Qualcomm Hit With $853M Penalty for Patent Licensing Practices

Qualcomm was hit in December with a $853M fine by the Korea Fair Trade Commission (KFTC) for not fairly sharing patents related to mobile phone chipsets. In setting the standards for CDMA, WCDMA and LTE, agreements were struck that enable sharing technology to advance the standard. Fair, Reasonable and Non-Discriminatory (FRAND) terms for cross licensing critical technology were set in place so that the market and consumers will benefit from interoperable technology.

In many cases standards rely on patented technology that the patent holders agree will be shared fairly. The patents are licensed for a fee, but the license terms are reasonable. Qualcomm holds many patents needed for older and present mobile phone chip sets. While their share of the patents for CDMA exceeded 90%, it has been declining in newer technologies. Qualcomm holds ~27% and 16% of the WCDMA and LTE standards’ patents, respectively.

The catch is that all chipsets need backward compatibility, so even the older CDMA patents can create a roadblock to chipset companies like MediaTek or Intel.

Qualcomm is accused of selectively licensing its necessary patents to the handset companies who use only their chipsets. They are seen as not allowing the other chipset companies to access their patents, and further as punishing handset companies that use chipsets from other manufacturers.

There is a complex web of cross licensing that creates safety by establishing patent umbrellas, and thus assure that companies building products are not subject to numerous individual patent license claims. The handset patent licensing is a major part of this construct.

Korea’s KFTC has concluded that Qualcomm is abusing its obligations by selectively allowing only certain companies to gain access to their patents. Without the standards processes the market becomes closed and subject to monopolistic practices. Qualcomm’s share of the chipset market has grown steadily over recent years, and no new entrants have come into this market. Indeed, an alarming number of chipset makers have exited the market: NXP, TI, Freescale, ST, NEC, Broadcom, Nvidia and Marvell.

The mobile phone industry is completely reliant on well defined standards and seamless interoperability. Imagine the stunting effect that incompatible cell phone technology would have on this market. Furthermore, handsets have become much more than audio devices: they have become a major computing platform. This ruling was not undertaken lightly by the KFTC. They held numerous hearings and considered extensive evidence.

This decision and Qualcomm’s appeal will certainly be closely watched. Here is another article on this topic on Morning Consult.