Apple Pushes Monopoly Concerns In Qualcomm ITC Fight
Share us on: By Chuck Stanley
Law360 (June 19, 2018, 9:31 PM EDT) -- Apple attorneys questioned an expert witness for Qualcomm on the potential competition effects of the chipmaker’s bid to ban Intel-equipped iPhones from the U.S. during a hearing Tuesday at the International Trade Commission, pressing a claim that a ban on imports of the phone could hand Qualcomm monopoly power and push Intel out of 5G development.
Apple Inc., in an effort to fight off patent infringement claims related to Intel Corp.-made chips used in some iPhones, has argued that banning phones with the Intel chips would leave Qualcomm Inc. with an effective monopoly on the market for modem chips used in premium smartphones.
Apple has further suggested Intel would likely drop its efforts to develop next-generation wireless technology known as 5G if its chips were effectively locked out of the U.S. market, diminishing the influence of U.S. companies on standards for the new technology, an issue that has been flagged by U.S. policymakers as a national security concern.
The expert witness, Gregory Sidak of consulting firm Criterion Economics, said he thought it was unlikely Intel would abandon the entire 5G space over a setback to its business making chips for handsets.
“I don’t think it’s credible,” said Sidak, Criterion's founding chairman. “[Intel] would be passing up too great an opportunity aside from the smartphone business.”
Apple has said that a decision pushing Intel out of the 5G development game would undercut U.S. investment in the emerging technology and cede leadership in the vital space to China.
Sidak also hit back at Apple’s claim that a ban on imports of Intel’s chips would allow Qualcomm to raise prices for the chips and the costs would be passed on to consumers.
Sidak said Apple’s buying power would offset any putative monopoly power handed to Qualcomm, and that a jump in prices for the chips would drive the tech giant to seek other sources for advanced chips, incentivize makers of lower-performance chips to develop top-tier modem chips and increase consumer demand for phones that use less-expensive modem chip designs.
According to an economic analysis Sidak performed for Qualcomm, every top-echelon smartphone that could potentially serve as a consumer substitute for iPhones blocked from the U.S. uses Qualcomm's modem chip, with the exception of some Samsung phones that use chips built in-house.
The Intel-equipped iPhone, Sidak said, is the only top-tier phone that currently uses a competing company's chip.
Sidak, in response to questioning from Apple attorneys, conceded that it is “generally true” that competition between two companies is better than a monopoly for consumer pricing, quality and, in this case, national security issues.
However, he said that respect for Qualcomm’s intellectual property rights in the instant case weighs against the general preference for competition.
“You’re trading the competitive benefits on one hand, and the protection of the company holding the infringed patent on the other,” he said.
The ITC can issue a decision effectively banning the import of goods that violate U.S. patents, but it has to find that such a decision is in the public interest.
The case is part of a larger dispute between the two companies over roughly 70 patents, playing out in multiple jurisdictions around the world, including two patent infringement suits in California federal court.
The instant case, which turns on three patents that cover chip design features that improve energy efficiency, is the first to get a hearing at the ITC. An ITC administrative law judge is scheduled to hear another case on a second group of patents in September.
Qualcomm launched the suit after Apple stopped reimbursing contracting manufacturers of iPhones for royalty payments made by the individual companies to Qualcomm under individual licensing agreements that allow them to produce the chips.
At Apple’s direction, Qualcomm claims, the contracting manufacturers stopped making the royalty payments for iPhones, stripping Qualcomm of a major revenue source, even as they continued to make the payments for phones they made for other device makers using the same Qualcomm technology.
Apple’s vice president of procurement, Tony Blevins, said at the hearing that Qualcomm’s request for a licensing agreement with Apple was one reason the company went with another chipmaker when it produced the first version of the iPhone.
Blevins disputed Qualcomm’s claim that Apple directed manufacturers to withhold royalty payments.
Rather, he said, Apple made “three very specific statements” to the contracting manufacturers.
Apple, according to Blevins, told the manufacturers it would only reimburse them for tech royalties they were “required” to pay; that the contracting manufacturers were not required to pay any royalties to Qualcomm for the modem chips; and that the contracting manufacturers should do “whatever they want” with regard to the royalty payments.
Arguments in the case are expected to go through June 26, with an initial ruling expected in September and a final determination in early 2019.
Qualcomm is represented by Quinn Emanuel Urquhart & Sullivan LLP.
Apple is represented by Fish & Richardson PC.
The case is In the Matter of Certain: Mobile Electronic Devices and Radio Frequency and Processing Components Thereof, case number 337-TA-1065, in the U.S. International Trade Commission.
--Additional reporting by Dave Simpson. Editing by Aaron Pelc.
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