FTC, Qualcomm give closing arguments in trial over mobile chip licenses – CNET

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Apple’s working chief, Jeff Williams, testified within the FTC trial against Qualcomm. 

Vicki Behringer

The US Federal Trade Commission’s case against Qualcomm is now within the hands of a enjoy. 

On Tuesday the two sides presented their hour-long closing arguments in a case that would additionally maintain big implications for the expertise world. The FTC has accused Qualcomm of working a monopoly within the mobile chip market, which hurt opponents and triggered handset makers to enhance their costs. 

For the FTC to bewitch the case, it has the burden of displaying that Qualcomm had a monopoly, that it had market energy and that it old-long-established that energy in negotiations with handset makers to elaborate high royalties. The FTC additionally has to indicate that Qualcomm’s conduct hurt opponents and that the anticompetitive actions proceed or will originate over again within the waste. 

FTC attorney Jennifer Milici kicked issues off Tuesday afternoon by detailing how Qualcomm old-long-established its energy within the 3G and 4G chip market to power handset makers like Apple to effect licensing agreements with excessively high royalties. If Qualcomm is no longer stopped, she acknowledged, it is going to enact the identical facet within the 5G market.

Qualcomm “obtained monopoly energy within the modem chip market and in region of merely competing on its merits” build up “roadblocks” that hurt opponents, Milici acknowledged. “It is previous dispute the conduct is ongoing.”

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Qualcomm attorney Robert Van Nest of rules agency Keker, Van Nest & Peters, argued throughout his closing that the FTC did no longer meet its burden within the case and that Qualcomm won enterprise “thru positive innovation and higher products.”

“High royalties by myself is no longer the basis for their complaint of wound,” Van Nest acknowledged. “They maintain got to indicate wound to opponents.” However he acknowledged such wound hasn’t occurred: Intel now provides all modems for Apple’s iPhones, MediaTek is the enviornment’s second greatest wi-fi chipmaker, and Samsung and Huawei maintain developed their maintain modems. 

“If the assignment is to enjoy whether or no longer Qualcomm maintained its region thru innovation, skill, expertise or thru licensing practices, or no longer it is miles a lay-down hand,” Van Nest acknowledged. The FTC hasn’t “proven anything else with respect to licensing practices that had affect on advancement of this expertise.”

Qualcomm has been fighting the FTC in a San Jose, California, court since Jan. Four. The FTC wrapped up its antitrust case against the corporate on Jan. 15, and Qualcomm rested its protection Friday. The trial has published the interior workings of tech’s most critical enterprise, smartphones, displaying how suppliers struggle for dominance and profit. 

Mediate Lucy Koh will now enjoy the final consequence of the case. She illustrious earlier within the trial that she likely will no longer be issuing her traditional rapid willpower, as she has rather about a evidence, testimony and case rules to deem. Quiet, the FTC on Tuesday requested for a possible timeline for the willpower. It is going thru one other executive shutdown in mid-February and would maintain to give an explanation for conserving attorneys on the clock if a verdict was impending.

Koh acknowledged she did no longer know how long it would make a choice but requested the FTC to be half of over again sooner than a potential shutdown. 

“I’m usually rather fast,” Koh acknowledged. “[But] one thing of this magnitude goes to make a choice longer” than other moderate motions.

Qualcomm is the enviornment’s greatest provider of mobile chips, and it created expertise that’s predominant for connecting phones to mobile networks. The corporate derives a just appropriate portion of its revenue from licensing these innovations to an total bunch of system makers, with the rate basically basically based entirely on the mark of the phone, no longer the ingredients.

On yarn of Qualcomm owns patents related to 3G, 4G and 5G networking expertise, moreover to other aspects like tool, all handset makers building a system that connects to mobile networks maintain to pay it a licensing rate, even within the occasion that they manufacture no longer use Qualcomm’s chips.

However the FTC lawsuit might maybe maybe additionally spoil that model. The US executive has accused Qualcomm of working a monopoly in wi-fi chips, forcing customers like Apple to work with Qualcomm completely and charging “unsuitable” licensing expenses for its expertise, in phase by wielding its “no license, no chips” protection. Qualcomm’s practices averted opponents from coming into the market, drove up the mark of phones and in turn hurt consumers, who confronted higher handset costs, the FTC acknowledged. 

