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The case against FTC against Qualcomm does not hold on to reality




Last Tuesday morning I spent the day at the US Court of Justice in San Jose, California to hear FTC end the suit against Qualcomm, the FTC expert and Professor Carl Shapiro is Professor of Industrial Organization Economics at the Haas Business School at the University of California at Berkeley and previously had an antitrust position in the Justice Department, CDMA and Premium LTE Modems. This analysis focuses on the time between 2006-2016. argues that three Qualcomm policies give it market power to demand "Super FRAND" franchises (FRAND means fair, reasonable, and non-discriminatory). & nbsp; Super-FRAND license implies that Qualcomm has made too much money. These policies are: a "no-chip free" policy that stimulates payments for OEMs (in particular, Apple's agreement for 201

3) and license denial

The no-license-no-chip policy was designed to make sure that new OEMs will obtain the appropriate patent licenses before receiving chips for building phones. Without this policy, Original Equipment Manufacturers could build smartphones with Qualcomm chips, and then simply refuse to pay Qualcomm for any additional IP addresses that apply to those phones. The only recourse to Qualcomm would be to sue OEM for a patent infringement, a costly process that can take years on a case-by-case basis. Meanwhile, these manufacturers can continue to sell phones and receive a profit without paying a Qualcomm IP license. As you can imagine, phone manufacturers sometimes stop paying for the necessary licenses as long as possible. Sometimes delays occur when original equipment manufacturers renegotiate licensing agreements but Qualcomm claims to continue to sell chips to original equipment manufacturers while they continue to conduct bona fide negotiations even if their license agreement expires. & Nbsp; This seems to contradict FTC's argument that Qualcomm is using chip delivery as a leverage to raise higher royalties from OEMs. The only case that FTC could dig up was the delay in delivering new LG test chips while LG had not yet signed up for the new WCDMA license.

In the Apple Apple 2013 case, Apple will get a great incentive payment (~ $ 640M) if only Qualcomm modems are used. & nbsp; There is evidence that Intel (using the modem purchased from Infineon) has tried to win back Apple's business, starting with the iPad (for data-only modems). The Federal Trade Commission has assumed that Apple's loss of some of these incentive payments for breach of exclusivity is an impediment to Intel's entry. The iPad was too small to compensate for the loss of incentive payments. However, Intel's modems at that time were not able to replace Qualcomm's modems in the handsets because they did not have key performance and performance and did not meet Apple's requirements. But then & nbsp; Apple sacrifices Qualcomm payments in 2016 when it launched the iPhone with Intel modems. So this raises the question: how big is the barrier? It does not seem to prevent Intel from investing the necessary capital to develop a product that meets Apple's requirements, nor did it reject Apple to use Intel modems when it was finally done. The economic test for Shapiro was, could Intel pay the property sanction and still win. But the volume of iPad design is too small and the Intel modem is smaller, so is it a real monopoly test?

While Professor Shapiro pushed the case that his analysis shows that Qualcomm has enjoyed monopoly power from 2006 to 2016, it shows that there were quantifiable costs for consumers. Neither there are other real competitive solutions from other suppliers. In addition, Professor Shapiro's own report showed that Qualcomm's share declined before 2016 and continues to do so in 2017 and 2018, both in CDMA and in the LTE premium. It is clear that Qualcomm's market share is not due to monopoly power but to the lack of suitable alternatives. So, this puts one more question: why FTC has handed Qualcomm to court

In a video, Marv Blecker (former Qualcomm CEO) was interviewed and he told how the company rejected the "exhaustive" licenses of competitors, especially remembered that VIA and Samsung want licenses. Qualcomm's policy is not to provide comprehensive licenses to competitors (chip makers), as the remuneration for all applicable patents has already been reported and paid by phone manufacturers. It is hard to understand FTC's claim that licensing competing chip makers is a barrier to entry when they can now use Qualcomm's IP technology for free (as phone makers pay royalties). How will Qualcomm pay for cellular SEPs to help Intel or Mediatek reduce their costs and improve margins?

