WEBVTT - Qualcomm Faces Antitrust Lawsuits Over Mobile Chips (Audio)

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<v Speaker 1>Qualcom makes most of its profits from licensing technology that

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<v Speaker 1>is essential to modern cell phones, and it also sells

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<v Speaker 1>chips that are used in those same cell phones. But

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<v Speaker 1>in a new lawsuit, the Federal Trade Commission argused that

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<v Speaker 1>Qualcom violated the anti trust laws by offering rebates on

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<v Speaker 1>licensing fees conditioned on Apple using its chips exclusively in iPhones.

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<v Speaker 1>The FTC says this arrangement created de facto exclusive deals

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<v Speaker 1>that prevented competitors from selling processors to Apple. Here did

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<v Speaker 1>it talk to us about the FTCs lawsuit? Is Bloomberg

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<v Speaker 1>Intelligence senior litigation analyst Jennifer ree Jen always very happy

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<v Speaker 1>to have you here to explain something complicated like this

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<v Speaker 1>to us, And it is kind of a complicated arrangement

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<v Speaker 1>that leads to this laws whit Why don't we start

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<v Speaker 1>with you explain to us how it is that we

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<v Speaker 1>ended up in a situation where the FTC is claiming

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<v Speaker 1>that Qualcom has an anti competitive arrangement going on. Well,

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<v Speaker 1>thank you for having me again. Um Now, the FTC

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<v Speaker 1>has been investigating Qualcom for a few years now, and

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<v Speaker 1>sometimes as investigations get open because they are hearing complaints

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<v Speaker 1>from the industry, or they read something or here's something

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<v Speaker 1>that they think something not proper is going on, and

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<v Speaker 1>and this is what's come out of that investigation, and

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<v Speaker 1>and and to really make it simpler. It is complicated,

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<v Speaker 1>but let's just make it simpler. Qualcom has patents that

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<v Speaker 1>go into standards that are needed from most of the

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<v Speaker 1>most advanced mobile phones. A standard setting organization decided on

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<v Speaker 1>that standard, knew that the standard incorporated qualcom intellectual property rights,

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<v Speaker 1>and when that was decided, Qualcom agreed, I will be

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<v Speaker 1>part of this standard, and I promise that I will

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<v Speaker 1>fairly reasonably and in a nondiscriminatory manner license anyone who

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<v Speaker 1>needs this access to this i P for the standard

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<v Speaker 1>for the mobile phone that's sold. And essentially there's a

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<v Speaker 1>litany of conduct that the FTC is laid out that

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<v Speaker 1>they say is essentially they're not abiding by this promise,

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<v Speaker 1>they're not fairly licensing the i P that companies have

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<v Speaker 1>to have to incorporate the standard into into the cell phone,

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<v Speaker 1>and the Apple exclusivity is part of it. So the

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<v Speaker 1>timing of this law student, we have been discussing Justice

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<v Speaker 1>Department settlements and lawsuits and different things happening um as

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<v Speaker 1>the Obama administration winds down. Is the timing suspect. While

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<v Speaker 1>the timing is quite suspect because you know where this

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<v Speaker 1>is in the Federal Trade Commission, where you have commissioners

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<v Speaker 1>who vote to bring in action. Right now, we're missing two.

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<v Speaker 1>We have three out of a total five, and one

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<v Speaker 1>is a Republican into our Democrats, and one of those

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<v Speaker 1>Democrats is leaving as a February twenty, which would have

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<v Speaker 1>left two. You need a majority vote in order to

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<v Speaker 1>bring a lawsuit like this, and the Republican dissented. She

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<v Speaker 1>strongly disagreed with bringing this suit. So had they waited

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<v Speaker 1>to fit until February twenty, they would have been a

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<v Speaker 1>one to one vote and there would have been no

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<v Speaker 1>lawsuit brought. So I think it looks a little bit

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<v Speaker 1>like this was sort of a rush to get the

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<v Speaker 1>suit in there while there was still a majority Democrat.

