Intel and Samsung Gang Up on Qualcomm, Backing FTC Monopoly Suit
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These are standard essential patents for LTE and CDMA baseband processors. They were added as part of the standard, and in exchange for that, Qualcomm agreed to license them to competitors under FRAND (fair, reasonable, and non-discriminatory) terms. They arent doing that.
This article has good descriptions of the behavior Qualcomm is being accused of: https://www.fool.com/investing/2017/01/18/regulators-accuse-...
a) The people making the standard work for the companies filing the patents. They are highly incentivized to make their own patents required, and
b) There's all sorts of potential legal liability associated with just knowing about patents, much less telling anyone else or writing that knowledge down.
As a result, you get things like the ISO and ITU IPR policies which profess to make the standardization process "patent blind". That is, so long as you agree to license your patents under FRAND terms, you can participate, and no one is allowed to exclude your technology solely on the basis of your patents.
This results in maximally patented standards. Even if you're not interested in seeking rent from other standards users, lots of other people contributing to the standard are. So you're forced to file patents just to minimize the amount you have to pay to use the technology you yourself helped create.
That's why you see things like the HEVC mess, where four years after the standard was completed, no one knows if it's even possible to license all of the patents required, nor how much it would cost if you could.
ISO/IEC and ITU have had a common patent policy since at least 2006. Here is their "Patent Statement and Licensing Declaration" form: https://www.itu.int/dms_pub/itu-t/oth/04/04/T04040000020004P...
On page 3, where the space for entering patent numbers is, it says they are "desired but not required for options 1 [royalty-free] and 2 [FRAND]; required in ITU for option 3 [refusal to commit to either of those licensing terms]". ISO actually allows you to claim you have patents on a standard, refuse to license them to anyone at any price, and not even tell anyone what the patents are, much less which part of the standard they cover. This has happened to at least one standard that was attempting to be royalty-free.
In general, you can assume the answer to the question, "Does the proponent of this technology have patents covering it?" is yes, for the reasons I outlined in the GP. So in practice the above disclosures provide nearly zero information. They don't help you evaluate alternative designs, because you don't know what you need to change to avoid the patents. You also don't know when one party might have patents on a contribution made by a different party [1]. The disclosure is at the level of the standard as a whole, and not by individual feature.
The disclosures are also not very specific about the actual licensing terms. I've had an expert lawyer who made her career on dealing with patent licensing tell me with a straight face that she had no idea what FRAND means. In some industries, it is common practice to require someone to sign an NDA before you will even tell them what your supposedly "non-discriminatory" terms are.
The actual licensing terms are negotiated well after the standard is complete, by which point it is too late to solve problems by excluding technology.
[1] This is quite common. People read the contributions of others and rush to file something based on the direction they think it is going. That ensures they have patents on the standard regardless of whether or not any of their own contributions make it in.
[0] https://books.google.com/books?id=qTkEAAAAMBAJ&lpg=PA52&ots=....
[1] https://books.google.com/books?id=OFCXnqlSFKwC&lpg=PA709&dq=....
[2] https://www.ftc.gov/news-events/press-releases/2008/01/ftc-c....
Edited to fix formatting
The correct links are below.
[0] https://books.google.com/books?id=qTkEAAAAMBAJ&lpg=PA52&ots=...
[1] https://books.google.com/books?id=OFCXnqlSFKwC&lpg=PA709&dq=...
[2] https://www.ftc.gov/news-events/press-releases/2008/01/ftc-c...
So you can discuss it openly with your competitors and suppliers without running afoul of anti-trust laws. I also assume it's the major reason for organizations like ISO to exist in the first place.
I'd strongly advise to add an "alledgedly" there. Now, Qualcomm certainly is no saint when it comes to patent infighting/strongarming/abuse/(your moniker of choice), the accusations are quite strong and I don't think I'll shed a tear should they bear fruit. But FRAND is a fickle mistress. There is no simple predetermined way of how to declare something as FRAND, and it's certainly not up to one party to unilaterally declare something FRAND or not. When push comes to shove, it's still a matter of negotiation and - should that fail - a matter of the courts.
