Qualcomm vs. Apple: A battle between patents and antitrust systems

　　If the two parties in a transaction or confrontation are evenly matched, Apple and Qualcomm , there will be more obvious competition constraints in the market, and neither party may be as strong as imagined. Therefore, it is usually not a typical scenario where the government needs to intervene based on antitrust laws. Let's follow the mobile phone portable editor to learn about the relevant content.

　　Speaking of Qualcomm , the largest patent giant in the communications field, it is easy to associate it with words such as "technical standards, patent infringement, and antitrust". Its most valuable assets are patents that are included in the most popular technical standards in the world today (3G, 4G, and 5G), which are usually called "standard essential patents" (SEPs). Because the communications industry inevitably uses them, Qualcomm is also often considered to have a dominant position in the market for these patent licenses, and has been questioned by antitrust enforcement for "abuse of market dominance" due to its licensing practices around the world.

　　However, the patent infringement lawsuit recently filed by Qualcomm against Apple in the Beijing Intellectual Property Court has no direct relationship with standard essential patents.

　　In this lawsuit, Qualcomm claimed that Apple had infringed on three of its non-standard essential patents, including power management and Force Touch touch-related technologies used in the iPhone, and asked the court to ban the sale of iPhones in China.

　　Patent Litigation as a Strategic Deployment

　　From a purely legal perspective, the two giants may go through a lengthy litigation process: Apple is likely to challenge the validity of the patent to the Patent Reexamination Board of the State Intellectual Property Office, and the court will suspend the trial and await the result on the validity of the patent; the decision of the Patent Reexamination Board is likely to be prosecuted, and then returned to the Beijing Intellectual Property Court for a first instance, and may be appealed to the Beijing Higher People's Court.

　　From a procedural perspective, if the patent is ultimately maintained valid, the Beijing Intellectual Property Court will review whether infringement has been established and conduct the first and second trials again.

　　That is to say, it is almost impossible to get a result on whether the iPhone will be banned from sale due to Qualcomm's lawsuit within one or two years.

　　Patent litigation should not be viewed as an isolated legal action in the communications industry. In the past, Qualcomm's patent litigation in Chinese courts was mainly aimed at implementing its patent licensing business and urging communications companies that use its standard essential patents to pay licensing fees. For example, last year's patent lawsuit between Qualcomm and Meizu ended with a settlement after the two parties reached a licensing agreement. This time, Qualcomm brought its most important customer for many years to court, which reveals an unusual meaning.

　　According to Qualcomm, Apple has been using its baseband chips for nearly a decade, and Apple has not complained about patent licensing fees before. In fact, Qualcomm's patent license for Apple phones was not reached directly with Apple, but with Apple's foundries, namely Foxconn, Pegatron, Wistron and Compal, which were involved in the battle between Apple and Qualcomm. As the conflict intensified, these foundries also stopped paying patent licensing fees to Qualcomm, and Qualcomm filed a lawsuit in the United States in May this year.

　　In the context of the melee, Qualcomm's lawsuit against Apple for its non-standard essential patents should not be intended primarily to obtain licensing fees for these patents, but rather be more like a "demonstration."

　　In a series of previous antitrust rulings against Qualcomm, Apple's figure was always visible, and Qualcomm seemed to have been trying its best to tolerate it before launching this wave of "counterattack."

　　Key Points of the Qualcomm Antitrust Cases

　　Qualcomm's main business can be divided into two major parts: chips and patent licensing business. The former is the product and the latter is the technology.

　　For the communications industry, establishing interoperability standards is undoubtedly the foundation for the development of the industry. In the process of establishing technical standards, a large number of Qualcomm's patent technologies were incorporated into the standards and became standard essential patents due to their basic and advanced nature. Like other standard essential patent holders, Qualcomm made a "fair, reasonable and non-discriminatory" (FRAND) licensing commitment, which constitutes a restriction on future licensing conditions, that is, it will not violate the commitment and charge "unreasonably high prices" or engage in "unreasonable discrimination." Antitrust enforcement in the field of standard essential patents often revolves around whether FRAND commitments are complied with.

