Last year, federal Judge Lucy Koh delivered a monumental victory to the Federal Trade Commission (FTC) against Qualcomm (NASDAQ:QCOM), ordering the company to essentially dismantle broad swaths of its business. The mobile chip giant was to be barred from forcing customers to ink licensing agreements in order to secure chip supply, known as its "no license, no chips" policy. Qualcomm would also have to offer standards-essential patents (SEPs) to rivals on a fair, reasonable, and non-discriminatory (FRAND) basis, as well as let customers renegotiate onerous existing licensing agreements, among other consequences.
Qualcomm appealed, securing an enforcement delay a couple months later with the backing of several government agencies including the Department of Justice, Department of Defense, and Department of Energy. The company has now won that appeal.
Another legal victory for Qualcomm
The U.S. Court of Appeals for the 9th Circuit this week sided with Qualcomm, reversing Koh's decision from last year. It's not an exaggeration to say that billions of dollars of licensing revenue were at stake, so Qualcomm shares naturally jumped on the news. Customers would have likely been able to secure considerable concessions if they were allowed to renegotiate their deals.
Qualcomm has long maintained that its licensing model helps the global smartphone industry by centralizing the research and development of critical cellular technologies, creating efficiencies that permeate the rest of the sector and are ultimately passed along to consumers in the form of lower prices. Critics argued that Qualcomm has an illegal monopoly and charges exorbitant fees, resulting in higher prices.
"I have been and continue to be critical of certain aspects of Qualcomm's business model, particularly the chipmaker's refusal to grant exhaustive SEP licenses at the component level," writes Florian Mueller at FOSS Patents.
The FTC had initially filed its anticompetitive complaint against Qualcomm in early 2017, mere days before Apple filed a separate lawsuit against its supplier that included many of the same allegations. The Mac maker ended up settling with Qualcomm last year, mostly out of desperation to get its hands on a competitive 5G modem.
Qualcomm has a long history of battling with antitrust regulators all around the world and has largely been able to settle those legal disputes with monetary fines and various forms of concessions without having to fundamentally alter its licensing model too much. Koh's ruling last year was arguably the most serious threat yet, but Qualcomm has again emerged victorious.
The appeals court argued that Qualcomm's dominant market position is the result of strong competition over many years. It noted that the burden was on the FTC to prove that Qualcomm had crossed a line into illegal anticompetitive behavior. "We conclude that the FTC has not met its burden," the panel wrote.