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A federal judge inflicted a setback on Tuesday
Qualcomm
Inc.
QCOM 0.25%
defense against an antitrust lawsuit filed by the Federal Trade Commission, which stated that the chip maker had to license some of its core patents to competing chip suppliers.
US District Justice Lucy Koh's decision in San Jose, California, on Tuesday threatens Qualcomm's business model, analysts said. Its technology is widely used in smartphones, but the San Diego-based company has not licensed patents for this technology to rival competitors such as
Intel
Corp.
INTC -0.88%
Instead, it included licenses only for manufacturers or device makers, charging a percentage of the price of a smartphone.
When Qualcomm's intellectual property was incorporated into cellular communications standards, the company made a commitment to standardization bodies to make its relevant patents available. Qualcomm asserted that the agreements did not require it to license technology to competitors.
Koh J. rejected this argument. It added that the case law had established that Qualcomm's commitments "include a licensing requirement for all newcomers, including competing providers of modem chips". These licenses must be offered on fair and reasonable terms, the judge said.
"It's a game changer for the industry," said Florian Mueller, an IP analyst who studies patent litigation.
Qualcomm has always had patents under license by charging device manufacturers a percentage of the sale price of up to $ 400 on handsets. The decision means that she could only estimate charges based on the future cost of modem chips of $ 15 to $ 20, Mueller said.
Qualcomm did not comment immediately. The FTC declined to comment.
The decision could benefit indirectly
Apple
Inc.
who filed a lawsuit in January 2017 alleging that the chip vendor had requested unfair patent terms and forced manufacturers to obtain a license to obtain Qualcomm chips. This year, Apple has abandoned Qualcomm as a modem chip provider for its latest iPhone line-up, relying instead on Intel chips.
Apple and Intel refused to comment on the decision.
The FTC-Qualcomm case has not been judged yet, so it is far from over. But this solves in favor of the government one of the major problems of the ongoing legal struggle against Qualcomm.
The FTC sued Qualcomm in early 2017, alleging that the company had resorted to illegal tactics to maintain the monopoly of the baseband processors used in cell phones. The commission made several allegations, some of which were not the subject of Tuesday's decision. The trial is expected to begin in January, although the FTC and Qualcomm have begun settlement negotiations. Both parties had asked Judge Koh not to make a decision before continuing their talks, but the judge refused. His decision could potentially give more weight to the FTC.
The complaints of the FTC and Apple have weighed on Qualcomm. After filing a lawsuit, Apple and Huawei Technologies Co., a Chinese smartphone manufacturer, began withholding royalty payments on which Qualcomm relied for more than half of its pre-tax profits.
Shares of Qualcomm, which rebounded in recent months over its proposed $ 30 billion share buyback, rose 0.25% to $ 63.63 on Tuesday.
Amit Daryanani, an analyst at RBC Capital Markets, expects Qualcomm to appeal the case. He added that a future settlement of the FTC's case "could signal the beginning of the resolution" in his dispute with Apple, as well.
Qualcomm will report Wednesday with the third quarter results and will likely consider the FTC's decision in a telephone conversation with analysts, who expect the company to explain the consequences.
Write to Brent Kendall at [email protected] and Tripp Mickle at [email protected]
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