Apple themselves should know best - after all, they had a long clinch with Nokia about that matter. Ironically, while their claim was the same (that the opponent's terms were unfair), the actions were completely opposite. Back then, it was Nokia who asked the court to defining the FRAND licencing terms after rounds and rounds of fruitless negotiation...it never came to that, of course, since they finally settled out of court shortly afterwards (with a previously unthinkable cross-licensing deal nonetheless).
>Samsung claims its in-house chip unit is artificially held back by Qualcomm’s unwillingness to license its technology.
I don't know the details of the patents in question, but I assume they are hardware patents. In any event, the idea of either Intel or Samsung complaining about some other company subverting competition is hilarious. But I guess that's how the game is played at this level.
Agreed. I think this is what's happening:
Big tech companies have realized they need to expand into other markets (intel and samsung being prime examples). The only markets left that are big enough are monopolies protected by patents, with Qualcomm being a prime example.
Entirely new markets are less interesting because they're not big enough. Even with massive growth, it will take too long for them to become big enough. A.I. is a maybe, but that market is hardly proven. The money in A.I. might be in reforming companies from the inside instead of selling products to those same companies.
There's going to be more money in invalidating patents and moving into the industries that suddenly opens than there is in actually benefitting from patent royalties. Winning the war on patent trolls would speed this process up.
Once people realize that companies that derive a large percentage of their income from patent portfolios are just big dead rotting corpses waiting to be dismantled, the world will be a better place.
I'm not sure if Samsung is a good example of this. They have been making Exynos chips for a long time, and other ARM SoCs before that. So its not like they have suddenly awakened and trying to break into new market.
While Qualcomm holds a lot of wireless patents and they are entitled to make money for what they have contributed, they also agreed to declare their patents as part of the ETSI CDMA, LTE standards. This is beneficial for Qualcomm because now everyone HAS to use and license their patents, so they have guaranteed income. But, at the same time, they are also required to license their patents at fair and reasonable terms regardless of who licensees are.
Qualcomm violated their FRAND obligations in two very blatant ways. First, they REFUSED to license their patents to competing baseband makers, like Intel, Samsung, and other baseband makers. KFTC last year also found out that Qualcomm barred Samsung from marketing and selling their own AP/baseband chips in certain market (US) for some 20 years. So it also runs a foul of US anti-trust/anti-competitive laws.
If Qualcomm wants the kind of legal patent monopoly enjoyed by pharma's for instance, they need to keep their patents proprietary, and not declare them to SSO's. Qualcomm is trying to force everyone to license their tech as SSO's standards, then break every rule they agreed to uphold to maintain their dominance.
No, they are not hardware patents. They are mostly wireless that Qualcomm declared to be standard under FRAND terms.
Qualcomm's direct competitors are directly harmed by Qualcomm's monopolistic pratices -- such as not granting licenses to their competitors when Qualcomm promised to do so in violation of FRAND. It not only violates ETSI rules, the standard setting organization governing wireless standards like CDMA and 4G, but also US's anti-competitor/trust laws.
Qualcomm is in the IPR and in the chip market. The others are buyers of IPR and sell chips implementing said IPR. The key is that Qualcomm is self-dealing(!) here. That position is a very powerful one and the way they strike individual agreements and openly or indirectly bundle things raises a lot of questions.
Bundling stuff from a position of power is what gets attention by the FTC - prominent examples are Windows Explorer and the IBM monopoly case way back.
QCOM will probably make the case along the lines that "we designed the engine that powers your F1, we are the reason that your product performs as well as it does." They sincerely believe that their multitude of patents is much of what is making smartphones successful.
AAPL will probably make the case that since they purchase the electronics from Foxconn (or someone similar), that those devices should be considered the goods on which the royalty is based. That their finished good that they sell in retail stores is the result of their OS/software and their product's image cultivated over decades. Their press release has used a different analogy from the one above I imagined for QCOM -- that "Qualcomm charges a different price for the couch depending on which house it's sold in."
The ruling from the Korean trade commission is probably what Apple saw as the chink in Qualcomm's armor.
I can honestly see it from both sides. Qualcomm holds patents in many domains that allow them to exploit their position. They were awarded those patents because they sincerely did innovate in this area. CDMA alone is huge (although that initial basis may have expired or be expiring soon). I see Apple's side -- they can charge their customer vast markup because of their status as a luxury brand.
Even more extreme example. Imagine you're Rolls Royce and want to make your next car have a permanent cell connection. Does 2% of the cost of a car at say 500k sound "reasonable" any longer?