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<v Speaker 1>Well okay, so but now they have brought the suit.

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<v Speaker 1>We have a situation where you know, Qualcom does a

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<v Speaker 1>couple of different things, and it's making a business deal

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<v Speaker 1>with that and saying, look, we'll license our stuff for you.

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<v Speaker 1>In fact, we'll give you a good deal on that

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<v Speaker 1>if you want to buy the other things from us,

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<v Speaker 1>which on one level seems like perfectly reasonable business making.

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<v Speaker 1>Why does the federal government think this violates the anti

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<v Speaker 1>trust laws? You know, it's funny because this is a

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<v Speaker 1>controversial area of the anti trust laws for sure, because

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<v Speaker 1>exclusive agreements are often proper and not illegal. And you know,

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<v Speaker 1>you're looking at the situation where they're claiming, well, they're

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<v Speaker 1>giving these great, big, huge rebates to Apple and theoretically

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<v Speaker 1>this should translate into a lower price for consumers, and

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<v Speaker 1>that's a good thing, So why would you want to

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<v Speaker 1>blunt that? But what they're essentially saying here is that

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<v Speaker 1>it's unfair because it's blocking access to this very important

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<v Speaker 1>and large maker of mobile phones to competitors of Qualcom,

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<v Speaker 1>and it's just continuing Qualcom's dominance in in basically the

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<v Speaker 1>modem chip sets needed, which allows them then to charge

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<v Speaker 1>higher costs to everybody else that needs this chip set.

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<v Speaker 1>So now there's been a private lawsuit against Qualcom as well.

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<v Speaker 1>Is it the same as the FTCs are different? Why? Well,

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<v Speaker 1>it's based on similar conduct allegations, but it actually has

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<v Speaker 1>a very significant difference. The private lawsuit, as it needs

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<v Speaker 1>to be, is based on the Sherman Act, which is

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<v Speaker 1>the primary antitrust law. But the FTC S lawsuit is

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<v Speaker 1>based on Section five of the FTC Act, which only

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<v Speaker 1>the FTC has access to. Private plaintiffs can't bring a

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<v Speaker 1>suit under section five, and that's a big difference because

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<v Speaker 1>the Sherman Act allegations are more difficult to prove. They

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<v Speaker 1>require a higher standard, whereas under Section five there's a

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<v Speaker 1>little bit, it's a little broader, there's more discretion. It

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<v Speaker 1>just prohibits unfair acts um And it's another reason why

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<v Speaker 1>Commissioner Olhausen dissented because the Section five itself is controversial.

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<v Speaker 1>And when they've brought this under section five and not

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<v Speaker 1>the Sherman Act, it suggests, well, they didn't really have

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<v Speaker 1>evidence supporting true monopolization or true price wealth. That's the

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<v Speaker 1>price fixing isn't part of it, but true monopolization conduct.

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<v Speaker 1>Jenery have about thirty seconds left. But is this is

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<v Speaker 1>all American litigation now we're talking about are there any

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<v Speaker 1>investigations or charge jews outside the US that Qualcom is

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<v Speaker 1>going to be facing about this yet? Qualcom has been

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<v Speaker 1>fined by China and Korea. They're fighting that they've an

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<v Speaker 1>order in Japan was issued a season desist and they're

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<v Speaker 1>still being investigated by Taiwan in Europe, so there there

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<v Speaker 1>could be more coming. Thank you very much to Jennifer

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<v Speaker 1>Ree Bloomberg Intelligence senior litigation analysts, for being with us

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<v Speaker 1>here today on Bloomberg Law. And that's it for this

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<v Speaker 1>edition of Bloomberg Law. We will be back tomorrow thanks

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<v Speaker 1>to our technical director Marxin Escalchi and our producer David Sutraman.

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<v Speaker 1>You can find more legal news at Bloomberg Law dot

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<v Speaker 1>com and Bloomberg b NA dot com, plus an invaluable

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<v Speaker 1>website for the legal community at Big Law Business dot

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