Qualcomm co-founder Irwin Jacobs testified Tuesday in the U.S. Federal Trade Commission’s anti-monopoly lawsuit — laying the historical foundation for the San Diego company as it begins to present its side of the case.
Much of Jacobs’ testimony focused on the early efforts to get Qualcomm’s Code Division Multiple Access wireless technology adopted and the evolution of its patent licensing business model that is under attack by the FTC.
Jacobs’ testimony became tense when an FTC lawyer focused on an email he sent to an LG executive several years ago.
In the email, Jacobs said Qualcomm would not make a shipment of certain 3G chips — known as WCDMA — as long as LG maintained that it had no obligation to license Qualcomm’s WCDMA patents.
Qualcomm repeatedly has said that it has never cut off supply to an existing chip customer during a dispute of patent fees.
The FTC attorney asked Jacobs if the email proved that Qualcomm’s claim was false.
Jacobs countered that the email referred to a first-time, small shipment of WCDMA chips for LG to test out, and he was not making a threat.
The companies eventually worked out an agreement.
The FTC had wrapped up its case Tuesday after testimony from expert witnesses about how Qualcomm’s business practices harmed competition for CDMA and top-tier LTE processors.
ARTICLE CONTINUES BELOW ADVERTISEMENT
During the first week of the trial, the FTC served up a parade of smartphone makers — Apple, Samsung, Huawei, LG and others — who testified that Qualcomm strong-armed them in patent-licensing negotiations by threatening to cut off chip supply.
The FTC is arguing that Qualcomm employed a three-part scheme to leverage its market dominance in 3G CDMA and 4G LTE chips to coerce smartphone makers to pay high patent fees in violation of antitrust laws.
Qualcomm won’t sell chips to smartphone makers until it they take a patent license, which the FTC calls “no license, no chips.”
Because Qualcomm had a technology lead in these processors — and device makers needed them for top-tier smartphones — they don’t negotiate hard for lower patent fees, according to the FTC.
Carl Shapiro, a UC Berkeley professor and former Department of Justice economist, testified that Qualcomm’s ability to achieve high patent fees harms competition and helps maintain a monopoly in certain cellular chips.
“If a company is ahead, it doesn’t mean they are allowed to trip up the companies behind,” said Shapiro. “These royalty surcharges have that effect because they raise the costs for rivals.”
Qualcomm also refuses to license rival chipmakers, and entered into two supply deals with Apple that the FTC claims were de facto exclusivity agreements that harmed competitors.
For the FTC to prevail, it must prove harm to competition and consumers — which could be tricky given the success of the smartphone market.
Testimony in the trial will resume Friday. The trial is expected to wrap up in early February.