Qualcomm is the leader in baseband processors used for cellular communications in smartphones and other products, and one way the company has become a leader is by leveraging its patents, by either forcing customer to first “purchase a license to standard-essential patents, including elevated royalties that the customer must pay when using a competitor’s processor”, “refusing to license its cellular standard-essential patents to competitors”, or “entering exclusivity dealing arrangements” with companies such as Apple. At least that’s according to a complaint brought by the Federal Trade Commission (FTC) in the US that accuses Qualcomm of maintaining a monopoly and using unfair methods of competition, violating the company’s commitment to license on a FRAND (fair, reasonable and non-discriminatory) basis .
The license requirements may explain why smaller companies have a hard time making Qualcomm based products, although this may have improved with the partnership with Allwinner, and the launch of Qualcomm Snapdragon 410E & 610E SoCs that can be purchased easily from distributors. Bigger companies not wanting to work with smaller ones is actually pretty common, but it’s usually because they want to focus their resources, or the salesman is not interested because his commission would not be large enough. The alleged anti-competition claims and high royalties may also explain why you still have to pay around $40 to $50 for an LTE USB stick.
However, note that the decision to launch a complaint from the FTC was not unanimous, as while two FTC commissioners voted for it, one voted against, and submitted a written statement explaining that it was “an enforcement action based on a flawed legal theory (including a standalone Section 5 count) that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide”. Qualcomm also issued their own response as one would expect, where they express their belief that “the complaint is based on a flawed legal theory, a lack of economic support and significant misconceptions about the mobile technology industry”. We’ll have to find out how this turns out.
Thanks to Jon for the tip, via Arstechnica
Jean-Luc started CNX Software in 2010 as a part-time endeavor, before quitting his job as a software engineering manager, and starting to write daily news, and reviews full time later in 2011.
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Qualcomm is one of the worst patent troll. They glorify software patents.
“Despite the objections, this is hardly the first time Qualcomm has found itself in hot water over its licensing activities. Only a few weeks ago, authorities in South Korea fined it 1.03 trillion Won ($883 million) for violating the country’s competition laws. And in 2015, it agreed to pay a $975 million fine in China for similar infractions. (See Qualcomm to Appeal $865M Fine by South Korea’s Fair Trade Commission and Qualcomm to Pay $975M in China Antitrust Spat.)” Qualcomm receives $8.1B per year in royalty fees.
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Do some math – over the twenty year course of these patents (many are software patents) Qualcomm will get 20*$8.1B equals $162,000,000,000. That is an absurd rate of return on the work of hundred engineers for a couple of years. $40M investment returns 400,000%. Sure looks like a monopoly receiving disproportionate monopoly rents protected by a messed up legal system.
Every company should be able to earn a profit. And sometimes those profits can be large. But consistent 400,000% returns is an artificial monopoly.
These are called ‘gatekeeper’ patents. Another famous gatekeeper patent is the Microsoft FAT patent. Less than 100 hours of engineering work has yielded over $10B in royalties. Gatekeeper patents are patents over minor things that can be used to control the access to much larger, unrelated markets. The value in a gatekeeper patent has nothing to do with the technology patented, the value comes from using the legal system to give you artificial control over who can enter a market.
The government needs to enforce reasonable FRAND terms on gatekeeper patents. Let the companies earn 100X returns on their investment, but stop them from manipulating the legal system to get 4,000X or more returns.
To illustrate this, pretend like there was another way to achieve Windows compatibility that did not need the FAT patent. Now the FAT patent has to stand on it’s own technical merit. Would anyone in the world pay a penny to license the technical mess in that patent? No. Yet it has earned $10B.
Another problem with gatekeeper patents is that consumers can be forced to buy the same license over and over. A typical phone carries a patent licensing load of about $35. So if you buy a new phone every two years over the course of a 20 year patent you will be buying ten licenses to those patents. Forcing consumers to keep buying the same license over and over yields immense profits. For example at one point I had 27 Windows licenses on the wall of my office to illustrate how Microsoft was forcing me to continuously repurchase the same license over and over. Clearly I did not need 27 licenses to Windows, I wanted the PCs and was forced to also buy the unwanted Windows licenses.
Why shouldn’t the patent license that came with your first phone transfer onto the second one?
Qualcomm paid too much into the trump campaign fund?
wont be sad to see a new over sight of the “US Justice Department” that for sure
Good to know Qualcomm fu*** everyone, big and small.
@Jon: It’s “pop music” economics, most patents wield nothing while a few – for little to no rational reason – go on to become huge hits and make billions to the label. It’s completely detached from technical merit.
There is a common reason for these ‘hit’ patents – they become part of a standardized, widespread technology. And that’s why we have FRAND licensing.
If I was in change I’d take a very different approach to licensing radios. I would use the proceeds from spectrum auctions to purchase the patents needed to build standardized radios. Then I’d make those patents free to use in those bands. For example some of the proceeds from the LTE bandwidth auction would be used to purchase the patents needed to construct LTE radios. Those patents would be royalty free. If someone does not want to sell their patent that’s fine, but then it can’t be used in that band. These terms would be part of the spectrum license.
Another big crime was in creating a system where every HDTV made pays about $27 in royalties for 20 years. Again the patents necessary to create broadcast HDTV should have been purchased by the government and then provided for royalty free use. If you don’t want to sell your patent for HDTV use, that’s fine, but its not going into the standard unless you sell it.
Of course there will be a lot of negotiations over the price, but if a company demands too much the standard will simply switch onto a different technical solution. This process should keep the costs under control. I also guarantee that the government is never going to pay the $162,000,000,000 we are collectively paying Qualcomm.
There are lots of ways to build cellphones. I can also guarantee you that the upcoming 5G scheme will be chock full of patented Qualcomm technology and Mediatek’s solutions will get shut out. I don’t even need to see the technical proposals to know that this is going to happen.