United States: Qualcomm's Antitrust War And The Patent Licensing Issues

The antitrust war Qualcomm is now defending on three continents against government regulators as well as Apple and its iPhone manufacturers, Compal, Foxconn, Pegatron, and Wistron, is fascinating on so many levels.  On the international political plane, Qualcomm continues to portray itself as the poster child for Trumpian complaints that American companies are the victims of unfair treatment by governments in Asia and Europe.  In Washington, the case against Qualcomm is the ping-pong ball in the short-staffed Federal Trade Commission's one Democrat vs. one Republican (there are an unprecedented three vacancies on the five-member Commission) doctrinal battle over how aggressively to apply antitrust law to owners of standard-essential patents (SEPs), with acting chairwoman Maureen Ohlhausen using her defense of Qualcomm as a plank in her campaign platform as she seeks to be designated by President Trump to take the chair on a permanent basis.

Even at ground level, where American courts in San Diego and San Jose are now being called on to apply the law laid out in prior court decisions to the particular facts of the smartphone chip market, the multipronged attack on Qualcomm's patent licensing practices offers an unusually rich platter of meaty issues to feast upon for those who advise patent licensors and licensees.  Leaving aside the implications for the smartphone industry and the market for cellular baseband processors that Qualcomm now dominates, the new precedents that will be set in court—if the parties don't settle or a Republican-controlled FTC doesn't withdraw its case—will have broad and deep implications for patent owners and users—much as the US v. Microsoft case has had since it was decided almost two decades ago.

Here's a rundown of the most prominent issues as they are currently presented.  As in any hard-fought, high-stakes case, the parties may decide to shift their ground as the case progresses, facts emerge and the judges make preliminary rulings. Already the decision by Judge Koh back in June to deny Qualcomm's motion to dismiss the FTC's case and the September 7 decisions by Judge Curiel to deny Qualcomm's motions to bar Apple from pursuing its parallel cases in the UK, Taiwan, China, and Japan and to force Apple's manufacturers to resume paying license fees while the case continues have had foreboding messages for Qualcomm about where these cases might be heading.

Refusal to license competitors

Ordinarily a patent owner is free not to license its competitors.  But when Qualcomm signed on to be part of the cellular communications standard-setting process through organizations (SSOs) such as the European Telecommunication Standards Institute (ETSI), the Telecommunications Industry Association (TIA), and the Alliance for Telecommunications Industry Solutions (ATIS), and then declared certain of its patents "essential" to some of the SSO-adopted cellular standards—including the Universal Mobile Telecommunications System (UMTS), Code Division Multiple Access (CDMA), and Long-Term Evolution (LTE)—for 2G, 3G and 4G smartphones, it agreed to license those patents on reasonable and non-discriminatory ("RAND"—sometimes with "fair" thrown in it's called "FRAND") terms.  Now, the FTC is attacking Qualcomm for refusing to license competing chip manufacturers, instead licensing only chip purchasers.  Judge Koh ruled in June, in denying Qualcomm's motion to dismiss the complaint, that the FTC had stated a plausible theory that Qualcomm's policy was an antitrust violation if it could be proved.  And so the case goes forward.  A final ruling mandating that Qualcomm change its policy could shake up the cellular baseband processor manufacturing industry and perhaps lead to entry by new competitors.  It would also clarify whether a RAND commitment carries a duty to deal with competitors and not just users of the patented product.  For antitrust fans, Judge Koh's preliminary decision was interesting because it relied on a famous three-decades-old Supreme Court decision in the Aspen Skiing case.  That decision held that the owner of three ski mountains in Aspen had a duty to cooperate with the owner of the fourth mountain to continue selling all-mountain ski lift tickets.  It is considered by many to be the high-water mark in the law of monopolization, and its scope has been narrowed by later decisions.  A decision that a RAND commitment automatically puts an owner of one or more standard essential patents into Aspen Skiing territory, required to license competitors, could easily find its way to the Supreme Court.

