The Senate Democrats' stonewalling of President Trump's appointments has resulted in a Federal Trade Commission (FTC) lawsuit against Qualcomm going forward.
On January 17 — only a few days before President Obama left office — the FTC, in a 2-1 vote, filed a lawsuit against Qualcomm alleging that they violated the FTC Act in their efforts to maintain their status as "the world’s dominant supplier of baseband processors." The lawsuit alleged that Qualcomm:
- Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.
- Refuses to license standard-essential patents to competitors. Despite its commitment to license standard-essential patents on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.
- Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.
Some of Qualcomm's competitors joined in the FTC's lawsuit, and Apple, which was mentioned in the FTC lawsuit as being forced to remain exclusive to Qualcomm in order to keep their patent fees low, followed with a lawsuit of their own.
Republican Maureen Ohlhausen, the sole dissenting vote at the time, excoriated the FTC lawsuit in a dissenting statement for being weak on evidence:
It alleges that Qualcomm’s practices disrupt license challenges and bargaining in the shadow of law, and that the ensuing royalties are “elevated.” But the complaint fails to allege that Qualcomm charges more than a reasonable royalty. That pleading failure is no accident; it speaks to the dearth of evidence in this case. Although the complaint frames its price-squeeze claim as a “tax”, it overlooks the fact that reasonable royalties are not an exclusionary tax, even if paid by competitors. And it includes no allegation of below cost pricing (presumably of chipsets) by Qualcomm, even if one infers an antitrust duty to deal with chipset manufacturers.
I have been presented with no robust economic evidence of exclusion and anticompetitive effects, either as to the complaint’s core “taxation” theory or to associated allegations like exclusive dealing. What I have been presented with is simply a possibility theorem.
Ohlhausen is now the acting chair of the FTC, which is now comprised of her and Terrell McSweeney, a Democrat. There are currently three seats on the FTC that have remained vacant because the Senate Democrats are stalling Trump's appointments to the executive branch. Without a Republican majority on the FTC, the lawsuit against Qualcomm will continue.
It's worth noting that Apple has ties to Democrats: Apple CEO Tim Cook hosted a fundraiser for Hillary Clinton, head lobbyist Catherine Novelli served in Obama's State Department, and former Obama Environmental Protection Agency administrator Lisa Jackson is currently working for Apple as a public policy advocate.