Qualcomm Survives Apple Manipulation, But FTC Continues Reckless Pursuit

By Gene Quinn
May 1, 2019

Apple manipulated the licensing market to gain an advantage over Qualcomm. Qualcomm has suffered and, as a result, Huawei has gained a competitive advantage. Now, as the parties retreat to pick up the pieces, the FTC is there to execute what remains of Qualcomm based on a fictional theory.

https://depositphotos.com/237135394/stock-photo-netizen-looks-logos-chipmaker-qualcomm.htmlNow that Apple and Qualcomm have made peace it would be easy to allow the case and the issues to recede into the background. That is likely what Apple would prefer, and almost certainly why Apple made the decision to settle with Qualcomm rather than proceed with trial. The case presented an existential threat for Qualcomm, which would have required the San Diego tech company to fight as if the company depended on victory–because it did.

What is most shocking is how successful Apple was in its coordinated effort to manipulate the licensing market and effectively extinguish any reasonable notion of a fair, reasonable, and non-discriminatory rate (FRAND) in the process. Meanwhile, Apple used fabricated licensing rates wholly unrelated to the Qualcomm portfolio to dupe regulators into chasing Qualcomm across the world for committing phantom antitrust violations.

Apple Admits Qualcomm Patents “Score Higher”

The Qualcomm-Apple settlement came just hours after opening arguments were concluded in the Southern District of California. Apple had entered into a licensing agreement with Qualcomm, but was refusing to pay because they argued the rate they agreed to pay was not a fair and reasonable licensing rate, which thereby violated Qualcomm’s FRAND obligations. Those contributing patented technologies to the development of a standard, as Qualcomm has done, must provide a FRAND assurance, in essence committing to providing access to patents that are or may become essential to the implementation of the standard.

Although we really only managed to get a small glimpse of Qualcomm’s evidence demonstrating the extent of Apple’s coordinated strategy to manipulate the FRAND license rate, that glimpse was particularly enlightening. It demonstrated a decade-long coordinated effort within Apple to systematically engage in what can only fairly be described as manipulation (if not creation of evidence) and classic holdout.

Qualcomm showed during opening arguments that, dating back to at least 2009, Apple had been laying the foundation for challenging its longstanding relationship with Qualcomm. Qualcomm obtained memos through discovery that showed Apple considered Qualcomm’s patent portfolio to be extremely strong, and much stronger than certain other innovators, and specifically that Apple believed the Nokia patent portfolio was “significantly weaker than Qualcomm’s.” Memo from J. Berkaw dated December 21, 2009.  Another Apple memo reads: “Compared to other licensors, Qualcomm has more significant holdings in key areas… Qualcomm patents (standard-essential patents [SEPs] and non-SEPs) on average score higher compared to other, largely non-U.S. based licensors.”

The significance of Apple determining that Qualcomm’s portfolio was much stronger than Nokia’s patent portfolio cannot be understated.

Apple embarked upon a coordinated scheme to challenge weaker patents in order to beat down licensing prices. Once the challenges to those weaker patents were successful, and the licensing rates paid to those with weaker patent portfolios were minimized, Apple would use the lower prices paid for weaker patent portfolios as proof that Qualcomm was charging a super-competitive licensing price; a licensing price that violated Qualcomm’s FRAND obligations.

By successfully beating down the licensing rates of those with inferior patent portfolios, Apple was able to convince antitrust regulators around the world, including at the U.S. Federal Trade Commission, that Qualcomm was somehow engaging in activity that was both anticompetitive and violated antitrust laws. All the while regulators ignored the fact that Apple agreed to the license rate through arms length negotiations and then refused to deal with Qualcomm, engaging in a holdout intended to put massive financial pressure on Qualcomm.

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Both Parties Had Much to Lose

Apple was set to argue that Qualcomm violated FRAND by charging too much, but Apple had agreed to the rate. So, in order to demonstrate that the rate they had agreed to was too high, Apple had to create evidence demonstrating that Qualcomm’s license rates were higher than the rates charged by others. The problem for Apple is their own internal documents reveals that they considered those other patent portfolios to be far inferior to Qualcomm’s portfolio. So, for starters, Apple was knowingly comparing apples to oranges as they argued in court and to regulators that the licensing rate they had agreed to was too high.

While this case posed an existential threat for Qualcomm, Apple had a tremendous amount riding on the case as well. Apple documents clearly demonstrate that internally they considered the Qualcomm portfolio to be strong. Apple also never argued that the Qualcomm patent portfolio was worthless. Thus, when they stopped paying, they knew they were infringing and did so to put economic pressure on Qualcomm.

Is the refusal to negotiate at all negotiating in good faith? The question answers itself. The refusal to negotiate coupled with the unilateral decision to stop paying and infringe what Apple knew were valid and valuable patents—indeed the most valuable patent portfolio in the industry—seems to be incongruous with the obligations of technology implementers.  Qualcomm was set to argue that it is impossible to be entitled to FRAND in the first place when you refuse to negotiate in good faith.

FTC Still Pursuing Qualcomm

So, here we are now with peace between Apple and Qualcomm. It is difficult to understand why the revelations about Apple’s coordinated efforts to manipulate the licensing market by shrewdly challenging inferior patents to beat down prices hasn’t led to a similar peace between Qualcomm and the Federal Trade Commission (FTC).

Why is the FTC continuing to pursue Qualcomm? It has now come out in federal court that Apple just didn’t like the rate it agreed to pay Qualcomm. Apple then decided to challenge inferior patents in some slight-of-hand attempt to pull the wool over the eyes of judges and regulators. All the while, Apple was hoping to dupe decision makers into actually believing the licensing rates for the patents they knew were inferior were relevant when determining the licensing rate for Qualcomm’s significantly higher quality patent portfolio.

