Global business practices are now under scrutiny like never before thanks to President Trump’s pledge to pull the U.S. out of bad trade deals. The idea that industrial giants have been acting in ways counter to principles countries have agreed upon is the subject of considerable debate as policymakers formulate new policies to keep us integrated in the global economy.
The U.S. Federal Trade Commission is currently pursuing a complaint filed against Qualcomm, a company that licenses and manufactures baseband chipsets used in smartphones that let them communicate with one another over mobile networks. The technical name for it is interpolation, and it’s a necessary part of global telecommunications revolution.
Qualcomm stands accused of what amounts to information superhighway robbery based on the actions it’s taken to protect its stranglehold on the chipset market, primarily through alleged anticompetitive licensing abuses.
This is not something that can be ignored and needs to be stopped. The future of competition for connected devices depends on it.
Over the last few years Qualcomm has been inundated with criticism from competition authorities around the world, including the Korean Fair Trade Commission as well as private companies including Broadcom, Texas Instruments, Intel, and Apple regarding its licensing business.
In most cases the market self-corrects to punish misbehavior without regulators having to intervene. When a bad actor blatantly leverages its market power and ignores its obligations, the government, in this case the Federal Trade Commission, is obliged to step in because of its expertise in the matter.
The way in which Qualcomm licenses its Standards Essential Patents is the core issue. SEPs are not ordinary patents. They receive a special designation for multiple reasons because they are critical to making different technologies work together for the benefit of the end user. Holders of SEPs are in essence given a collusive monopoly over essential technology in exchange for agreeing to license the technology under “Fair, Reasonable, And Non-Discriminatory” terms as defined by law.
To many experts who have looked closely at the matter, Qualcomm’s practices are neither fair nor reasonable nor non-discriminatory.
Every smartphone manufacturer is forced to pay Qualcomm a five percent royalty fee on each unit sold. No other SEP patent holder levies such a hefty fee which, in this case is calculated based on the entire sale price of the device. In some cases Qualcomm denies competitors licenses to ensure it remains dominant in the marketplace.
The FRAND – Fair, Reasonable, And Non-Discriminatory – doctrine protects consumers and encourages vibrant competition by ensuring broad access to SEPs. Newcomers and smaller entrepreneurs get the opportunity to compete against the big boys – which is important because small innovators play a vital role in 5G and the “Internet of Things” markets essential to the future of American economic growth.
Qualcomm is acting like the big dog with the only bone. Everyone - competitors, customers, and consumers - are being harmed by its anti-competitive practices. By some estimates its licensing practices increase the price of each smartphone sold by $30.
Some people might say “So what?” but when you actively lobby to get your SEPs included in cellular standards under FRAND terms only to turn around and ignore your obligations in order to stick it to manufacturers, you bring economic harm to the supply chain and the industry.
Qualcomm won’t admit any of this and has tried without success to have the complaint thrown out. It spends a lot of money arguing the FTC’s case as being without merit because its “inventions are the foundation” of many great American achievements.
That won’t wash any longer. Competition authorities around the world have finally taken notice and are cracking down on Qualcomm. No one should turn a blind eye here, especially advocates of free market practices and fair competition. The consequences of ignoring the abuses alleged in this case go far beyond this one instance.
Wrong decided, what the FTC may do will set the policies that drive technological innovation on their ear for years to come. The agency should move carefully and cautiously to make sure the interests of consumers and competitors alike are protected rather than swept under the rug.