It should be the component or at best overall component in a larger design, not the design itself. As it stands final device cost just seems like a liver punch for no real reason than "because".
But thats just my view of things, I'm curious if anyone can argue for a fixed % of final device cost for things that start to get costly as being "fair and reasonable". I'm having a really hard time coming up with one outside of its good for qualcomm's bottom line.
Qualcomm is correct to argue that their patents are critical to the device functionality, so they should get a chunk of the profits.
Apples market cap went up by 5 Qualcomms since they started selling the iPhone, so they clearly get the lions share of profits. It's hard to argue that the pricing is unfair.
FRAND stands for "fair, reasonable, and non-discriminatory terms". How is it not discriminatory to charge companies, who operate in different market segments, different amounts for the same needed part?
Yes, people buy apple products for lots of reasons, but would apple have made 50% of Qualcomms market cap in profits from iPhone each year if it was a gsm device? Qualcomm can argue that it's pricing is Fair and Readonable since it does not inhibit Apple from making a mountain of money. There is nothing out of the ordinary for charging people a different price (unless it's because they are a protected class, but that's a separate issue)
If not, perhaps what you need is a Apple iPod touch. Apple's sales however demonstrates that the iPhone is a significant driver of their sales and profit, especially when compare to iPod touch.
Sadly, while I agree with Samsung and Intel that Qualcomm's anti-competitive practices caused a direct harm, it's difficult to prove Apple's direct harm. Apple has argued against the FRAND royalty basis (EMVR) before back in 2012 in a USITC case without much evidence and lost.
1: A product that ostensibly is not a communications device 2: The component providing LTE is but a small subset of the overall device 3: A rather high cost item where a fixed percentage ends up being rather significant
Even for the iPhone I'd argue that the overall communications ensemble is but a small part of the phone overall.
Contrast to an IOT device that might cost $50, the same should apply. I'm curious what the cutoff is for depends heavily and how EMVR is determined exactly?
2. if Qualcomm can prove that LTE adds significant value to the core functionining of the product and consumer demand driven by Qualcomm's patented features is significant, they are all entitled to it. In patent cases, the courts use similar underlying concepts (eg, Georgia Pacific analysis) to determine what's fair. In Apple's case, there is significantly cheaper alternative to the iPhone without Qualcomm's patented feature, the iPod touch. But we also know from Apple's own sales figure that much greater number of consumers are willing to pay much higher price for the iPhone precisely because of Qualcomm's wireless functionality.
3. Apple has in the past demanded as much as $8 per, or about 1.5% of, end-device price, for frivolous patents such as slide-to-unlock, rounded-corners, etc (for a total of $30, or about 5%, of end-user device for four such patents). Qualcomm's published rate is somewhere between 3%-5% based on Foxconn's manufacturing cost, or less than 2% of the retail price. In comparison to Apple's own licensing practices, IMO, that's a bargain.
Apple did participate in KFTC's case against Qualcom, but I think it's still a bit difficult to prove Apple's direct harm. I mean I could see clearly how Qualcomm's direct competitors were harmed by their licensing malpractices -- eg, Qualcomm refusal to license, it's more difficult to quantify Apple's loss.
One way to understand the lawsuit between Apple v Qualcomm is that Apple believes that their patents are worth $8 per device (see Samsung 2012), while everyone else's, especially Standard Essential Patents, are $0.00000000x per device. So Apple is just trying to squeeze their suppliers.
In its Amicus Brief Intel argues (http://blogs.intel.com/policy/files/2017/05/Intel-Amicus-Bri...) especially against the no-license no-chip policy:
> The Complaint focuses, instead, on Qualcomm’s policy of conditioning its chipset sales on the OEM agreeing that handsets using another vendor’s chipsets be licensed on the terms Qualcomm dictates. But selling Qualcomm chipsets to an OEM plainly does not “assist” that OEM in producing a handset that uses another vendor’s chipset making Qualcomm’s policy unnecessary to avoid “assisting” supposed infringement that Qualcomm is no part of. Qualcomm “assists” an OEM’s sale of handsets using other vendor's chipsets only in the sense that Qualcomm could devastate an OEM completely by cutting off its supply.
