Speaker 1: Qualcom makes most of its profits from licensing technology that
Speaker 1: is essential to modern cell phones, and it also sells
Speaker 1: chips that are used in those same cell phones. But
Speaker 1: in a new lawsuit, the Federal Trade Commission argused that
Speaker 1: Qualcom violated the anti trust laws by offering rebates on
Speaker 1: licensing fees conditioned on Apple using its chips exclusively in iPhones.
Speaker 1: The FTC says this arrangement created de facto exclusive deals
Speaker 1: that prevented competitors from selling processors to Apple. Here did
Speaker 1: it talk to us about the FTCs lawsuit? Is Bloomberg
Speaker 1: Intelligence senior litigation analyst Jennifer ree Jen always very happy
Speaker 1: to have you here to explain something complicated like this
Speaker 1: to us, And it is kind of a complicated arrangement
Speaker 1: that leads to this laws whit Why don't we start
Speaker 1: with you explain to us how it is that we
Speaker 1: ended up in a situation where the FTC is claiming
Speaker 1: that Qualcom has an anti competitive arrangement going on. Well,
Speaker 1: thank you for having me again. Um Now, the FTC
Speaker 1: has been investigating Qualcom for a few years now, and
Speaker 1: sometimes as investigations get open because they are hearing complaints
Speaker 1: from the industry, or they read something or here's something
Speaker 1: that they think something not proper is going on, and
Speaker 1: and this is what's come out of that investigation, and
Speaker 1: and and to really make it simpler. It is complicated,
Speaker 1: but let's just make it simpler. Qualcom has patents that
Speaker 1: go into standards that are needed from most of the
Speaker 1: most advanced mobile phones. A standard setting organization decided on
Speaker 1: that standard, knew that the standard incorporated qualcom intellectual property rights,
Speaker 1: and when that was decided, Qualcom agreed, I will be
Speaker 1: part of this standard, and I promise that I will
Speaker 1: fairly reasonably and in a nondiscriminatory manner license anyone who
Speaker 1: needs this access to this i P for the standard
Speaker 1: for the mobile phone that's sold. And essentially there's a
Speaker 1: litany of conduct that the FTC is laid out that
Speaker 1: they say is essentially they're not abiding by this promise,
Speaker 1: they're not fairly licensing the i P that companies have
Speaker 1: to have to incorporate the standard into into the cell phone,
Speaker 1: and the Apple exclusivity is part of it. So the
Speaker 1: timing of this law student, we have been discussing Justice
Speaker 1: Department settlements and lawsuits and different things happening um as
Speaker 1: the Obama administration winds down. Is the timing suspect. While
Speaker 1: the timing is quite suspect because you know where this
Speaker 1: is in the Federal Trade Commission, where you have commissioners
Speaker 1: who vote to bring in action. Right now, we're missing two.
Speaker 1: We have three out of a total five, and one
Speaker 1: is a Republican into our Democrats, and one of those
Speaker 1: Democrats is leaving as a February twenty, which would have
Speaker 1: left two. You need a majority vote in order to
Speaker 1: bring a lawsuit like this, and the Republican dissented. She
Speaker 1: strongly disagreed with bringing this suit. So had they waited
Speaker 1: to fit until February twenty, they would have been a
Speaker 1: one to one vote and there would have been no
Speaker 1: lawsuit brought. So I think it looks a little bit
Speaker 1: like this was sort of a rush to get the
Speaker 1: suit in there while there was still a majority Democrat.
Speaker 1: Well okay, so but now they have brought the suit.
Speaker 1: We have a situation where you know, Qualcom does a
Speaker 1: couple of different things, and it's making a business deal
Speaker 1: with that and saying, look, we'll license our stuff for you.
Speaker 1: In fact, we'll give you a good deal on that
Speaker 1: if you want to buy the other things from us,
Speaker 1: which on one level seems like perfectly reasonable business making.
Speaker 1: Why does the federal government think this violates the anti
Speaker 1: trust laws? You know, it's funny because this is a
Speaker 1: controversial area of the anti trust laws for sure, because
Speaker 1: exclusive agreements are often proper and not illegal. And you know,
Speaker 1: you're looking at the situation where they're claiming, well, they're
Speaker 1: giving these great, big, huge rebates to Apple and theoretically
Speaker 1: this should translate into a lower price for consumers, and
Speaker 1: that's a good thing, So why would you want to
Speaker 1: blunt that? But what they're essentially saying here is that
Speaker 1: it's unfair because it's blocking access to this very important
Speaker 1: and large maker of mobile phones to competitors of Qualcom,
Speaker 1: and it's just continuing Qualcom's dominance in in basically the
Speaker 1: modem chip sets needed, which allows them then to charge
Speaker 1: higher costs to everybody else that needs this chip set.
Speaker 1: So now there's been a private lawsuit against Qualcom as well.
Speaker 1: Is it the same as the FTCs are different? Why? Well,
Speaker 1: it's based on similar conduct allegations, but it actually has
Speaker 1: a very significant difference. The private lawsuit, as it needs
Speaker 1: to be, is based on the Sherman Act, which is
Speaker 1: the primary antitrust law. But the FTC S lawsuit is
Speaker 1: based on Section five of the FTC Act, which only
Speaker 1: the FTC has access to. Private plaintiffs can't bring a
Speaker 1: suit under section five, and that's a big difference because
Speaker 1: the Sherman Act allegations are more difficult to prove. They
Speaker 1: require a higher standard, whereas under Section five there's a
Speaker 1: little bit, it's a little broader, there's more discretion. It
Speaker 1: just prohibits unfair acts um And it's another reason why
Speaker 1: Commissioner Olhausen dissented because the Section five itself is controversial.
Speaker 1: And when they've brought this under section five and not
Speaker 1: the Sherman Act, it suggests, well, they didn't really have
Speaker 1: evidence supporting true monopolization or true price wealth. That's the
Speaker 1: price fixing isn't part of it, but true monopolization conduct.
Speaker 1: Jenery have about thirty seconds left. But is this is
Speaker 1: all American litigation now we're talking about are there any
Speaker 1: investigations or charge jews outside the US that Qualcom is
Speaker 1: going to be facing about this yet? Qualcom has been
Speaker 1: fined by China and Korea. They're fighting that they've an
Speaker 1: order in Japan was issued a season desist and they're
Speaker 1: still being investigated by Taiwan in Europe, so there there
Speaker 1: could be more coming. Thank you very much to Jennifer
Speaker 1: Ree Bloomberg Intelligence senior litigation analysts, for being with us
Speaker 1: here today on Bloomberg Law. And that's it for this
Speaker 1: edition of Bloomberg Law. We will be back tomorrow thanks
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