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Apple Concedes That Qualcomm Was the Only 4G-Ready Chip Source

Kartikay Mehrotra and Ian King
Apple Concedes That Qualcomm Was the Only 4G-Ready Chip Source

(Bloomberg) -- Qualcomm Inc. lawyers got Apple Inc. to concede that when the mobile phone industry transitioned to 4G, the iPhone maker didn’t have anywhere else to go for key components.

The admission on Jan. 18 by Matthias Sauer, Apple’s director of cellular systems architecture, is the kind of point Qualcomm will have to score in front of U.S. District Judge Lucy Koh as it continues its defense against antitrust allegations by the U.S. Federal Trade Commission. The government has charged it with using market dominance in smartphone chips to force phone makers to pay inflated patent licensing revenue.

Sauer testified that Apple considered the likes of Ericsson, Broadcom and Intel Corp. as component suppliers for devices as early as the 2012 planning phase for new products, but none could deliver to Apple’s desired specifications. It wasn’t until Apple launched the iPhone 7 in September 2016 that anyone other than Qualcomm supplied chips for an LTE-ready Apple device.

He told the FTC in cross-examination that Apple’s decision to skip Intel as a chip supplier for the 2014 iPad was a business decision, not a technical one, and that the specifications Apple had sought, including carrier aggregation, were ultimately unnecessary for that model.

Market Dominance

Last week, Koh heard various industry representatives support the FTC’s case with examples of Qualcomm’s alleged bullying. They claimed Qualcomm has historically relied on its market dominance to lean on partners to agree to licensing payments when negotiating chip sales. Apple Chief Operating Officer Jeff Williams told the court his former supplier had cut off the iPhone maker, forcing it to give all of that business to Intel.

Qualcomm now has the chance to undermine some of that prosecution testimony against it. In its first full day of defense, Qualcomm argued its leadership in technology led customers to become dependent on it -- not illegal exclusionary practices. The patents it owns -- more than 120,000, with another 35 added every day -- are fundamental to how all phones work. Qualcomm is arguing it should be compensated accordingly. It’s also arguing that since chip competitors have now caught up, its market share has subsided.

The non-jury trial in San Jose federal court begins its ninth day Tuesday. It will continue for three more sessions before closing arguments on Feb. 1.

To contact the reporters on this story: Kartikay Mehrotra in San Francisco at kmehrotra2@bloomberg.net;Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Elizabeth Wollman at ewollman@bloomberg.net, Reed Stevenson

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