FTC sued Qualcomm in Federal District Court in San Jose, California. At a trial a year later, the commission argued that the company has used its dominant market position to strong-arm competitors and customers, threatening to cut off the supply of its chips if equipment makers do not agree to its terms, and refusing to honor its contractual obligation to negotiate reasonable prices for its industry-standard chips. While it has not denied engaging in the business practices at issue, Qualcomm has vigorously denied those practices violate antitrust laws. The parties now await a ruling from Judge Lucy Koh.

The trial has exposed mutually reinforcing Qualcomm practices that suppress competition in premium cellular modem chips. By threatening to cut off supply, Qualcomm uses its dominant position to require customers to license patents embodied in the chips. This “no license, no chips” policy raises rivals’ costs and harms consumers.

Qualcomm’s coerced royalties also far exceed the innovative value of its intellectual property. Indeed, Qualcomm extracts more in royalties than do all of the other cellular patent holders combined.

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