Later in the day, Qualcomm called its first two witnesses: co-founder of the company Dr. Irwin Jacobs and Senior Vice President of 4G and 5G Engineering Durga Malad. Jacobs gave a detailed history of the company and its initial mission. He also talked about the risks that Qualcomm has taken to build a CDMA (Digital Access Code) – a digital 2G technology that many believe will be too complex and costly to work for consumer markets. Multiple Access Multiple Access Access (CDMA) and Multiple Time Division Multiple Access (TDMA) have led to its acceptance from a number of carriers despite the initial limited number of Qualcomm vendors on CDMA modems. With CDMA, more subscribers can be supported in the same bandwidth. & Nbsp; With 3G, CDMA development became the basis for all networks worldwide, as the widespread European standard WCDMA (Wideband-CDMA) was built on CDMA.

Qualcomm CEO Irwin Jacobs poses in front of the patent wall at Qualcomm headquarters in San Diego, California on Wednesday, April 11, 2001. Photographer: Denis Porroi. Bloomberg News BLOOMBER NEWS

Irwin's cross-section focuses on a specific case where Qualcomm claims to have held development chips from LG for some time while they were still negotiating a patent for a new 3G WCDMA standard. The question was finally resolved and Qualcomm never held commercial chips from LG. This was also a departure for the FTC, with the example incorporating WCDMA chips, which is beyond the reach of the FTC case, including CDMA and premium LTE modems. 19659001] Durga Malladi, SVP & amp; GM of 4G / 5G in Qualcomm, has 400 US patents on its name; and in his testimony, he emphasizes that the company is a leader not only in the market but also in the standards, and develops in terms of comprehensive complete system solutions.

Based on today's testimony, I do not see that the Federal Trade Commission has an undeniable case. Especially since Qualcomm's market share dropped significantly when Mediatek entered the CDMA market and Apple switched to Intel modems. Whatever Qualcomm advantage, having first launched the market with new technologies, has been repeatedly reduced over time by competitors such as Intel, MediaTek, Samsung and HiSilicon.

I will be attending future court dates, as the schedule allows me to see how these proceeds are going. And remember that the burden of proof is on FTC that Qualcomm stifled competition and caused harm to consumers (through higher prices).

Kevin Krueel

Chief Analyst, TIRIAS Research

Twitter: @Krewell

The author and members of the TIRIAS research team do not hold shares in any of these companies.

Last Tuesday morning, I spent the day at the US Court of Justice in San Jose, California to hear FTC. The day began with a key expert at FTC Professor Karl Shapiro Shapiro, a professor of economics of the economic organization The Haas Business School at the University of California at Berkeley and previously had an antitrust position at the Justice Department, which generated a market report on the Qualcomm (monopoly) market in CDMA and premium LTE modems, whose analysis focuses on the time between 2006-2016 He argues that three politicians and Qualcomm are giving it the market power to demand FRAND for a fair, reasonable and non-discriminatory.) A super-FRAND license implies that Qualcomm has made too much money, such as a "no-chip free" , incentive payments for OEMs (in particular the Apple Apple Agreement in 2013), and refusal to license standard competing chip manufacturers (SEPs)

No-license-no chip policy was created to to ensure that new OEM cell phone manufacturers will take appropriate patent licenses before sex Chat chips to build phones. Without this policy, Original Equipment Manufacturers could build Qualcomm smartphones and then simply refuse to pay Qualcomm for any additional IP addresses that apply to these phones. The only recourse to Qualcomm would be to sue OEM for a patent infringement, a costly process that can take years on a case-by-case basis. Meanwhile, these original equipment manufacturers could continue to sell phones and get a profit without paying a Qualcomm IP license. As you can imagine, phone manufacturers sometimes stop paying for the necessary licenses as long as possible. Sometimes delays occur when OEMs agree to expire licensing agreements but Qualcomm claims to continue to sell VET chips as long as they continue to negotiate in good faith even if their license agreement ceases. This seems to contradict FTC's argument that Qualcomm is using chip delivery as a leverage to raise higher royalties from OEMs. The only case that FTC could dig up was the delay in delivering new LG test chips while LG had not yet signed up for the new WCDMA license.

