One of the most contentious antitrust cases of 2019, FTC v. Qualcomm, is in full swing at a courthouse in San Jose, California. With several other legal cases pending for Qualcomm, a lot is at stake. For Qualcomm, its fundamental business model is what’s at risk. For everyone else? Market competition, innovation and national security.
It’s been two years since the Federal Trade Commission filed a lawsuit against Qualcomm alleging that the chipmaker is engaged in an anti-competitive “no license, no chips” scheme that allows it to overcharge for its patents. Similar complaints have been echoed in several other lawsuits against the company around the world, with fines piling up for Qualcomm for engaging in anticompetitive practices.
FTC’s actions to sue Qualcomm for anticompetitive practices are just one case in a string of examples. In 2016, South Korea’s antitrust regulator fined Qualcomm $854 million for violating competition laws, the largest fine ever levied in South Korea. Taiwan’s Fair Trade Commission also fined Qualcomm with $778 million, although the case was recently settled for $93 million, with the chipmaker pledging to invest $700 million in Taiwan over the next five years. Previous to that, Qualcomm also paid a $975 million fine in 2015 in China after a 14-month probe.
As fine settlements are becoming business as usual for the San Diego-based chipmaker, it shows a pattern of questionable conduct.
Qualcomm also appears to be engaging in retaliatory tactics, most recently suing Apple on the claim that some functions of Apple’s smartphones equipped with Intel chips infringe on its patents and asking the U.S. International Trade Commission to ban imports of all iPhone 7 smartphones that don’t have Qualcomm’s chips. As part of this legal battle, which is continuing, a U.S. trade judge recently declined Qualcomm’s request for an import ban on certain iPhone models and ruled that a ban on imports of some iPhones into the United States was not in the public interest. The judge’s argument was well grounded, but an ITC decision is still pending. The commission will be reviewing the judge’s recommendation, with a final ruling due before February 19.
An ITC order to ban specific smartphones would have harmful effects on consumers, competition and national security.
If Intel were eliminated from the baseband chipset market in the context of an importation ban ruling by the ITC, Qualcomm would likely regain its monopoly over the market. As a result, Qualcomm would be able to impose monopoly pricing on the market, leading to increased costs for consumers. Not only would consumers pay more for their smartphones, but the ban would reduce consumer choice and likely preserve Qualcomm’s monopoly over the long term.
A recent analysis by the American Consumer Institute found that an importation ban would cost consumers $10 billion per year, increasing the price of an Apple iPhone by approximately $47 per unit. This estimate understates the adverse effects such an action would have on consumers, since it doesn’t include many indirect and induced benefits the public derives from smartphones through online and video services, applications, software and public safety. Simply put, an importation ban would translate into fewer choices and higher prices for consumers.
Along with these consumer effects, 5G innovation and national security would also be at risk. An ACI study estimates that 5G services are expected to produce $1.2 trillion in consumer benefits. This means that an ITC order to block smartphones would threaten to delay consumers’ access to 5G technology and its benefits. It would also slow the pace of U.S. innovation in 5G and undermine America’s leadership in 5G technology in favor of China, thus adversely affecting our national security. The ramifications of this threat include increased cybersecurity risks, especially with regard to the national infrastructure that would be more vulnerable to widespread cyberattacks.
With the legal proceedings continuing to ramp up in the coming months, it is important to recognize the breadth of issues affected by these legal disputes. Consumers will, undoubtedly, bear the costs of such anticompetitive practices.
