Over a year ago, I filed comments at the International Trade Commission (International Trade Commission). 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 International Trade Commission administrative law judge in charge of the case agreed.
What’s At Stake?
About 18 months ago, Qualcomm asked the International Trade Commission 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 Standard-Essential Patent. A patent that a participant in standards development process declares to be essential to the practice of the standard. 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 International Trade Commission ultimately determines that an An order issued by the U.S. ITC as a result of a 337 action, excluding from entry into the United States goods found to infringe a U.S. patent. would be inappropriate, Apple will still have paid 18 months of lawyer’s fees. For an International Trade Commission 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 market[1. 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.] 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 International Trade Commission 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. Smartphones are also increasingly being used for connected health services, ranging from tracking health data to telemedicine.] 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 International Trade Commission 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 An order issued by the U.S. ITC as a result of a 337 action, excluding from entry into the United States goods found to infringe a U.S. patent..