Qualcomm down 10% premarket as chip maker found to violate antitrust law
Qualcomm Inc. unlawfully suppressed competition in the market for cellphone chips and used its dominant position to exact excessive licensing fees, a federal judge ruled in a decision that could challenge the company’s business model and shake up the smartphone industry.
The decision by U.S. District Judge Lucy Koh in San Jose, made public late Tuesday night, sided with the Federal Trade Commission, which brought an antitrust lawsuit against Qualcomm QCOM, +1.47% in January 2017. The ruling comes one month after Qualcomm struck a settlement in a separate but similar lawsuit brought by Apple Inc., which agreed to continue paying licensing fees.
Judge Koh found that Qualcomm violated antitrust law, charging unreasonably high royalties for its patents and eliminating rivals. She challenged its practice of collecting billions of dollars by charging royalties on a percentage of a smartphone’s price. “Qualcomm’s licensing practices have strangled competition” in key parts of the modem chip market for years, “and harmed rivals, OEMs, and end consumers in the process,” the judge wrote. She added that the company’s lead in developing modem chips for smartphones using 5G, the new generation of cellular technology, made it likely that behavior would continue.
The judge ordered that Qualcomm negotiate or renegotiate licensing agreements with customers free of unfair tactics, such as threatening to cut off access to its chips. Qualcomm also must license its patents to rival chip makers at fair and reasonable prices, and can’t sign exclusive supply agreements with smartphone makers like Apple AAPL, +1.63% that block rivals from selling chips into devices.
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