USA: Qualcomm convicted of abuse of dominant position

In the United States, justice has pinned heavily Qualcomm. The semiconductor giant is urged to change its practices to extinguish competition. Its exclusivity agreements with manufacturers allowed the founder to impose his products, and make them pay the high price.

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After China, South Korea and Europe, the justice of the United States falls on the saddle of Qualcomm. The semiconductor giant is paying off its aggressive business practices and imposing its products, including modem chips, on smartphone manufacturers, effectively strangling any embryo of competition. The pattern is classic: own a great product, force manufacturers to sign exclusive license agreements (over several years) to enjoy, and watch the competition die.

Unmatched Domination on Modem Chips

In 2015, 2016 and 2018, Qualcomm was successively condemned by the Chinese government, the Korean courts and the European Commission for abuse of dominant position. With each time, fines of about $ 1 billion to the key.

This time, the decision comes from the justice of his country, the United States. It relates specifically to modem chips, which Qualcomm outrageously dominates the smartphone market. Even more than processors, where the top 3 global sales (Samsung, Huawei and Apple) manufacture its own SoC – even though Qualcomme supplies almost all other manufacturers.

Regarding modem chips, whether it is the CDMA technology (developed by Qualcomm) or LTE technology, the American smelter has placed a virtual monopoly. It has signed exclusive agreements with Apple, Samsung, LGE, BlackBerry and Vivo; also suggested it to Motorola and Lenovo. Only Huawei (and its subsidiary Honor) make large scale modem chips.

Qualcomm has “strangled the competition”

The California District Court of Justice has thus severely hit Qualcomm’s fingers, telling the semiconductor giant to leave some room for others: “Qualcomm’s licensing practices have strangled competition in the markets high-end CDMA chips and LTE modem chips for years, hurting competitors, OEMs and end consumers , ” said District Court Judge Lucy Koh.

The court has thus made five orders that Qualcomm must respect, under penalty of (very heavy) fines. In particular, the smelter will have to renegotiate all its license agreements, and remove all threats to cut off the supply or technical support in case of recourse to competition. Qualcomm is also directed to make its patent licenses available to other modem chip providers on fair, reasonable and non-discriminatory terms.

Ending the exclusivity contracts

Qualcomm will also have to put an end to all of its exclusivity contracts, a veritable poison of competition, which allows the founder to charge particularly high prices: “The exclusivity agreements are particularly heavy on the markets, like chips. modern, “very focused” with few players … given the market focus, exclusive agreements with Apple could eliminate competition, “ said Lucy Koh.

On this last point, all eyes have turned to Intel. The American semiconductor manufacturer was developing until recently 5G modem chips; the had to provide the future iPhones, Apple being at the time in open war with Qualcomm.

But delays Intel has accumulated on this issue have caused Tim Cook and his team to fear 5G connectivity to the competition, forcing Apple to return to Qualcomm. The commercial agreement between the two American giants had just preceded Intel’s announcement of the end of its 5G chip development projects.

Will competition rise?

The case is emblematic of the serious problems posed by Qualcomm’s ultra-dominant position in this market. Competition is weak, and offers much less powerful products, dissuading the majority of manufacturers to opt for another solution. District Court Orders are intended to change this state of affairs. Qualcomm will be required to provide compliance and monitoring reports to the Federal Trade Commission (FTC) for the next seven years to demonstrate compliance with the judge’s orders.

Only problem: the delay of competitors seems so important that it will probably take some time before we see viable alternatives to the products of the American foundry. However, with Qualcomm patents in hand, we can think that Nvidia or Intel should eventually be able to finally develop convincing chips. 

Case to follow.

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