Qualcomm Inc’s lucrative patent licensing business lives on, after a court rejected a requirement that the company renegotiates billions of dollars worth of agreements with smartphone makers.
The chipmaker on Tuesday won a major victory in a US federal appeals court, which ruled that a judge was wrong to side with the US Federal Trade Commission (FTC) last year in finding that Qualcomm had violated anti-trust law.
The appeals court also vacated an order that the company redoes licensing accords with smartphone makers like Apple Inc and Samsung Electronics Co. Such licenses last year generated US$4.6 billion in revenue for Qualcomm.
“The court’s ruling is disappointing and we will be considering our options,” FTC Bureau of Competition Director Ian Conner said in a statement.
The case will not return to the trial judge, but the FTC can ask that it be reconsidered by the full appeals court.
If Tuesday’s ruling stands, it would represent the end of years of legal and regulatory entanglements for the company.
Qualcomm last month announced that China’s Huawei Technologies Co (華為) had signed a licensing deal and paid up on withheld patent fees. That agreement has brought Huawei, the last major holdout, into the list of Qualcomm’s customers.
“The court of appeals unanimous reversal, entirely vacating the district court decision, validates our business model and patent licensing program and underscores the tremendous contributions that Qualcomm has made to the industry,” Qualcomm executive vice president and general counsel Don Rosenberg said in an e-mail.
Qualcomm is the largest maker of chips that run the computer functions in smartphones and connect them to cellular networks. That business provides it with the bulk of its revenue.
The majority of profit comes from licensing patents that underpin how all modern phone systems work. It charges fees that are calculated as a percentage of the selling price of handsets and paid by the phone makers.
In May last year, US District Judge Lucy Koh in San Jose, California, ruled that the company was charging phone makers “unreasonably high” licensing fees and thwarting competition.
She ordered the chipmaker to negotiate licensing agreements with customers “in good faith” and without threatening to cut off access to its products.
Koh’s order was put on hold pending appeal.
Qualcomm argued on appeal that its licensing business benefits the whole industry by speeding up improvements to smartphones and the services they support.
The company emphasized that it does not stop rival chipmakers from accessing its technology. Instead, fees are charged to phone makers who pay a percentage of the selling price of each handset.
In a rare split among antitrust regulators, the US Department of Justice lined up with Qualcomm against the FTC, arguing that Koh’s ruling could undermine US leadership in technologies including 5G wireless networks.
The appeals court said in its 56-page ruling that Koh “went beyond the scope” of antitrust law.
Qualcomm’s “no license, no chips” policy does “not impose an anti-competitive surcharge on rivals’ modem chip sales,” nor does it undermine competition in the market, it said.
While the justice department’s arguments that Qualcomm is critical to US supremacy in 5G were not mentioned in the opinion, the court noted Qualcomm’s “significant contributions to the technological innovations underlying modern cellular systems.”
Qualcomm has argued that the regulatory actions against it around the world — including in Taiwan and South Korea — were initiated at the urging of customers who were seeking an advantage in contract negotiations or to avoid paying for its inventions.
Those customers are now licensees, it said.
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