Is the FTC really going to allow themselves to continue to be played like some lackey?

Last week, the Wall Street Journal Editorial Board aptly put it like this:

“The question now is why the FTC wants to shoot the wounded after the war is over. Beyond reducing Qualcomm’s royalties—thus giving Huawei a competitive edge—regulators are setting a bad precedent of using antitrust law to intervene in contract disputes. This would create uncertainty and hamper 5G investment.”

There is no doubt that the FTC’s pursuit of Qualcomm at the behest of Apple has given Huawei a competitive advantage, which is unfathomable. Is the Trump Administration’s rhetoric on China simply hollow, empty and meaningless?

Whatever the case may be, the Wall Street Journal Editorial Board gets it mostly right, but the continued FTC pursuit of Qualcomm is worse than shooting the wounded after the war is over. It is really more like executing the prisoners of war after a peace treaty has been signed.

It is time for the FTC to give up and admit they have no case. Like other regulators around the world, the FTC was duped. Apple did not have the facts on their side, so they set out a decade ago to create evidence to make it look like Qualcomm’s license rates were unreasonably high. The FTC fell for it, just like other regulators did around the world.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 9 Comments comments.

  1. Jason Lee May 1, 2019 8:37 pm

    Apple owns more U.S. debt than most foreign countries, this gives Apple leverage. When Apple barks the FTC jumps. Gene lets not beat around the bush here, Apple owns the game, they have over $500Billion in cash, this gives them enough leverage to do as they please. Silicon Valley is one of the most powerful lobbying groups in America and can do no wrong. America is a Corporatocracy and has been for a while. The AIA Act PTAB, EBAY, Alice, Mayo, TC Heartland were created to serve Silicon Valley Elites like Apple, Amazon and Google. Will the small patent holder get his justice? NOT a chance. Sen. Tilis and Sen. Coons will get crushed by special interest groups. Its game over for patent rights in America. Hallo Deutschland or Ni Hao Zhongguo. Lets start talking about how someone can file for a patent in Germany or China, America is done.

  2. Benny May 2, 2019 5:55 am

    Jason,
    Do you want to talk about how to file patents in Germany or China? Easy as pie. But it won’t afford you any protection in the US. That said, I would suggest you start with France, because their examiners are even worse than in the US, you can get almost anything past them. The English speakers at the EPO are more savvy.

  3. Anon May 2, 2019 7:12 am

    So why did Qualcomm choose to settle?

  4. John White May 2, 2019 7:30 am

    Hear, hear Gene. Spot on. The system has been abused by participants; Apple being among them. Ironic. Jobs is likely rolling in his grave; having espoused allegiance to the notion of using patents to stop those who ripped off Apple. Interesting how philosophies can change. We can only hope this is an inflection point and Qualcomm and others can rebuild US participation in creating the future.

  5. valuationguy May 2, 2019 8:50 am

    Anon,
    Qualcomm settled for only ONE reason…..Judge Koh (in CA) is an avowed member of the “kill patents” squad…and devotee of the Standford’s Lemley school of legal crap. She was absolutely the WORST judge that Qualcomm could have been facing as her theories about FRAND “expectations” under French law have little to no basis in fact. It was HER ruling in the Microsoft case which created the GAPING HOLE that every efficient infringers (like Apple) are using to brow-beat patent owners into accepting lower-than-market value royalties. That case (Microsoft) pulled a efficient infringer’s dream panel at the CAFC so it was upheld and is now used as “settled” law.

    While Qualcomm WOULD have won in all of its MANY other cases (including the FTC one)….the Koh case was first on docket and both Apple and Koh had expedited it knowing that it provided Apple’s only leverage.

    Never underestimate what some judges will do….despite their duty to be impartial.

  6. Jason Lee May 2, 2019 9:24 am

    @Benny on the contrary my friend if you hold patents in Germany and China you can still get a sales ban and injunctions put in place in Europe and Asia these are massive markets, and would force anyone’s hand in America to think twice by avoiding to pay for a patent they were infringing on. The sad part is sales bans and injunctions no longer exists in America because Silicon Valley took away these rights so they could much easily steal patent from inventors or patent holders. You do not have to be genius to see how evil and corrupt the laws have been flipped in favor of patent infringers. The new Subcommittee on Intellectual Property that is looking at how to fix patents will carve out a section for Big Pharma and will leave all the other patent holders high and dry. Greed will kill it self and we are witnessing just how that is done when it come to patent in the United States. Hallo Deutschland and Ni Hao Zhongguo good by America!!

  7. Anon May 2, 2019 9:42 am

    Thank you valuationguy for the cogent points.

    However,…

    Would not the “Koh” sure-loss path lead then more quickly to a higher stage Appeals platform? If – as it appears – that the first level in the Court systems would not be in Qualcomm’s favor anyway, is not a long term battle STILL preferable to the chosen sure-loss short term game?

  8. Anon May 2, 2019 10:19 am

    valuationguy,

    After my last post, I opened up my Law 360 “paper” and read that Qualcomm has settled for at least 4.5 Billion in short term benefits.

    That’s certainly a parameter to take into consideration here.

  9. Jim May 6, 2019 8:17 pm

    And if Qualcomm’s “no license no chips” policy and refusing licenses of SEP stands, why isn’t Huawei going to do the same thing and monopolize 5G infrastructure with their large 5G patent portfolio and chip division? What’s good for the goose is good for the gander. Antitrust law is there for a reason, and it serves a purpose.