Intel sold its smartphone modem chip business to Apple at "a multi-billion dollar loss," the U.S. chipmaker said in a court filing on Friday, alleging that rival Qualcomm forced it out of the market.
Intel on Friday filed a brief supporting the Federal Trade Commission (FTC) and opposing Qualcomm’s appeal of the judgment rendered in May against Qualcomm by the United States District Court, Northern District of California. The District Court found that “Qualcomm’s licensing practices have strangled competition in the CDMA and premium LTE modem chip markets for years, and harmed rivals, OEMs and end consumers.” The District Court also found that Qualcomm’s conduct “unfairly tends to destroy competition itself.”
Steven R. Rodgers, executive vice president and general counsel at Intel Corp., said that his company agrees with the District Court’s findings. "Intel suffered the brunt of Qualcomm’s anticompetitive behavior, was denied opportunities in the modem market, was prevented from making sales to customers and was forced to sell at prices artificially skewed by Qualcomm. We filed the brief because we believe it is important for the Court of Appeals to hear our perspective," he said.
Qualcomm is the last surviving U.S. supplier of premium modem chips. According to Rodgers, Qualcomm's rivals in the market did not fail simply because “they did not offer good enough chips at low enough prices.” Instead, as detailed in the District Court’s opinion and in Intel's brief, "Qualcomm maintained its monopoly through a brazen scheme carefully crafted and implemented over many years. This scheme consists of a web of anticompetitive conduct designed to allow Qualcomm to coerce customers, tilt the competitive playing field and exclude competitors, all the while shielding itself from legal scrutiny and capturing billions in unlawful gains."
Rodgers said that the victims were Qualcomm’s own customers (original equipment manufacturers or OEMs), the long list of competitors it forced out of the modem chip market, including Intel, and ultimately consumers. Intel fought for nearly a decade to build a profitable modem chip business. Rodgers said that Intel invested billions, hired thousands, acquired two companies and built world-class products that eventually made their way into Apple’s iPhones, including the most recently released iPhone 11. But Rodgers says that Intel "could not overcome the artificial and insurmountable barriers to fair competition created by Qualcomm’s scheme and was forced to exit the market this year."
As a result of its anticompetitive practices, Qualcomm has been fined nearly $1 billion in China, $850 million in Korea, $1.2 billion by the European Commission and $773 million in Taiwan (later reduced in settlement). The FTC, however, did not seek monetary relief. Instead, it sought injunctive relief to prevent Qualcomm from continuing to engage in its conduct.
Among other things, the District Court prohibited Qualcomm from continuing to implement the central component of its scheme, its coercive “no license, no chips” (NLNC) policy. Under the policy, Qualcomm cuts off handset OEMs’ purchases of modem chips unless they enter into a patent license agreement on Qualcomm’s terms. "These onerous, one-sided terms enable Qualcomm to artificially lower the price of its modems while simultaneously inflating customers’ costs of using modem chips manufactured by competitors, like Intel, by charging royalties as large as the price of the modems themselves," Rodgers added.
Qualcomm has denied the FTC's accusations, and other parts of the U.S. government urged the appeals court to pause enforcement of the FTC ruling against it. In July, the Pentagon and the Department of Energy said Qualcomm was a "trusted" supplier of 5G technology and would be "impossible to replace" in the short term if put out of business.
The cost of cars equipped with ultra-fast 5G wireless technology is likely to go up if microchip supplier Qualcomm’s patent licensing practices fail to change, a trade group representing major automakers and two leading automotive suppliers said in court filings on Friday.
Trade groups representing the U.S. units of BMW, Ford Motor Co, General Motors Co and Toyota Motor Co, among others, made various claims about adverse effects of Qualcomm’s licensing practices in the 9th U.S. Circuit Court of Appeals. Also filing was a unit of German supplier Continental AG and Japan-based Denso Corp.