Imagine Intel insisting that buyers of AMD's chips are following Intel's licensing terms. Qualcomm uses its standard essential patents as power levers. The pricing structure reflects that and is now so out of whack with what is happening elsewhere that Apple now balked. The way Qualcomm yields it power is at the heart of not adhering to FRAND rules.
And I somehow doubt that Intel and Samsung gang up here. It was probably a friendly call from a dear customer that got the ball rolling.
I don't disagree, just don't expect much, if any, empathy for either the plaintiff or defendant.
Still, the goal should be seeing proper justice served and consumers benefiting. All of the guilty parties should be punished for the wrongdoings they've done.
What happened?
That claim has been refuted, but Qualcomm didn't recall it.
I notice the Galaxy S8 has Samsung's own in Europe and Asia, but in the USA it's ole' snappy 835 just like everything else.
I would have more sympathy for Intel if they were able to compete fairly in the x86 market. I can't help but feel amused when a company that partakes in monopolistic practices in one market starts complaining about being the victim in another. However, in the case I think Intel is the lesser of two evils, but they're still bedfellows.
Intel never made any agreement to any consortium that they would do anything like this, they applied fairly for patents on the considerable number of geniune inventions and design decisions which go into their silicon and ISA.
Many of these patents have long expired, and even when they weren't expired, manufacturers such as IBM, AMD, Texas Instruments, Harris Semiconductor, UMC, Acer, SGS Thomson, Cyrix, Rise Technology, Transmeta, IDT, VIA, and DM&P Electronics manufactured 80386, 80486, 80586 (pentium), 80686 (pentium pro), and Core competitors.
x86 being co-monopolized by AMD and Intel is a recent phenomenon, and I think it has more to do with the fatigue of trying to compete with AMD and Intel at making chips with probably the most complicated and unscalable ISAs to implement efficiently.
So in addition to seemingly breaking the agreement they made, they are being more predatory than most prominent patent licensors who didn't need an agreement to behave more fairly than they do.
http://www.essentialpatentblog.com/2017/01/korea-ftc-propose...
It's too bad the KFTC recently seems to have decided to remove all cases from its site from the past three years [1], because I got to skim through its recent anti-trust case against Qualcomm, and what Qualcomm seemed to be doing was horrific (significantly worse stuff than what Intel was being accused of about a decade ago, as I recall).
[1] http://www.ftc.go.kr/eng/bbs.do?command=getList&type_cd=54&p...
And Qualcomm has hundreds of IP and patent lawyers employed full-time (not from an external firm, but as FTE's) to enforce same. Not to mention the continued investment they do in R&D required to grow their patent portfolio.
So while Intel and Samsung are not to be taken lightly, neither should be the ferocity with which Qualcomm will defend its IP revenue stream.
I'm guessing Qualcomm will lose.
> Existing in actuality, especially when contrary to or not established by law
There is no standards committee approving X86 processor designs/features/functionality, with a goal of vendor interoperability, thus, there is no 'standard' for X86.
That's why it's "just" a de facto standard, since it's still pretty much the only thing used in its product category.
Apple intel and Samsung have a combined market cap of 1.3 trillion. Qualcomm is 80 billion.
> “Despite having requested a license from Qualcomm, Samsung cannot sell licensed Exynos chipsets to non-Samsung entities because Qualcomm has refused to license Samsung to make and sell licensed chipsets,” Samsung said in a filing. Qualcomm didn’t immediately respond to requests seeking comment on the filings.
So it is not a price discussion or getting something for cheap, but Samsung accuses Qualcomm to refuse licensing.
> For instance, the ETSI intellectual property rights (“IPR”) policy requires standard-setting participants to commit to provide “irrevocable licenses on fair, reasonable and non discriminatory (‘FRAND’) terms and conditions.” The TIA policy requires any SEP holder that wishes to monetize its essential patents to commit to license SEPs “to all applicants under terms and conditions that are reasonable and non-discriminatory . . . to the extent necessary for the practice of . . . the Standard.” The ATIS policy requires SEP holders to license SEPs “under reasonable terms and conditions that are demonstrably free of any unfair discrimination” to “applicants desiring to utilize the license for the purpose of implementing the standard.” [2]
What counts as a "reasonable" price is therefore a question for the courts.
[1] https://en.wikipedia.org/wiki/Reasonable_and_non-discriminat...
