Qualcomm claims falling market share, while FTC pushes chipmaker's monopoly leverage

A top executive at Intel accused Qualcomm of engaging in a patent-licensing policy designed specifically to thwart competition in the cellular modem market, and refused to concede that her company was unable to compete because of technological inferiority.

Today in a San Jose, California, federal court, Aicha Evans, Intel's senior vice president and chief strategy officer, laid out a detailed description of her company's efforts to compete for Apple's business, saying they were stymied by anticompetitive agreements its rival Qualcomm had with the maker of iPhones.

Evans' testimony came in day three of the Federal Trade Commission's antitrust trial against cellular chipmaker Qualcomm. The FTC is accusing the company of monopolizing the high-end cellular modem market by refusing to sell chips unless its customers take a separate patent license, coercing customers into exclusive agreements, and refusing to license its patents to rival chipmakers.

Under questioning by the FTC, Evans said Qualcomm's "no license, no chips" policy is unique in the industry.  "We can't see any logical reason to have such a business model except to control your competitors and keep them at bay," Evans said.

Furthermore, Qualcomm extracts royalties on chips sold by its competitors, thereby increasing the price of those sales as well. That creates a "very difficult situation" for companies like Intel, since they don't have full control over the costs incurred by their customers, Evans said. That could be fixed if Qualcomm offered Intel a license, she said.

In defense of its years-long dominant position in the market for cellular modem chips for mobile devices, Qualcomm has pushed the narrative of superior technology, with its entrenched position only threatened once other companies developed comparable products.

But the FTC, devicemakers and rival chipmakers, including Intel, counter that Qualcomm used aggressive, anticompetitive licensing policies for its patented technology standards to maintain its position.

Qualcomm's Christiano Amon, president of the company's chip business, testified earlier in the day that Apple was addressing chip supply with Intel as early as 2010. The company maintains that Intel wasn't technologically capable of filling Apple's demands at the time.

Evans conceded that point, and said Intel bought rival — and former Apple modem chip supplier — Infineon Technologies in 2011 to develop its cellular modem business. Intel expended a great deal of resources and began working with Apple for the 2014 iteration of the company's iPad.

Evans described the "joy and pride," and incredibly high-stress of working with Apple to develop a chip to their exacting demands, only to lose the business. Getting the bad news from Apple was a "near-death experience," Evans said.

Ultimately, it was an exclusive agreement Apple recently signed with Qualcomm, and not any fault of Intel, behind Apple's decision, Evans testified.

In a combative cross-examination with Qualcomm counsel, Evans refused to concede that Apple's decision was due to its decision to move in a different direction, and not because of Qualcomm.

Evans repeatedly said emails presented by Qualcomm counsel were taken out of context, reading entire paragraphs without objection from Qualcomm.

When asked if Apple's decision was the result of its "own product realignment strategy," Evans acknowledged that was written in Intel's internal communications, but added under cross-examination, "ie, the agreement with Qualcomm."

Apple's agreements with Qualcomm required exclusivity in exchange for price breaks, but in separate litigation with Apple, Qualcomm says Intel and Apple never stopped working to develop chips. That Intel is now the exclusive supplier of chips for the iPhone is proof, according to Qualcomm.

A trial between the two companies is scheduled for April, and just today, Apple CEO Tim Cook said in a television interview that settlement talks stalled last fall.

In fact, over the last several years, Qualcomm has lost "significant" share of the business for multiple high-end smart phones, Will Wyatt, a finance vice president, testified today. Wyatt, the vice president of finance for the company's mobile chip business, said that over the last several years it has lost most of the business for high-end cellular modem chips bought by Apple, Samsung, and Huawei. It now makes no chips for Huawei, and as of last March expected to lose Apple's business as well. It makes about 35 percent of the chips used by Samsung, he said.

March 2018 is a key point in the FTC's case. Qualcomm maintains that US District Judge Lucy Koh should hear evidence of current market conditions if she is going to enjoin Qualcomm from future conduct. But Koh refused to allow evidence occurring after the March close of discovery, effectively eliminating consideration of Intel usurping the Apple chip supply.

Also today, Koh heard deposition testimony from Samsung attorney Andrew Hong, the latest in a parade of Qualcomm licensees to say that Qualcomm threatened to cut off chip supply if companies didn’t agree to its above-market royalty rates.

Hong mentioned threats from Qualcomm's Eric Reifschneider, the former senior vice president of its licensing business. Reifschneider's threats have loomed large so far throughout the trial, but Qualcomm's Amon insisted he had no power to actually cut off supply, something the company never actually did.

The trial is expected to resume Friday, and continue through Jan. 28. Evans will finish her testimony, followed by more Qualcomm executives, including CEO Steve Mollenkopf.