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Federal Trade Commission Carries on Lonely Battle With Qualcomm

Susan Decker and Edvard Pettersson

(Bloomberg) -- Putting itself on the opposite side of the Trump administration, the Federal Trade Commission defended its antitrust case against Qualcomm Inc., saying a federal judge was right to rule the chipmaker is abusing its patents.

The FTC urged an appeals court to affirm a ruling that Qualcomm unfairly leveraged the company’s market position to force customers to pay inflated prices for chips and patent royalties. The FTC’s filing was made late Friday in the U.S. Court of Appeals in San Francisco.

“Qualcomm attacks a caricature of the district court’s careful analysis and studiously ignores what transpired at trial,” the FTC said. It argued that “substantial evidence” supports the antitrust findings and said the order to force Qualcomm to renegotiate its licenses was appropriate.

The case puts the independent agency at odds with the Trump administration, which has warned the appeals court that a loss for Qualcomm could undermine America’s technological supremacy and national security. The Justice Department, which splits antitrust enforcement duties with the FTC, said that Qualcomm’s business practices aren’t anti-competitive.

Read More: FTC Says Justice Department Concern for Qualcomm is Misplaced

U.S. District Court Judge Lucy Koh had ruled that Qualcomm’s licensing practices have “strangled” competition and ordered the company to renegotiate its license agreements with phonemakers. The order was put on hold until the appeal is considered.

Qualcomm has more than 140,000 patents that it says “relate to nearly every feature of a cellphone.” It makes more money by selling its chips but gets more profit from collecting patent royalties on every cellphone sold, no matter whose modem chip is used.

Koh had ruled that Qualcomm is required to license its patents on fundamental technology to competitors, that its licenses with handset makers impose a “surcharge” on rival chips and that policies of giving discounts were anti-competitive.

Qualcomm maintains that it would be impractical to license the chipmakers because some of its patents relate only to the handsets, not the chips. It argues that it is entitled to be compensated for the billions of dollars it spends on research and any dispute over royalties is a contract issue, not the basis for an antitrust case.

The agency’s case against Qualcomm began in part with a royalty fight between the chipmaker and Apple Inc. that’s since been settled.

Read More: Trump Administration Stumps for Qualcomm in FTC Monopoly Case

Qualcomm’s contribution to the next generation of technology, known as 5G, has been caught up in the fight with the FTC. The Defense Department and Energy Department joined with the Justice Department in July to argue that Koh’s decision could undermine U.S. leadership in 5G, which they said was vital to military readiness and security of the nation’s energy and nuclear infrastructure.

The FTC said neither Qualcomm nor the Justice Department explained how the judge’s order “threatens national security in any way -- or how those considerations could justify allowing Qualcomm to continue to violate” U.S. antitrust law. The argument is “purely speculative,” the agency said.

The San Francisco appeals court could hear arguments in the case as early as February and is expected to issue a ruling sometime next year.

The case is Federal Trade Commission v Qualcomm Inc., 19-16122, U.S. Court of Appeals for the 9th Circuit (San Francisco).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net;Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editors responsible for this story: Peter Blumberg at pblumberg1@bloomberg.net, ;Jon Morgan at jmorgan97@bloomberg.net, Shamim Adam

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