Qualcomm says the FTC’s lawsuit is basically basically based entirely on “flawed just appropriate thought.” It is additionally says customers take its chips on yarn of they’re the finest and that or no longer it is by no manner stopped providing processors to customers, even when they’re fighting over licenses.

“The FTC hasn’t advance near meeting its burden of proof in this case,” Don Rosenberg, govt vp and overall counsel of Qualcomm, acknowledged in an announcement Tuesday following closing arguments. “All real-world evidence presented at trial confirmed how Qualcomm’s years of R&D and innovation fostered opponents, and growth for the final mobile economy to the succor of consumers around the enviornment. Our licensing charges — which maintain been space long sooner than we had a chip enterprise, and revalidated time and over again — rather and accurately replicate the mark of our patent portfolio. Qualcomm’s expertise has been the muse of a thriving, aggressive industry.”

No license, no chips

Through the trial, the FTC known as witnesses from companies like Apple, Samsung, Intel and Huawei and had experts testify relating to the alleged wound Qualcomm’s licensing practices maintain triggered the mobile industry. 

Qualcomm, within the meantime, known as company executives, representatives from handset makers and chip opponents, and economics experts to dispute the FTC’s allegations within the case. The corporate sought to indicate that opponents is wholesome within the mobile chip market and that Qualcomm hasn’t hampered the industry. 

The corporate has argued that its big patent portfolio and innovations give an explanation for its expenses. CEO Steve Mollenkopf, who took the stand early within the trial, defended the corporate’s licensing practices, announcing the model his company sells chips to smartphone makers is finest for everybody eager and is the most simple manner to license the expertise. 

The heart of the FTC’s case against Qualcomm is a so-known as “no license, no chips protection.” Qualcomm sells processors that connect phones to mobile networks, but it completely additionally licenses its big portfolio as a community. For a space rate — basically basically based entirely on the selling mark of the pause system, usually a phone — the manufacturer will get to use all of Qualcomm’s expertise. It is phone makers that pay the licensing rate, no longer chipmakers. 

To procure procure admission to to Qualcomm’s chips, which would be broadly thought about to be on the bleeding edge of wi-fi innovation, a phone maker first has to effect a patent licensing contract with Qualcomm. The corporate has long been the chief in 4G LTE, and or no longer it is sooner than opponents within the nascent 5G market. The finest-pause phones, like these from Samsung, maintain tended to use its modems. However the FTC argues this sort of requirement hurts opponents and cements Qualcomm’s monopoly energy.

Apple Chief Working Officer Jeff Williams testified that his company felt it needed to effect contracts for quantities it thought too high — a royalty of $7.50 per iPhone — to defend procure admission to to Qualcomm’s chips.

“We maintain been staring at an amplify of over $1 billion per 365 days in licensing, so we had a gun to our head,” Williams acknowledged as he defined why Apple signed one other licensing agreement in 2013, despite being sad with the phrases. He added that Apple has critical to use Qualcomm’s chips for its more moderen devices, but Qualcomm refused to sell processors for the iPhone. 

Diverse companies, like Huawei and Lenovo, made the same feedback throughout their testimony. And throughout the trial, the FTC has pointed to communication from a susceptible Qualcomm licensing govt, Eric Reifschneider, to mobile chip customers like Motorola and Sony Cell as evidence of threats to carve off supply. 

In a single occasion, Reifschneider wrote in an electronic mail to a Sony Cell govt that “QCT (Qualcomm’s chip enterprise) has been transport chips to SMC (Sony Cell) for as regards to three weeks now with out a license in region. This might maybe well maybe no longer be possible for that to proceed.” 

However Qualcomm and executives from some companies maintain testified that Qualcomm has by no manner carve off chip supply throughout contract negotiations. Some of these executives maintain acknowledged in live testimony and video depositions presented by Qualcomm that its opponents did no longer maintain the expertise required for their devices. 

Matthias Sauer, an Apple govt and a behold known as by Qualcomm, testified earlier in January that Intel’s modems did no longer meet the technical requirements required for the corporate’s iPhones in 2014. Though Intel additionally couldn’t meet Apple’s chip necessities for the iPad, it would’ve old-long-established them anyway, he acknowledged, had Qualcomm no longer supplied incentives to persist with its chips. His remarks echoed feedback from colleague Tony Blevins early within the trial.

