23 May 2016
Qualcomm, the largest manufacturer of baseband chipsets for mobile phones, has recently found itself under attack again for its business practices.
In September last year, the UK chipset maker Icera and its US-based parent company Nvidia launched proceedings against Qualcomm in the UK. Court filings that were made public last month make clear that the claimants are seeking compensation for losses suffered as a result of Qualcomm’s alleged “unlawful abuse of dominance”.
Nvidia spent $352 million to acquire Icera in 2011 – but was forced to wind down its mobile broadband chipset business, including its Icera unit, just four years later. Nvidia claims that Qualcomm’s aggressive pricing strategies – selling chipsets below the costs of development and production – drove Icera out of the market and caused Nvidia’s applications-processor business to incur substantial losses.
Nvidia is arguing that Qualcomm has a dominant position in essential patents for 3G and 4G wireless standards, and that this position has enhanced its strength downstream in the sale of chipsets to mobile device manufacturers. It further argues that Qualcomm’s dominance in the market for slim modem chipsets is “reinforced by barriers to entry and expansion”.
According to the claim filed by Nvidia and Icera, Qualcomm’s aggressive and anticompetitive behaviour led to “unexplained delays in customer orders, reductions in demand volumes and contracts never being entered into, even after a customer […] had agreed or expressed a strong intention to purchase” Nvidia’s chipsets. Nvidia says that it was forced to reduce prices to retain customers, which had an adverse impact on revenues and impaired its technical ability to innovate.
The recent developments in the UK-based action come on the back of the two Statements of Objections that the European Commission sent to Qualcomm in December 2015. In the first of these, the Commission set out its preliminary findings that Qualcomm made illegal payments to a manufacturer-customer in exchange for that manufacturer exclusively using Qualcomm chipsets in its smartphones and tablets. In the second Statement of Objections, the Commission took the preliminary view that Qualcomm deliberately sold chipsets below cost with the aim of hindering competition, forcing Icera out of the market in particular.
EU Commissioner for Competition Margrethe Vestager said in December last year: “Many consumers enjoy high-speed internet on smartphones and other devices – baseband chipsets are key components that make this happen. I am concerned that Qualcomm’s actions may have pushed out competitors or prevented them from competing. We need to make sure that European consumers continue to benefit from competition and innovation in an area which is at the heart of today’s economy.”
We understand that Qualcomm is due to respond to the Commission’s allegations shortly.
As we have pointed out previously, Qualcomm is no stranger to allegations of anticompetitive conduct. It can confidently be said that many in the mobile telecoms industry will be keeping a close eye on the High Court proceedings and Commission investigations, not least Nvidia and Icera.
12 May 2016
For those of you who are interested in standardisation, a post about action by the Commission generally, rather than just DG Comp.
A couple of weeks ago the Commission has published a Communication to a whole host of other EU institutions (including the Parliament and the Council as well as the ECSC and the Committee of the Regions), setting out its Information Communication Technology (ICT) standardisation priorities. This forms part of the broader Digital Single Market (‘DSM’) strategy. If you are interested, have a look at our sister site, Cookie Jar for a broad perspective on all things DSM.
The objective is to ensure that ICT standards in Europe and globally facilitate the interoperability of digital technologies, which the Communication regards as essential for an effective DSM. To help achieve this the Commission intends to focus on improving standards in five strategic areas: 5G, cloud computing, internet of things, data technologies, and cybersecurity.
A key focus for the Commission is the role of ICT standards for 5G networks to ensure interoperability, security, privacy and data protection, and it intends to develop a 5G Action Plan for EU-wide development of 5G networks beyond 2020. The paper also highlights the role of ICT standards for sharing data across national borders (e.g. in relation to spare parts between vehicle manufacturers and scientific research).
The Communication argues that the proliferation of standards has created uncertainty about: what patents are standard essential patents (‘SEPs’); who owns which standard essential patent (SEP); the cost of licensing intellectual property rights; and the methodology for valuing SEP licences.
So what happens now?
The Commission intends to:
- Take steps to improve the efficiency of the standard-setting process by working with the wider standard-setting community.
- Regularly review and monitor progress for updating ICT standards.
- Improve EU financial support for standard setting.
- Ensure fair and non-discriminatory access to standards based on a balanced IPR policy with FRAND licensing terms, which take into account a variety of competing needs:
- fair return on R&D investment;
- a sustainable standardisation process;
- a competitive technology market; and potential barriers to entry for SMEs; and
- a fast, predictable, efficient and globally acceptable approach to technology licencing, which ensures a fair return on investment for SEP holders and fair access to SEPs for innovators.
- Strengthen the EU presence in international cooperation on ICT standards, in particular with the US, China, Japan and South Korea.
It will probably come as no surprise to regular readers of this blog that the comments about FRAND caused us to pay particular attention as FRAND developments are key theme of this blog: see our previous posts here, here, here and here.
How about open source?
It is interesting that the Communication makes no reference to open source, royalty free licencing of SEPs. This is in marked contrast to the Commission’s 2004 European Interoperability Framework for pan-European e-government services, which at the time considered that open source technology standards required intellectual property included in standards to be made available on a royalty-free basis.