Qualcomm said it had been granted a stay in the enforcement of antitrust sanctions, allowing the San Diego, California-based company to preserve its patent licensing practices as it looks to overturn a ruling that it holds a monopoly in the modem chip market. Qualcomm said it would be able to maintain how it licenses it technology for now while the appeals process plays out.
Qualcomm has been mired in a lawsuit brought by the U.S. Federal Trade Commission. In 2017, FTC accused Qualcomm of holding its chip supply hostage to sign exclusive licensing deals with Apple and customers. Qualcomm lost the lawsuit in May, with U.S. District Court Judge Lucy Koh ruling that it had curbed competition in modem chips, using its market leadership to force phone makers to pay excessive royalty rates.
Qualcomm, the world’s largest seller of chips used in smartphones, has been fighting since then to halt an order to change how it licenses its patents, which it claims are essential for 3G, 4G and 5G industry standards. The U.S. District Court for the Northern District of California ordered it to cut its royalty rates, grant patent licenses to rivals and stop forcing customers to sign patent deals as a condition for supplying modem chips.
But the U.S. Court of Appeals for the Ninth Circuit stayed parts of the ruling, which would have forced Qualcomm to redraft its existing chip supply and patent agreements and change how it goes about getting future deals. The U.S. Department of Justice also has pushed for a pause in enforcement, which may take another year or more to play out. Qualcomm said it would present oral arguments to the appeals court in January.
Qualcomm had argued that the proposed fixes would alter its licensing agreements in ways that would be impossible to undo in case it defeats the decision and would hamper its ability to hammer out licensing deals for its 5G technology patents. In July, chief executive officer Steve Mollenkopf said on a conference call with analysts that customers had continued to honor the terms of their licensing deals despite the verdict.
The company has been on a roller coaster over the last year. Qualcomm in April reached a legal settlement with Apple that opened the door for it to supply modem chips to the iPhone. It has also struggled to shut the door on its patent dispute with Huawei, adding to the strain on its business in China. Qualcomm has been trying to tough out a slowdown in its modem chip business ahead of early 5G smartphone launches in 2020.
The company's shares have also been turbulent. The shares struggled to get over $60 in the first quarter of the year before jumping to more than $80 after the ceasefire with Apple in April. But the stock slumped to $65 after Qualcomm lost its legal battle against the FTC. The shares have been under pressure since Apple acquired most of Intel's 5G modem business for $1 billion, in a move to reduce its dependence on Qualcomm.
The San Diego, California-based company has been fined more than $3 billion in China, Europe and other regions over the last half decade for operating a modem chip monopoly. But it has never been forced to change how it licenses its technology or how much it charges in royalties on its portfolio of more than 130,000 patents. The company’s licensing business is not only its most controversial but also by far its most profitable.
Don Rosenberg, corporate vice president and general counsel at Qualcomm, said in a statement that the company was “pleased” with the appeals court’s verdict. He said the stay would prevent any changes to its highly profitable patent licensing business as the appeal moves through the appeals process. He said the company believes “the court decision will be overturned once the merits of our appeal have been considered.”
