Qualcomm shares fell 11% in pre-market trading in New York after U.S. District Judge Lucy Koh sided with the Federal Trade Commission case accusing the company of anti-competitive practices.
Judge Koh, in San Jose, found Qualcomm also charged high royalties for its patents, and that its key role in manufacturing modem chips for smartphones using 5G made it likely that its behavior would continue.
The decision, made public on Tuesday night and first reported by The Wall Street Journal, said the company’s licensing practices violated antitrust law.
Qualcomm’s licensing business, which provides the majority of corporate profits, funds an industry-leading research and design effort that has made its chips the central technology in shifts between generations of mobile phone technology. Any separation or change to that could hurt its competitiveness. Qualcomm currently has the most advanced 5G modems in the market and almost all phones launched or planned for the new services are using them.
Judge Koh said Qualcomm must be subject to monitoring for the next 7 years to make sure it follows guidelines to ensure fair competition.
Qualcomm tried to resolve the FTC’s claims starting months before the case went to trial. But Bloomberg News reported that the company hit a wall with U.S. officials in February, failing to win over a majority of the FTC and its top officials despite extensive negotiations.
Judge
Qualcomm Inc unlawfully suppressed competition in the market for cellphone chips and used its dominant position to impose excessive licensing fees, a U.S. judged ruled, sending the company’s shares down 13 percent in pre-market trade.
"Qualcomm’s licensing practices have strangled competition in the CDMA and the premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process," U.S. District Judge Lucy Koh wrote in a ruling on Tuesday.
Qualcomm’s operating segment relating to its chip and software business is called Qualcomm CDMA Technologies (QCT). Qualcomm’s operating segment relating to the licensing of its patents is called Qualcomm Technology Licensing (QTL).
Koh sided with the U.S. Federal Trade Commission, which in 2017 filed a lawsuit against Qualcomm, accusing the company of using "anticompetitive" tactics to maintain its monopoly on a key semiconductor used in mobile phones.
In its complaint, the FTC said the patents that Qualcomm sought to license are standard essential patents, which means that the industry uses them widely and they are supposed to be licensed on fair, reasonable and non-discriminatory terms.
The FTC complaint also accused Qualcomm of refusing to license some standard essential patents to rival chipmakers, and of entering into an exclusive deal with Apple Inc.
Qualcomm’s licensing practices have been the subject of government investigations in the U.S. since at least 2014 and in Asia and Europe since at least 2009, according to the court filing.
Qualcomm did not immediately respond to a Reuters request for comment.
Shares of the company fell 13% to $67.50 in trading before the bell on Wednesday.
(Published by Bloomberg, May 22 2019)
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