Qualcomm, within the meantime, has acknowledged it had official enterprise causes for having strict contracts with Apple, along with how expensive it is to manufacture modems particularly for Apple. 

Sparring throughout closing arguments

On Tuesday, FTC attorney Milici argued that the no license, no chips protection “build up roadblocks for opponents.” She acknowledged there was “consistent” testimony from handset makers equivalent to Apple, Samsung, Lenovo, Motorola and LG that they anxious they’d lose procure admission to to Qualcomm’s modems within the occasion that they did no longer effect licenses below phrases they did no longer like. 

“Qualcomm has talked about unambiguously that it has by no manner threatened chip supply,” Milici acknowledged. “Right here’s appropriate a semantic trick.” In “instance after instance,” she acknowledged, Qualcomm demanded advanced phrases, the client resisted, then Qualcomm acknowledged if the two sides did no longer attain agreement, the client would no longer be ready to make a choice chips anymore.

“Possibilities who heard these statements completely considered them as threats,” she acknowledged. “Internal Qualcomm documents indicate Qualcomm executives knew their feedback might maybe well be taken as threats, and so they maintain been supposed to be taken that manner.” 

Milici added that “the fact they did no longer maintain to carve off chip supply is proof of market energy.” Possibilities had no other viable modem alternatives, so they’d to effect licensing deals with Qualcomm to procure its chips. 

“We manufacture no longer know and might maybe well no longer know what the market would be aware like with out” Qualcomm’s licensing practices hurting opponents, Milici acknowledged. She acknowledged there might maybe be no manner to grab if Qualcomm would’ve been first in LTE had it no longer thrown up boundaries for chip opponents. “Your complete market was plagued by roadblocks,” she acknowledged. “We manufacture no longer know how a success [Qualcomm’s rivals] would maintain been.”

Qualcomm attorney Van Nest, within the meantime, acknowledged throughout his closing arguments that the companies that testified did so on yarn of they desire to pay lower licensing charges. 

“They’re all big subtle companies with their maintain leverage,” he acknowledged. “Their testimony was, ‘Oh yeah, we felt threatened and needed to enact what we did.’ I’d pronounce this testimony was presented to this court in a basically deceptive trend.”

Van Nest illustrious that the FTC presented video testimony from companies like BlackBerry and Lenovo, where executives acknowledged they felt threatened by Qualcomm. However Qualcomm couldn’t fresh contradictory testimony — where the executives acknowledged they by no manner basically obtained threats or had their chip supply carve off — except it was its turn to fresh its protection.

He additionally acknowledged the FTC failed to indicate that Qualcomm had any market energy after 2016. That September was the predominant time Apple old-long-established Intel chips within the iPhone. And opponents in mobile chips has finest gotten extra fierce since then, with Qualcomm shedding share in that market and MediaTek and Intel announcing they’re going to rapidly maintain 5G chips readily accessible. 

“We know 5G goes to be aggressive,” Van Nest acknowledged. “There might maybe be no evidence of believable chip leverage.”

‘Heavy hammer’

Every facet presented economics experts throughout the course of the trial to relief up their arguments. 

In the case of the FTC, Carl Shapiro, a professor of economics on the University of California, Berkeley, supplied the key testimony about Qualcomm’s affect on the mobile market. His testimony sought to indicate that Qualcomm’s “surprisingly high” royalty charges hurt opponents, handset makers and consumers.

Shapiro to begin with took the stand two weeks ago, detailing how Qualcomm continues to hurt the mobile chip market. He testified over again Monday because the FTC’s key rebuttal behold. 

Losing procure admission to to Qualcomm’s modems would impose costs on handset makers, along with no longer being ready to supply to consumers, Shapiro acknowledged in his initial testimony. 

“That is a basically heavy hammer that Qualcomm is bringing down, no lower than as a possibility, in these negotiations,” Shapiro acknowledged. 

As phase of its protection, Qualcomm final week known as three economics experts to rebut Shapiro’s claims. They testified that Shapiro’s methodology was flawed and that he did no longer deem what was occurring within the true world. 