No license-no chips

Under the patent "exhaustion" doctrine, once you buy a patented product you are free to use it and re-sell it as you see fit, without further permission (license) of the patent owner:  the first sale "exhausts" the patent.  Qualcomm allegedly skirts this rule by refusing to sell its chips to anyone who won't also buy a package license to a large slew of its patents, which Qualcomm argues are needed to make a smartphone in addition to the patents covering the chips themselves.  The FTC argues that this tying of the license package to the chips has the effect of diminishing demand for competitors' chips.  The theory is that Qualcomm is skewing the overall price toward the license and away from the chips:  once the supposedly elevated price for the license is paid, regardless of whether a Qualcomm or Qualcomm competitor processor is used, you might as well buy Qualcomm's chips (which Qualcomm can sell at a lower price than it otherwise would, thereby squeezing the profit margins of competing chip manufacturers).  The number of competitors in this corner of the semiconductor industry has declined over the years.  Whether a defeat or retreat by Qualcomm on this policy would induce new firms to enter the market is a key question.  From the public's point of view, the possibility of new competition in this market is perhaps the most important gain that could come from this litigation.

Portfolio licensing

In earlier times, it was considered suspect under antitrust law for a patent owner to license its patents in a bundle, rather than patent by patent. In fact, compelled "tying" was per se illegal.   By now, the law is clear that there can be strong efficiency advantages to portfolio licensing, and so there is no longer a presumption against bundled licenses.   For instance, it may not be clear which patents are actually infringed by a given product, and a package license permits the parties to avoid complex royalty calculations and expensive litigation by setting one price that covers the licensees' products regardless of whether they implicate one patent or many.  Today, the law generally accepts that these benefits make portfolio licensing procompetitive and safe from antitrust attack—at least when the patent owner also offers to license the individual patents à la carte as an alternative.  Now, however, Apple is faulting Qualcomm for allegedly refusing to license particular patents and insisting that licensees must pay for the entire portfolio for a royalty computed as a percentage of revenue the licensee derives from the licensed product.  Until now, one effect of this practice has been to disincentivize manufacturers from attacking individual Qualcomm patents: since the user likely needed at least one of Qualcomm's patents, and the fee was the same if the product infringed one patent or many; there was nothing gained by picking at parts of the Qualcomm portfolio.

Qualcomm's patents

It is generally acknowledged that Qualcomm's inventions are key pillars of the smartphone revolution. Qualcomm has declared thousands of its patents to be essential to the 2G, 3G and 4G standards.  Since, as noted above, cell phone purveyors commonly obtain portfolio licenses to use any or all of the Qualcomm patents—and pay for them as a percentage of revenue regardless of how many patents their devices actually employ—the cell phone manufacturers have not had a strong incentive to question particular patents within the formidable portfolio. Now Apple has decided to pick apart Qualcomm's bundle by asking the court for declarations that certain Qualcomm patents are not in fact implicated by Apple products at all.  The attack only asks for scrutiny of 15 patents out of thousands, so this attack by itself apparently does not threaten the Qualcomm empire; it is one more weapon against which Qualcomm has to mount a defense.

Computing RAND fees

One very fair way to look at Apple's beef with Qualcomm is that it really is just a price negotiation being conducted by other means.  Apple says that it has been attempting to obtain a license directly from Qualcomm for years, but that they've never been able to arrive at an agreed price: instead Qualcomm has been licensing Apple's contract manufacturers.  In its complaint, Apple argues that Qualcomm's prices violate its RAND commitment because they are not "reasonable" (the "R" in RAND).

One proof that Qualcomm's license prices are not reasonable at 5% of revenue, according to the FTC, is that the 5% rate has remained the same over the years even while Qualcomm's relative share of SEPs reading on the iPhone has declined as we moved from 2G to 3G to 4G standards and more and more features unrelated to Qualcomm's inventions were added to smartphones.  The FTC makes this simple-sounding argument:  if Qualcomm deserved 5% of revenue when its patents made up a high share of the declared essential patents to make a 2G phone, how can it still be reasonable to charge 5% of revenue for a 4G phone that has so many additional features and capabilities such that Qualcomm's share of the essential patents is only 13% of the whole?  Of course patents are not fungible—by definition each one is original—so they can't be valued by the pound and simply counting the number of patents, as opposed to considering their relative commercial or practical importance, seemingly should not be the litmus test.  Contrariwise, one might ask, is it logical to say that the right to use one patent is more valuable than another if both are "essential"?  Yet, by the same token, 5% of a $600 product that could do a, b, and c is different from 5% of a $1000 product that can do a, b, c, d, e, and f where the licensor's technology only enabled a, b, and c.  Whether this is a true antitrust question and not just a contract dispute about enforcing the promise to charge RAND, who decides whether a price is "reasonable", and by what methods, are all up in the air.  There are very few precedents in which a court decided a RAND price—including the decision in the Microsoft v. Motorola case, which was treated as a contract dispute—but the law is far from settled and the facts and expert testimony could take us almost anywhere in this case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.