In a major setback for Qualcomm, the chip maker saw a U.S. District Judge in California rule against the company in its ongoing antitrust lawsuit battle with the Federal Trade Commission. On Tuesday, Judge Lucy Koh ruled that Qualcomm must license some of its industry-essential patents to rival chip suppliers—a ruling that analysts believe poses a significant threat to Qualcomm’s business model.
For years, Qualcomm has licensed its smartphone chip technology to manufacturers and device makers, charging those companies a percentage of the price of the smartphone. However, according to a Wall Street Journal report, when Qualcomm’s intellectual property was incorporated into cellular communication standards, they made certain commitments with standard-setting organizations that it would make any relevant patents available for use. Qualcomm, though, was under the impression that those agreements didn’t necessarily require the company to license its technology to rival chip makers like Intel.
Koh shot down that argument, saying that court precedent showed otherwise and that the company had “an obligation to license to all comers, including competing modem chip suppliers.” Additionally and critically, she said, those licenses have to be offered on fair and reasonable terms.
This ruling is potentially game-changing for two main reasons. First, the business implications for Qualcomm are massive. According to IP analyst Florian Mueller, who spoke with the Wall Street Journal, Qualcomm has been able to secure those manufacturer-level licensing deals for sales prices that could, at times, be worth as much as $400 per handset. This ruling, though, could mean that Qualcomm will only be able to charge fees based on the cost of the chip itself, which shrinks to between $15 and $20.
And second, there’s the implications this has on the broader licensing landscape in the cellular communications industry. Qualcomm has long argued that its agreements with the Telecommunications Industry Association and the American National Standards Institute do not apply on a component-level, and they haven’t for several decades. That argument has centered around the concept that cellular inventions are not “limited to a single piece of silicon” like the cellular modem in question here. As such, the entire system within a smartphone requires myriad chips working in sync in order for the phone to function properly—and, thus, protecting their individual modem chip from component-level licensing.
Judge Koh’s ruling, though, throws that argument out the window and opens the door for rival chip manufacturers like Intel and MediaTek to gain access to Qualcomm’s industry-leading chip technology.
Qualcomm has not issued any comments on the ruling, but the topic could come up during their quarterly earnings call on Wednesday.