Over a year ago, I filed comments at the International Trade Commission (ITC). Those comments explained why it went against the public interest to exclude Qualcomm’s competitors products from the U.S. market based on Qualcomm’s patent infringement allegations.
Last week, the ITC administrative law judge in charge of the case agreed.
What’s At Stake?
About 18 months ago, Qualcomm asked the ITC to ban the importation of Apple iPhones using non-Qualcomm baseband chips. This was done as part of Qualcomm’s larger strategy of using patent lawsuits to help maintain its effective monopoly on baseband chips.
That monopoly—along with practices like violating their SEP commitments, “no license, no chips”, and charging use-based licensing fees—has allowed Qualcomm to raise the prices handset makers have to pay them (and thus the prices consumers pay for handsets) and to harm the success of competitors in the baseband chipset market.
In addition, even if the ITC ultimately determines that an exclusion order would be inappropriate, Apple will still have paid 18 months of lawyer’s fees. For an ITC case of this size, that’s likely to be more than $10 million—and that’s money Apple won’t get back.
Qualcomm’s On Notice
The judge’s reasoning isn’t available yet, but a summary (the Notice of Final Initial Determination) is. And in that summary, Judge Pender says he’s determined that the public interest weighs Qualcomm’s request to ban iPhone imports. Until we see Judge Pender’s detailed reasoning (likely some time in the next few weeks), we won’t know for sure why he made this recommendation, but there are a few possibilities I can think of.
Excluding iPhones Will Result In Unavailability Of Phones
At its core, this is a simple question of economics. iPhones represent a significant proportion of U.S. smartphone sales. If those phones are unavailable, would consumers be able to replace them with other comparable phones?
I suspect that Judge Pender (correctly) believes the answer is no. If 20% of the U.S. smartphone market1 disappears, the remaining vendors won’t be able to replace that portion of the market overnight. That would result in phones becoming harder to obtain and likely result in price increases due to the reduced supply.
Smartphones Have Health and Safety Impacts
One of the factors the ITC is required to look at are the impacts of exclusion on public health, safety, and wellness. Smartphones have significant impacts. Smartphones provide the only voice telephony (including 911 services) for a majority of Americans, and the only Internet access for a significant portion of Americans.2 Disruptions in access to smartphones would create real public safety concerns.
Qualcomm’s Anti-Competitive Use Of Patents To Maintain Its Monopoly
This is the big issue, and the one that I expect Judge Pender’s determination will devote the most time to analyzing. Ultimately, Qualcomm’s ITC lawsuit is part of a larger strategy directed to using its patent portfolio to maintain its monopoly power in the baseband chipset market.
As Qualcomm’s monopoly has been challenged over the past few years, culminating in significant purchases of competitors’ products by Qualcomm’s customers, Qualcomm has stepped up its campaign to lock its customers in. This has taken a variety of forms, described in detail in the FTC’s lawsuit against Qualcomm. But in this case, Qualcomm is threatening any of their customers who consider buying products from a competitor with lawsuits regarding the products that use their competitor’s products. That’s an anti-competitive tactic designed to maintain Qualcomm’s monopoly, the sort of anti-competitive tactic that led to the FTC’s lawsuit against Qualcomm.
And ultimately, I expect that these tactics are also a significant portion of why Judge Pender has recommended against Qualcomm’s request for an exclusion order.
- While Apple has approximately 40% of the U.S. smartphone market, estimates are that 50% of the iPhone 7, 8, and X generation of phones contain Intel processors. The more recent XS phones only use Intel processors. ↵
- Smartphones are also increasingly being used for connected health services, ranging from tracking health data to telemedicine. ↵