[2] https://www.ftc.gov/system/files/documents/cases/170117qualc...
This line of defense from Qualcomm would serve Google just as well. No competition - no competitive harm, hence all is well.
For example, other CPUs architectures, GPUs, Memory ... like, everything that's pretty much set as standards?
The two companies filed amicus briefs, they didn't join the lawsuit. The current title implies that they joined in.
Apparently the r&d costs in this space are higher then lawyer fees. Otherwise why wouldn't they dump some money into r&d and get some patents of their own to cross license with Qualcomm.
Samsung, Intel and Apple have enough cash and tech clout to crush Qualcomm into dust if they really wanted to compete on r&d.
Throwing a few million at a lawsuit is just a negotiation tactic.
Qualcomm would still be likely to participate in any future standard and would likely still have contributing patents. If they aren't going to license it now under FRAND then why would they do so in the future ? Whether Intel, Samsung, Apple et al contribute more to the standard is irrelevant.
Also Mediatek and Qualcomm have their own patent sharing agreement:
https://www.mediatek.com/press-room/press-releases/joint-pub...
My opinion is that since apple is making 40b a year on iPhone sales, 50% of Qualcomms market cap a year, then Qualcomm is charging Apple a fair and reasonable price. If qualcomm chose not to be part of the LTE standard, those patents would still be enforceable, and they could charge whatever they want, like they did with wcdma.
I think legally FRAND is defined ambiguous enough that many kinds of pricing schemes are acceptable, so there is nothing illegal with qualcomm charging a percentage of device cost.
My point on bringing up MediaTek was that if Apple wants a discount, they can cross license with Qualcomm, like other companies have. Intel can offer Qualcomm it's fabs, or x86, or server patents. Qualcomms pricing has not been so unfair or prohibitive as to prevent small or large players from making a mountain of profits from the cellular device market.
I own stock in both Qualcomm and Apple, so I feel like they are both wasting money on lawyers instaead of engineers :).
I'm sure there's plenty of cross-licensing already, but Qualcomm gets close to 80% of its pre-tax profits from patent licensing, so they have asymmetric incentives and are in very different bargaining positions. (Source: http://www.economist.com/news/business/21715705-its-biggest-...)
I'm highly skeptical of patents as a whole, so I do find it hard to cry tears of sympathy for patent warmongers like Intel, Samsung and Apple, even if Qualcomm is a particularly bad actor.
https://www.theverge.com/2017/1/17/14303910/qualcomm-alleged...
In 10 years LTE is going to be to slow, and Qualcomm is busy developing whatever is going to replace it. if Intel wants a piece of that pie they need to do some r&d.
You can argue that there are good reasons for patents, but the whole point of them is to create a legally protected monopoly, which prevents competition at least to some extent.
In spite of this, under their contract with Qualcomm, Samsung has limited ability to market and sell their own basebands/APs in the US.
In my view, if qualcomm was being unreasonable in their pricing, Apple wouldn't have made 40b a year in profits. 50% of Qualcomms market cap. If anything, Qualcomm should charge them more.
FRAND doesn't specify that the price offered had to be the same to everyone.
I own stock in both, so I feel it's dumb of them to spend money on lawyers instead of engineers ;).
Just because Samsung could earn a higher profit using their own chips, doesn't mean that Qualcomm should license it at that price. They could in theory compete on quality, or power at a higher price tier. Nothing in FRAND indicates that you should let competitors maximize their profits.
Second, this isn't about earning higher profit. but whether Qualcomm is abusing the standard essential patents to prevent competition and maintain their dominance. Qualcomm doesn't want to compete with anyone on quality or price. ETSI which governs the wireless standard forbids such anti-competitive licensing practices outlawed by local powers.
Sure, SEP/FRAND isn't about promoting competition or best price, etc, but it is certainly about interoperability and everyone having fair and reasonable access to the underlying IP's to achieve the ideal.
Given how vague it is, I think the way to determine what's fair is to look at the effect on the market. I think their socket share is 60-70% which is the lions share, but not at the point to be considered a monopoly. They can't double thier rates without loosing market share.
In my view Qualcomms market share is largely due to how efficiently they have integrated all the wireless technologies into one package. If intel had a single efficient multi band package for LTE/3G/2g/wifi/bt etc... the extra 2% licensing costs would be offset by the battery savings.