Wednesday, January 30, 2019

Qualcomm, 5G in Judge’s Hands

From EE Times, Jan. 29:

A cellular industry in transition awaits San Jose ruling
The fate of Qualcomm’s patent licensing — the most profitable business of one of the world’s top 10 chip vendors — is in the hands of a U.S. District Court judge here. Her ruling could also impact hundreds of licensees that the company holds across a cellular ecosystem in the early days of a transition to 5G.

Sadly, no ruling in the case of the U.S. Federal Trade Commission v. Qualcomm can change a broader reality that the evidence shows. The tech industry’s way of determining the value of a company’s contribution to a fundamental standard is laborious, subjective, and opaque.

The FTC argued that Qualcomm charged for years unfairly high royalties for its CDMA and LTE patents while it held greater-than-90% share in modems and used threats of halting chip shipments to win favorable deals. Qualcomm countered that it repeatedly earned a position as a leader in a booming, dynamic market and sought fair value for its patents without ever stopping chip shipments.
In a 2017 ruling, the FTC persuaded a judge to order a drug company to pay a billion dollars in illegally gained profits. But in this case, the FTC is seeking an injunction to change Qualcomm’s licensing practices.

“The most likely remedy would be an order forcing Qualcomm to drop its ‘no license, no chips’ policy,” said Mark Lemley, a law professor at Stanford who focuses on the tech industry.
The judge could also force Qualcomm to license to rival chipmakers, said Jennifer Rie, an antitrust litigation analyst for Bloomberg Intelligence. Currently, Qualcomm and other patent holders focus licensing efforts on system OEMs because it is the most lucrative and keeps negotiations simple, but the practice leaves chip rivals open to infringement suits.

In addition, the judge could forbid Qualcomm from insisting on cross-licenses as part of its deals. That was one flash point that Apple objected to in its negotiations with the chip vendor.
Although Qualcomm dominated LTE modems for a time, its share has dropped rapidly, 
said an expert testifying for the company. Click to enlarge. (Source: FTC v. Qualcomm)

Any decision against Qualcomm will reverberate through the company and the cellular industry, both at sensitive moments.

Qualcomm ranked seventh in global chip sales last year but next to last in growth among the top 50 at −3%, according to IC Insights. In the wake of losing its bid to merge to with NXP, it shed a billion dollars in costs. The cuts included an effort to expand into processors for cloud systems, which are growing at a faster clip than maturing handsets.

Looking forward, Qualcomm is said to be 12 to 24 months ahead of rivals such as Huawei, Intel, Mediatek, and Samsung in delivering 5G silicon. The initial 5G handsets shipping this year will be powered by its chips, and it has already struck as many as 50 5G patent licenses.
A decision will take at least until next week.

“There’s a tremendous amount of evidence to go through and the law is complex, so although I love to give speedy orders, this will not be as speedy as my usual,” Judge Lucy Koh told attorneys shortly before testimony ended on Friday (Jan. 25).

Indeed, the record includes conflicting reports from top antitrust experts who took issue with each other’s reports, hours of depositions from dozens of OEM and chip executives, many detailed contracts, complete cellular specifications, and volumes of emails to and from all of the parties.
An antitrust expert testifying for Qualcomm warned Judge Koh not to tamper with an industry that is shipping products improving at a rapid pace as net prices fall.

“Because the industry is thriving, there is more of a downside risk of taking an industry rolling along by any indicator and throwing it into chaos and disrupting it — there’s a real downside risk with any intervention,” said Aviv Nevo, an economics professor and former chief economist for the antitrust division of the U.S. Department of Justice.

An FTC attorney suggested that Nevo was deaf to testimony from many handset OEMs. They complained that Qualcomm’s royalties of up to 5% of a handset’s net selling price are well above rates from any other cellular patent holder. They also expressed frustrations over times when they lacked alternatives to Qualcomm’s chips....MUCH MORE