US District Judge Lucy Koh’s ruling caused Qualcomm shares to plunge 11 percent on Wednesday.
“Qualcomm’s licensing practices have strangled competition” in parts of the chip market for years, harming rivals, smartphone makers, and consumers, Koh wrote in a 233-page decision.
She ordered the San Diego-based company to renegotiate licensing agreements at reasonable prices, without threatening to cut off supplies and ordered that it be monitored for seven years to ensure its compliance.
Qualcomm said it would immediately ask Koh to put her decision on hold and seek a quick appeal to the federal appeals court in California.
“We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law”, general counsel Don Rosenberg said in a statement.
Koh’s decision followed a 10 day non-jury trial in January and is a victory for the US Federal Trade Commission, which has accused Qualcomm in 2017 of violating antitrust law.
It is unclear whether the sanctions will be challenged by the US Department of Justice, which has taken a different view of the case that the FTC and emerged as an ally to Qualcomm.
On May 2, the Justice Department argued Koh should hold a hearing before placing sanctions on Qualcomm. Setting stringent conditions on the company would “reduce competition and innovation in markets for 5G technology”, the agency said.
Legal experts think that because the Justice Department is on Qualcomm’s side, Qualcomm certainly can prevail upon appeal.
Koh said Qualcomm engaged in “extensive” anticompetitive conduct targeting more than one dozen original equipment manufacturers including Apple, BlackBerry, Huawei, Lenovo, LG, Motorola, Samsung, and Sony, often by cutting off or threatening to cut off-chip supplies or withholding technical support.
She also said Qualcomm’s monopoly power in modem chips enabled the company to sustain “unreasonably high” royalty rates not justified by its contributions to the marketplace.
“With practices that result in exclusivity and eliminate opportunities to compete for OEM business, Qualcomm undermines rivals in every facet”, she wrote.
She also found Qualcomm knew its licensing practices harmed competition “yet continued” despite government investigations in China, Japan, Korea, Taiwan, the European Union and the United States.
Koh also said testimony from some Qualcomm witnesses “lacked credibility”, faulting Chief Executive Steve Mollenkopf and others for giving “long, fast, and practised narratives” and saying company emails and notes contradicted his testimony.
Koh said Qualcomm could not bundle patent licensing deals with its hardware, practice regulators called “no license, no chips”. That ruling could give chip customers more leverage in negotiations over patent terms and result in lower royalty rates for Qualcomm.
Koh also said Qualcomm must license its patents to rival chipmakers like MediaTek.
Qualcomm also argued that the FTC failed to show harm to competition, arguing that the chip industry is thriving and prices are declining.
Qualcomm’s next move will likely be to request Koh’s ruling is put on hold while the company seeks expedited review by the 9th US Circuit Court of Appeals.