Dueling experts

Aviv Nevo, a University of Pennsylvania economics and advertising and marketing professor, on Friday known as into interrogate Shapiro’s use of thought to resolve the ruin allegedly triggered by Qualcomm’s licensing practices. As an alternative, Nevo acknowledged he examined the “real-world” agreements Qualcomm had with companies to resolve that the charges weren’t unsuitable. 

Nevo testified that the FTC’s thought that Qualcomm makes use of its energy within the chip market to cost unsuitable royalty charges “is appropriate no longer born out of right market recordsdata.” He acknowledged “there might maybe be no give a enhance to for the thought within the records.” Nevo additionally testified that the mobile industry is real. 

“At a high stage, this is a thriving industry,” Nevo acknowledged. “Prices are declining. Quantities are skyrocketing.”

Nevo additionally acknowledged there maintain been official enterprise causes for Qualcomm’s licensing policies. “One is good deal in transaction cost,” he acknowledged. “The opposite is permitting rival chipmakers to just freely with procure admission to to tech with out a want for a license.”

Shapiro on Monday acknowledged some of Nevo’s methodology, conclusions and assumptions maintain been “fabricated,” “inaccurate” and “all tousled.” He illustrious that Nevo’s methodology had “measurement complications.” He additionally acknowledged that Nevo fell brief by no longer doing a take a look at to resolve when Qualcomm had market energy.

Last Tuesday, Edward Snyder, dean of the Yale College of Administration and a professor of economics and management, criticized Shapiro’s methodology and acknowledged the complications Qualcomm’s opponents had maintain been as a result of picks they made that had nothing to enact with Qualcomm. 

He illustrious that three factors indicate an organization’s success or failure: foresight, investment and execution. Snyder evaluated Intel, MediaTek, Broadcom and others to peep their region available within the market and the arrangement they performed basically basically based entirely on these three factors.

Intel, for one, “exhibited … unhappy foresight relating to the industry. They invested inefficiently, and so they encountered execution complications,” acknowledged Snyder, who at one time worked for the Justice Division’s antitrust division. MediaTek had appropriate foresight and investment, but it completely had some execution complications, Snyder acknowledged. It has now resolved these, helping it turn out to be the No. 2 modem provider on this planet. Broadcom, for its phase, failed on all three, Snyder acknowledged, causing it to head away the modem industry. 

And Tasneem Chipty, a specialist in opponents protection and antitrust economics from consultancy Matrix Economics, attacked Shapiro’s definition of the market and of market energy. 

She accused Shapiro of taking a “shortcut” when evaluating whether or no longer the mobile chip market was aggressive and acknowledged he “has overstated Qualcomm’s market energy.” She acknowledged there might maybe be no “evidence of consistent and unconstrained market energy of the form” that might maybe well hurt opponents or “coerce OEMs [handset makers] into exhausting enterprise phrases that might maybe well get them of billions of dollars.”

Licensing opponents?

The FTC has acknowledged Qualcomm’s refusal to present licenses to its chip opponents is phase of its efforts to defend its monopoly. Mediate Koh in November agreed and dominated that Qualcomm has to license its wi-fi chip patents to its chip opponents like Intel.

However Dirk Weiler, head of requirements protection at Nokia, testified final week that it has long been industry commonplace to license expertise to handset makers, no longer chipmakers. Collectively along with his role at Nokia, Weiler additionally serves as chairman of the European Telecommunications Standards Institute. The nonprofit requirements physique’s Psychological Property Rights Policy requires companies to present licenses for tools.  

“What is my understanding of the industry practice is within the case of the mobile enterprise, this form these companies license, as an illustration, the handset and no longer any subpart of the handset,” Weiler acknowledged. 

And Nevo on Friday acknowledged if Qualcomm would no longer license on the system stage anymore, issues might maybe maybe additionally procure advanced fast. If the corporate switched to merely licensing on the chip stage, it would want to supply extra than one tiers, on yarn of among the expertise would practice to an overall phone and no longer appropriate the processor. 

“The choice of license agreements might maybe well be big,” Nevo acknowledged. However the true design back “is the fact each negotiation now will turn out to be loads extra advanced. Parties, chipmakers and OEMs, would maintain incentives to indicate the opposite celebration because the one basically working in the direction of on the license.” 

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