Federal judge rules Qualcomm illegally suppressed competition

Qualcomm Snapdragon chip
Image: Qualcomm

On May 21, U.S. District Judge Lucy Koh found semiconductor giant Qualcomm guilty of violating American antitrust law. The Federal Trade Commission filed suit against the corporation in 2017 for its alleged anticompetitive behavior. In a 223-page decision, the federal jurist explained that the firm employed illegal tactics to undercut its rivals.

The Judge’s Ruling

Koh wrote that Qualcomm’s unlawful conduct allowed it to become a monopoly that extracted exorbitant licensing fees from its clients. The judge ruled the San Diego-based firm kept its manufacturing partners in line with threats of discontinued tech support and withheld chip deliveries. Furthermore, she noted the manufacturer continued taking advantage of smartphone makers like Apple, Huawei, and Samsung even after facing antitrust investigations in the United States, China, and South Korea.

Judge Koh also criticized Qualcomm’s chief executive for his behavior during the 10-day trial. Her decision stated CEO Stephen Mollenkopf gave patently rehearsed testimony that was contradicted by intercompany emails.

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Qualcomm’s New Normal

In addition to ruling that Qualcomm is indeed a monopoly, Judge Koh issued a series of mandates that might significantly impact the firm’s operations.

Koh ordered Qualcomm to renegotiate its current licensing deals to give more favorable terms to its customers. She also instructed the firm to create new agreements without making coercive threats to its partners’ supply lines. Additionally, the judge prohibited the semiconductor manufacturer from demanding a percentage of each phone sold using its components. The ruling would force the company to only charge device makers a small per chipset fee.

Koh’s decision also requires Qualcomm to submit to seven years of government monitoring to ensure compliance with her ruling.

The chipmaker’s lawyers have already stated their intention to appeal the court’s judgment. However, the firm will likely have a difficult time getting the decision overturned. Barbara Sicalides, a Philadelphia antitrust layer, told CNBC Koh’s thorough dismantling of Qualcomm’s defense left it without grounds to secure a reversal.

Long-Term Implications

If Qualcomm is unable to reverse Koh’s decision, the corporation’s income will take a major hit. Earlier this month, the firm forecasted earnings between $9.2 billion and $10.2 billion in Q3 2019. However, the corporation’s revenue projections were based on licensing rates it might now have to reduce.

The company’s third-quarter guidance included a one-time settlement payment from Apple of $4.5 billion to $4.7 billion. The iPhone maker agreed to make the payment to settle a lawsuit Qualcomm filed against it to recover unpaid licensing royalties. The smartphone manufacturer may demand to renegotiate that payout following the court’s ruling. Apple might also seek to revisit the multiyear component sourcing deal it inked with Qualcomm after their legal dispute ended.

The semiconductor company might face further legal action from the range of device manufacturers it’s partnered with over the years. Provided Judge Koh’s ruling survives the appeals process, firms like LG, Motorola, and Lenovo might seek multibillion-dollar refunds via the legal system.

Regardless of what happens next, 2019 will go down as one of the most eventful years in Qualcomm’s history. After coming to terms with Apple in April, the firm’s market value rose by 35 percent. But the day after the federal court made its ruling, Qualcomm’s stock price fell by 10 percent.