Qualcom makes most of its profits from licensing technology that is essential to modern cell phones, and it also sells chips that are used in those same cell phones. But in a new lawsuit, the Federal Trade Commission argused that Qualcom violated the anti trust laws by offering rebates on licensing fees conditioned on Apple using its chips exclusively in iPhones. The FTC says this arrangement created de facto exclusive deals that prevented competitors from selling processors to Apple. Here did
it talk to us about the FTCs lawsuit? Is Bloomberg Intelligence senior litigation analyst Jennifer ree Jen always very happy to have you here to explain something complicated like this to us, And it is kind of a complicated arrangement that leads to this laws whit Why don't we start with you explain to us how it is that we ended up in a situation where the FTC is claiming that Qualcom has an anti competitive arrangement going on. Well,
thank you for having me again. Um Now, the FTC has been investigating Qualcom for a few years now, and sometimes as investigations get open because they are hearing complaints from the industry, or they read something or here's something that they think something not proper is going on, and and this is what's come out of that investigation, and and and to really make it simpler. It is complicated,
but let's just make it simpler. Qualcom has patents that go into standards that are needed from most of the most advanced mobile phones. A standard setting organization decided on that standard, knew that the standard incorporated qualcom intellectual property rights, and when that was decided, Qualcom agreed, I will be part of this standard, and I promise that I will fairly reasonably and in a nondiscriminatory manner license anyone who needs this access to this i P for the standard
for the mobile phone that's sold. And essentially there's a litany of conduct that the FTC is laid out that they say is essentially they're not abiding by this promise, they're not fairly licensing the i P that companies have to have to incorporate the standard into into the cell phone, and the Apple exclusivity is part of it. So the timing of this law student, we have been discussing Justice Department settlements and lawsuits and different things happening um as
the Obama administration winds down. Is the timing suspect. While the timing is quite suspect because you know where this is in the Federal Trade Commission, where you have commissioners who vote to bring in action. Right now, we're missing two. We have three out of a total five, and one is a Republican into our Democrats, and one of those Democrats is leaving as a February twenty, which would have left two. You need a majority vote in order to
bring a lawsuit like this, and the Republican dissented. She strongly disagreed with bringing this suit. So had they waited to fit until February twenty, they would have been a one to one vote and there would have been no lawsuit brought. So I think it looks a little bit like this was sort of a rush to get the suit in there while there was still a majority Democrat. Well okay, so but now they have brought the suit.
We have a situation where you know, Qualcom does a couple of different things, and it's making a business deal with that and saying, look, we'll license our stuff for you. In fact, we'll give you a good deal on that if you want to buy the other things from us, which on one level seems like perfectly reasonable business making. Why does the federal government think this violates the anti trust laws? You know, it's funny because this is a controversial area of the anti trust laws for sure, because
exclusive agreements are often proper and not illegal. And you know, you're looking at the situation where they're claiming, well, they're giving these great, big, huge rebates to Apple and theoretically this should translate into a lower price for consumers, and that's a good thing, So why would you want to
blunt that? But what they're essentially saying here is that it's unfair because it's blocking access to this very important and large maker of mobile phones to competitors of Qualcom, and it's just continuing Qualcom's dominance in in basically the modem chip sets needed, which allows them then to charge higher costs to everybody else that needs this chip set. So now there's been a private lawsuit against Qualcom as well.
Is it the same as the FTCs are different? Why? Well, it's based on similar conduct allegations, but it actually has a very significant difference. The private lawsuit, as it needs to be, is based on the Sherman Act, which is the primary antitrust law. But the FTC S lawsuit is based on Section five of the FTC Act, which only the FTC has access to. Private plaintiffs can't bring a suit under section five, and that's a big difference because
the Sherman Act allegations are more difficult to prove. They require a higher standard, whereas under Section five there's a little bit, it's a little broader, there's more discretion. It just prohibits unfair acts um And it's another reason why Commissioner Olhausen dissented because the Section five itself is controversial. And when they've brought this under section five and not the Sherman Act, it suggests, well, they didn't really have
evidence supporting true monopolization or true price wealth. That's the price fixing isn't part of it, but true monopolization conduct. Jenery have about thirty seconds left. But is this is all American litigation now we're talking about are there any investigations or charge jews outside the US that Qualcom is going to be facing about this yet? Qualcom has been
fined by China and Korea. They're fighting that they've an order in Japan was issued a season desist and they're still being investigated by Taiwan in Europe, so there there could be more coming. Thank you very much to Jennifer Ree Bloomberg Intelligence senior litigation analysts, for being with us here today on Bloomberg Law. And that's it for this edition of Bloomberg Law. We will be back tomorrow thanks to our technical director Marxin Escalchi and our producer David Sutraman.
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