In the Apple Apple 2013 case, Apple will get a great incentive payment (~ $ 640M) if exclusive Qualcomm modems are used. There was evidence that Intel (using the modem that it bought from Infineon) tried to win back Apple's business, starting with the iPad (for data-only modems). The Federal Trade Commission has assumed that Apple's loss of some of these incentive payments for breach of exclusivity is an impediment to Intel's entry. The iPad was too small to compensate for the loss of incentive payments. However, Intel's modems at that time were not able to replace Qualcomm's modems in the handsets because they did not have key performance and performance and did not meet Apple's requirements. But then Apple sacrificed Qualcomm payments in 2016 when it launched the iPhone with Intel modems. So this raises the question: how big is the barrier? It does not seem to prevent Intel from investing the necessary capital to develop a product that meets Apple's requirements, nor did it reject Apple to use Intel modems when it was finally done. The economic test for Shapiro was, could Intel pay the property sanction and still win. But the volume of iPad design is too small and the Intel modem is smaller, so is it a real monopoly test?

While Professor Shapiro pushed the case that his analysis shows that Qualcomm has enjoyed monopoly power from 2006 to 2016, it shows that there were quantifiable costs for consumers. Neither there are other real competitive solutions from other suppliers. In addition, Professor Shapiro's own report showed that Qualcomm's share declined before 2016 and continues to do so in 2017 and 2018, both in CDMA and in the LTE premium. It is clear that Qualcomm's market share is not due to monopoly power but to the lack of suitable alternatives. This puts one more question: why did FTC take Qualcomm to court?

In a video, Marv Blakeer (formerly CEO of Qualcomm) was interviewed and he told how the company rejected the "exhaustive" licenses of competitors, in particular, remember that VIA and Samsung wanted licenses. Qualcomm's policy is not to provide comprehensive licenses to competitors (chip makers), as the remuneration for all applicable patents has already been reported and paid by phone manufacturers. It is hard to understand FTC's claim that licensing competing chip makers is a barrier to entry when they can now use Qualcomm's IP technology for free (as phone makers pay royalties). How will Qualcomm pay for cellular SEPs to help Intel or Mediatek reduce their costs and improve margins?

Later in the day, Qualcomm called its first two witnesses: co-founder of the company Dr. Irwin Jacobs and Senior Vice President of 4G and 5G Engineering Durga Malad. Jacobs gave a detailed history of the company and its initial mission. He also talked about the risks that Qualcomm has taken to build a CDMA (Digital Access Code) – a digital 2G technology that many believe will be too complex and costly to work for consumer markets. Multiple Access Multiple Access Access (CDMA) and Multiple Time Division Multiple Access (TDMA) have led to its acceptance from a number of carriers despite the initial limited number of Qualcomm vendors on CDMA modems. With CDMA, more subscribers can be supported in the same bandwidth. With 3G, the development of CDMA has become the basis for all networks worldwide, as the widespread European standard, WCDMA (Wideband-CDMA), was built on CDMA.

Qualcomm CEO Irwin Jacobs poses at the patent wall at Qualcomm headquarters in San Diego, California on Wednesday, April 11, 2001. Photographer: Dennis Porroi. Bloomberg News BLOOMBER NEWS

Irwin's cross-section focuses on a specific case where Qualcomm claims to have held development chips from LG for some time while they were still negotiating a patent for a new 3G WCDMA standard. The question was finally resolved and Qualcomm never held commercial chips from LG. This was also a deflection for the FTC, with the example incorporating WCDMA chips that appear beyond the reach of the FTC case, including CDMA and premium LTE modems.

Durga Malladi, SVP & GM of 4G / 5G in Qualcomm, has 400 US Patents to his name; and in his testimony, he emphasizes that the company is a leader not only in the market but also in the standards, and develops in terms of comprehensive complete system solutions.

Based on today's testimony, I do not see that the Federal Trade Commission has an undeniable case. Especially since Qualcomm's market share dropped significantly when Mediatek entered the CDMA market and Apple switched to Intel modems. Whatever Qualcomm advantage, having first launched the market with new technologies, has been repeatedly reduced over time by competitors such as Intel, MediaTek, Samsung and HiSilicon.

I will be attending future court dates, as the schedule allows me to see how these proceeds are going. And remember that the burden of proof is on FTC that Qualcomm stifled competition and caused harm to consumers (through higher prices).

Kevin Krueel

Chief Analyst, TIRIAS Research

Twitter: @Krewell

The author and members of the TIRIAS research team do not hold shares in any of these companies. TIRIAS Investigates traces and consults companies across the electronic semiconductor system to cloud systems and sensors.


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