The case is all set to have a major impact on the smartphone industry. If the government prevails in the 10-day, non-jury trial before US District Judge Lucy Koh, in San Jose, California, Qualcomm could be forced to change its practices for licensing a trove of patents to manufacturers like Apple Inc.
Apple will be closely monitoring the FTC case, as it has its own pending lawsuit which has made similar claims against Qualcomm.
The outcome will surely have a major impact on any settlement discussions between Apple and Qualcom, stated Canaccord Genuity analyst T.Michael Walkley in a research note.
While it is well-known as a maker of smartphone chips, Qualcomm has derived most of its profits licensing patents to other companies.
The FTC’s 2017 lawsuit has alleged that San Diego-based Qualcomm maintains an anticompetitive “no license, no chips” policy under which it only supplied processors to phone manufacturers if they agree to inflated patent licensing terms.
Jennifer Milici, an attorney for the Federal Trade Commission, stated during opening arguments: “ Qualcomm says you will pay our rates if you want our chips.”
“The only way to arrive at a market rate [for Qualcomm’s patents] is to negotiate without that threat.” She added.
The agency also stated that Qualcomm pushed Apple into an anticompetitive deal in which the iPhone manufacturer received financial rebates in exchange for only buying Qualcomm’s chips, undermining competition from Intel.
On the other hand, Qualcomm has argued that it achieved market dominance through technical leadership, and its patent licensing rates were reasonable in light of its groundbreaking research and development.
The FTC “seeks to enjoin legitimate, procompetitive business practices that facilitated the growth of a phenomenally successful industry that bears all the hallmarks of healthy and vigorous competition,” Qualcomm stated in a December 31 court filing.
Qualcomm’s business practices have also been investigated by regulators in South Korea, China, Taiwan, and Europe. Qualcomm has accused Apple of driving those regulatory actions.
European antitrust officials hit Qualcomm with a $1.14bn fine in January 2018, saying the firm unlawfully paid billions of dollars to Apple so it would not buy from rivals. Qualcomm has appealed the determination.
Apple and Qualcomm are also locked in a global legal dispute. After Apple brought its antitrust case, Qualcomm responded by accusing Apple of using patented technology without authorization.
Qualcomm won rulings limiting iPhone sales in Germany and China in December.