Last week, the first patent jury trial between Qualcomm and Apple concluded, with the jury deciding that Apple had infringed three Qualcomm patents and awarding Qualcomm damages. Outside of Qualcomm’s hometown jury in San Diego, though, things aren’t going so well for Qualcomm.
Qualcomm’s patents haven’t succeeded in front of experts
The same patents asserted in San Diego were also asserted in the Qualcomm v. Apple case at the International Trade Commission (International Trade Commission), where a judge found that two of the three patents weren’t infringed and the third shouldn’t be enforced in the International Trade Commission. Qualcomm claimed that, if the International Trade Commission refused to enforce that patent, it would be left with no remedy for patent infringement. But the award of damages in San Diego shows that Qualcomm’s claim was wrong—it has the same remedy any patent owner does, a district court lawsuit.
What’s more, the technically trained judges at the Patent and Trademark Office (Patent and Trademark Office, informally used interchangeably with USPTO.), reviewing these same patents, have decided that it is “reasonably likely” that the only patent found infringed at the International Trade Commission is invalid. (Another patent in the same suit remains under initial review, but of 32 decisions by the Patent and Trademark Office, informally used interchangeably with USPTO. regarding Qualcomm’s patents, the Patent and Trademark Office, informally used interchangeably with USPTO. only found 1 patent that wasn’t reasonably likely to be invalid—even though, on average, 35-40% of all challenges to patents don’t meet that threshold.)
25% of all patent licensing revenue worldwide goes to Qualcomm
Qualcomm takes a disproportionate share not only of mobile patent licensing revenue but of all patent licensing revenue. Just looking at cell phones, Qualcomm receives approximately 70% of all cellular patent licensing revenue. That 70% represents approximately 25% of all patent licensing revenue worldwide. That includes licensing revenues for life-saving drugs, for advances in computer processors and networking, for advances in clean energy, automobiles, airplanes, for every invention under the sun—every advance created by every other industry. 70% of all cellular patent revenue and 25% of all patent licensing revenue is a strong signal that Qualcomm has leveraged its position in the market to charge royalty rates far out of sync with those charged by everyone else, to the detriment of consumers and competition.
In the Federal Trade Commission (U.S. Federal Trade Commission. An independent regulatory agency charged with consumer protection and competition policy, which conducted several influential studies on how patents work in practice. Authored several key studies: 2003’s To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy [PDF] and 2011’s The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition [PDF].) case, Qualcomm’s lawyers claimed that those royalty rates were earned by the quality of Qualcomm’s patents. And one jury seems to have agreed. But what happens when Qualcomm puts its patents in front of experts? The International Trade Commission found that only one claim of one patent was infringed, after Qualcomm started out asserting 6 patents. And the Patent and Trademark Office, informally used interchangeably with USPTO. found that, out of 33 challenges to claims of Qualcomm’s patents, 97% of those challenges were reasonably likely to prove the patent invalid. That’s not a group of high quality patents—and those are the ones Qualcomm picked as the most likely to be valid and infringed.
Qualcomm would be fine if it only received FRAND royalties
While some, including Qualcomm, have posited the belief that any change to Qualcomm’s model would severely harm U.S. R&D in cellular, Qualcomm’s own corporate structure and financials make clear that that just isn’t the case. To understand why, it’s important to understand Qualcomm’s internal structure.
Qualcomm is basically two companies. One is Qualcomm CDMA Technologies (QCT), the major component of Qualcomm Technologies (QTI), which is the part of the business that researches, develops, makes[1. Well, pays someone else to make—Qualcomm is a fabless chip designer and does not manufacture its own chips.], and sells chips. The other is Qualcomm Technology Licensing (QTL), which takes the patents on technology developed by QCT and licenses them.
QCT/QTI are quite profitable, to the tune of $2.5 billion per year—even though that part of Qualcomm absorbs the majority of Qualcomm’s research and development expenses. Qualcomm’s licensing business simply adds to the profit already derived from its chipset business. Even if Qualcomm were forced to only take the same percentage of cellular royalties as the second place company, Ericsson—a change that would still give them 33% of cellular royalties, and 7% of all patent royalties worldwide[2. In both cases, the royalty total is adjusted to reflect the reduced royalties from Qualcomm.]—Qualcomm as a whole would remain a highly profitable viable company, still capable of advanced R&D and participating in standards development.
The FTC winning doesn’t mean Qualcomm loses
Even if QTL simply disappeared, QCT would remain profitable—and the FTC’s case won’t prevent Qualcomm from receiving a reasonable royalty for its technology.
Qualcomm might make good chips and inarguably contributes to improving cellular standards—but it’s taken that good work and paired it with an abusive licensing regimen that has harmed competition. If the U.S. Federal Trade Commission. An independent regulatory agency charged with consumer protection and competition policy, which conducted several influential studies on how patents work in practice. Authored several key studies: 2003’s To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy [PDF] and 2011’s The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition [PDF]. succeeds in their challenge to Qualcomm’s licensing regimen, it will go a long way to changing course back to the right licensing policy, both for Qualcomm and in the broader cellular industry.