Home / Technology / Qualcomm did not have full license bargaining power, says Exec

Qualcomm did not have full license bargaining power, says Exec


Samsung has been using Qualcomm chips in its devices for a long time.

Angela Lang / CNET

Qualcomm does not have all the power to negotiate licensing deals, a corporate executive said Friday. Instead, the manufacturers of mobile phones have the opportunity to achieve conditions that they consider cheaper.

Fabian Gonell, Qualcomm's senior vice president of licensing strategy and legal counsel for the licensing business, said in a court hearing Friday that Samsung, Sony Mobile and others had made agreements with Qualcomm that were different from the usual packages. He noted that Qualcomm had not stopped offering them chips while the licensing agreements were being challenged, adding that there is no part of the Qualcomm licensing agreements that are non-negotiable.

"We had a provision that had to do with export compliance [that was] as inviolable," Gonell said. "But someday somebody wanted to touch it, and it was touchable."

Gonell's statement on Friday highlighted Qualcomm's licensing practices. He attempted to counter statements by Apple and others that they felt that they had no choice but to accept licensing conditions they did not like so as not to lose access to Qualcomm chips.

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It took two years for Samsung and Qualcomm to sign a new licensing agreement, Gonell said.

"Everything was unusual," Gonell said. "It was an incredibly tailored agreement, almost everything was a problem, Samsung is very demanding, they are very tough negotiators."

What Samsung has finally done is pay Qualcomm a license fee in advance that is "an order of magnitude above average," Gonell said. Samsung then transferred patents to Qualcomm and licensed its entire patent portfolio. The "risk-sharing" rate was variable and based on how well Samsung phones were sold, he said.

In the case of Sony Mobile, the two have agreed on a fee rate that is lower than the typical price of Qualcomm, said Gonell.

Qualcomm has been battling the Federal Trade Commission since January 4 in a courtroom in San Jose, California. On Tuesday afternoon, the FTC discontinued its lawsuit against the company, and Qualcomm has since made prior defense.

The FTC has accused Qualcomm of having a monopoly on wireless chips, forcing customers like Apple to work exclusively with Qualcomm and charging excessive royalties for their technology, in part through the "No License, No Chips" policy apply. According to Qualcomm, the FTC's claim is based on "erroneous legal theory". It has also said that customers choose their chips because they are the best and have never stopped delivering customers to processors, even when they are fighting for licenses.

No License, No Chips

The "no license", no chips policy "is at the heart of Qualcomm's FTC process, but Qualcomm sells processors that connect phones to mobile networks, but licenses its broad portfolio as a group. For a fixed fee – based on the selling price of the terminal, usually a phone – the manufacturer can use all of Qualcomm's technology – it's phone manufacturers who pay the license fee, not chip makers.

To gain access to Qualcomm's chips Widely recognized as a leader in wireless innovation, a phone manufacturer must first sign a patent license agreement with Qualcomm Qualcomm has long been the leading provider of 4G LTEs and is ahead of the competition in the emerging 5G market Samsung, tended to use their modems, but the FTC argues that such an competition undermines Qualcomm's monopoly power.

Acting Chief Operating Officer Jeff Williams on Monday testified that his company must close contracts for overpayments – a royalty of $ 7.50 per iPhone – for access to the chips to get from Qualcomm.

"We've been aiming for more than $ 1 billion a year in licensing, so we had a gun in our heads," Williams said, explaining why Apple signed another license agreement in 2013, even though he did not was satisfied. He added that Apple wanted to use Qualcomm's chips for its newer devices, but Qualcomm refused to sell processors for the iPhone.

Other companies, such as Huawei and Lenovo, were similar during their testimony. But Gonell said Friday that Qualcomm has never broken company chip supply during contract negotiations, and he used the example of Samsung and Sony to show that companies can push for different conditions in their agreements.

He noted that Oppo and Vivo had suspended Qualcomm's payment for over a year due to licensing disputes, while Huawei also stopped payments. Apple has not paid through its contract manufacturers for over two years for the licensing of Qualcomm's technology. But Qualcomm delivered all the chips, Gonell said.

"If there is a licensee who challenges the licensing terms, we will continue to deliver chips if he wants them," he said.

License Battle

The FTC filed a lawsuit against Qualcomm two years ago with the support of the chip maker Intel and the iPhone maker Apple. The United States states that Qualcomm has a monopoly on modem chips and has affected competition by trying to maintain its performance. Qualcomm's "inflated" royalties prevented rivals from entering the market, driving up telephone costs and harming consumers facing higher mobile phone prices, the FTC.

The FTC in the trial summoned witnesses from companies such as Apple Samsung, Intel and Huawei, and called experts to testify about the alleged damage that Qualcomm's licensing practices have caused for the mobile industry. The study has shown how the most important business of tech, smartphones, works, and how suppliers are fighting for dominance and profit.

Upon licensing a telephone manufacturer, Qualcomm charges an upfront fee and subsequently charges royalties based on the retail price of the device, Gonell said Friday. When Qualcomm licensed its CDMA technology for the first time, a 5 percent fee was charged for phones. That rate declined when 4G LTE came out, and China committed a new, lower rate of 3.25 percent in November 2017, which rolled out Qualcomm then over its licensing base. This move also cut the value of mobile phones on which the royalty is based at $ 400, even if a device was sold for three times.

Gonell said Friday that Qualcomm's cap for a full portfolio license is $ 20 per device and $ 13 for only Qualcomm's core patents.

Qualcomm has argued that his broad patent portfolio and innovations justify his fees. CEO Steve Mollenkopf, who a week ago took position, defended the licensing practices of the company. He said the way his company sells chips to smartphone makers is best for everyone involved and easiest for licensing the technology.

Gonell repeated these comments, noting that the mobile technology was licensed at the mobile level. He said licensing all of Qualcomm's technology to chip makers would not make sense. This has quarreled Qualcomm since the beginning of the case.

The FTC said Qualcomm's refusal to grant licenses to its rivals was part of its effort to maintain its monopoly. Judge Lucy Koh agreed in November and decided that Qualcomm must license its wireless chip patents to its chip competitors, such as Intel.

"We're talking about major patents for cell phones, standards are written to describe the user equipment," Gonell said Friday. "If you're licensing at the modem chip level, you'll also need to do some device-level licensing."

He noted that such a practice "would make licensing much more cumbersome and inefficient".

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