SAN JOSE, California--Qualcomm Inc illegally suppressed competition in the market for smartphone chips by threatening to cut off supplies and extracting excessive licensing fees, a U.S. judge ruled, a decision that could force the company to overhaul its business practices.
The decision issued late Tuesday night by U.S. District Judge Lucy Koh in San Jose, California, caused Qualcomm shares to plunge 11 percent on Wednesday. "Qualcomm's licensing practices have strangled competition" in parts of the chip market for years, harming rivals, smartphone makers, and consumers, Koh wrote in a 233-page decision.
She ordered the San Diego-based company to renegotiate licensing agreements at reasonable prices, without threatening to cut off supplies, and ordered that it be monitored for seven years to ensure its compliance.
Qualcomm said it will immediately ask Koh to put her decision on hold, and also seek a quick appeal to the federal appeals court in California. "We strongly disagree with the judge's conclusions, her interpretation of the facts and her application of the law," general counsel Don Rosenberg said in a statement.
Koh's decision followed a 10-day non-jury trial in January, and is a victory for the U.S. Federal Trade Commission, which has accused Qualcomm in 2017 of violating antitrust law. The decision followed Qualcomm's April 16 settlement of a long-running legal battle with Apple Inc, where Apple agreed once again to use Qualcomm chips in its iPhones, displacing Intel Corp.
It is unclear whether the sanctions will be challenged by the U.S. Department of Justice, which has taken a different view of the case than the FTC and emerged as an ally to Qualcomm. On May 2, the Justice Department argued Koh should hold a hearing before placing sanctions on Qualcomm. Placing stringent conditions on the company would "reduce competition and innovation in markets for 5G technology," the agency said.
The courts are not required to defer to the Justice Department's recommendations. But "the possibility certainly exists for Qualcomm to prevail upon appeal," given the government's "somewhat schizophrenic" approach to the case, Bernstein analyst Stacy Rasgon wrote.
The Justice Department was not immediately available for comment on Wednesday.
Qualcomm shares have risen about 51% since the company's settlement with Apple last month. The fall on Wednesday left them still comfortably above their level before the Apple deal.
Koh said Qualcomm engaged in "extensive" anticompetitive conduct targeting more than one dozen original equipment manufacturers including Apple, BlackBerry, Huawei, Lenovo, LG, Motorola, Samsung, and Sony, often by cutting off or threatening to cut off chip supplies or withholding technical support.
She also said Qualcomm's monopoly power in modem chips enabled the company to sustain "unreasonably high" royalty rates not justified by its contributions to the marketplace. "With practices that result in exclusivity and eliminate opportunities to compete for OEM business, Qualcomm undermines rivals in every facet," she wrote.
She also found Qualcomm knew its licensing practices harmed competition "yet continued anyway" despite government investigations in China, Japan, Korea, Taiwan, the European Union and the United States.