　　In February 2015, China's National Development and Reform Commission issued an antitrust administrative penalty decision against Qualcomm. In addition to the well-known RMB 6.088 billion fine, the reasons for determining that Qualcomm had engaged in monopolistic behavior are worthy of attention.

　　China's National Development and Reform Commission believes that Qualcomm has a dominant market position in both wireless standard essential patent licensing and baseband chip markets. In the former market, since each standard essential patent is not substitutable, it constitutes a separate relevant market, and Qualcomm has a 100% market share in each of these relevant markets.

　　The core point of this decision is that Qualcomm's licensing fees are too high, and it is not allowed to use the net wholesale price of the whole device as the basis for calculating the wireless standard essential patent licensing fees while insisting on a higher licensing fee rate. In response to this accusation, Qualcomm accepted a 65% discount on the original licensing fee as a rectification result, but the billing standard is still the price of the whole device.

　　In addition, the decision also requires Qualcomm to correct some practices and conditions in its licensing practices, including providing a patent list to licensees, not charging royalties for expired patents, not forcing licensees to reverse-license their non-wireless standard essential patents, not forcing such reverse licensing without paying a reasonable price, and not bundling non-wireless standard essential patent licenses without a legitimate reason. In addition, Qualcomm is not allowed to attach the above conditions when selling baseband chips, nor is it allowed to make the licensee's non-challenge of patent license agreements a transaction condition.

　　In general, the NDRC made quantitative judgments on the license price and maintained a relatively open attitude towards the specific calculation method of reasonable fees. On the other hand, it made qualitative judgments on certain special clauses in the license conditions and considered them unreasonable. In addition, it did not intervene in the operating mode of licensing practices in a more in-depth manner.

　　In two antitrust rulings against Qualcomm, the Korea Fair Trade Commission at the end of 2016 and the Taiwan Fair Trade Commission in October 2017 imposed fines of 1.03 trillion won (5.94 billion yuan) and 23.4 billion New Taiwan dollars (5.096 billion yuan), respectively.

　　A specific analysis shows that these two rulings are somewhat different from the thinking of China's National Development and Reform Commission, and they made in-depth evaluations and interventions on the objects, links and models in Qualcomm's licensing practices.

　　Both rulings hold that Qualcomm's refusal to issue patent licenses to chip manufacturers that compete with it is a violation of its FRAND commitment. Moreover, Qualcomm's "no license, no chip" policy ties patent licenses to chip sales, using its chip supply advantage to circumvent FRAND commitments and force manufacturers to sign and perform unfair agreements.

　　This reason also appeared in the antitrust lawsuit filed by the U.S. Federal Trade Commission against Qualcomm in January 2017. The case is currently being heard in the U.S. District Court for the Northern District of California.

　　Antitrust disputes and analysis

　　The relevant views in the two antitrust rulings in South Korea and Taiwan are still worth discussing.

　　First, there is the issue of refusal to deal. Both rulings determined that Qualcomm’s refusal to issue patent licenses to chip manufacturers violated its FRAND commitment. However, in the context of the specific practice of standard essential patent licensing in the communications field, this conclusion may be oversimplified and ignores some complex factors.

　　The reason why patent owners including Qualcomm do not issue patent licenses to chip manufacturers is that the licensing fee collection model in the industry has long been to charge terminal products (mobile phone complete devices), so there is no need to charge chip manufacturers as the intermediate link in production.

　　From the perspective of chip manufacturers, they do not need to pay patent licensing fees in their own production process, but leave it to the system manufacturers to worry about. At least they will not think that this will bring them additional transaction costs in competition. If the antitrust review authorities in South Korea and Taiwan make this determination for the benefit of chip manufacturers, there is still room for deliberation and improvement in their reasons.

　　In fact, the essence of this issue is the self-interest of the whole machine manufacturers. Based on the principle of patent exhaustion, if Qualcomm charges chip manufacturers, then in the same production chain, Qualcomm will not be able to charge whole machine manufacturers for chip-based patents again. Whole machine manufacturers hope to use chip prices (much lower than mobile phone terminals) as the basis for calculating licensing fees, thereby reducing the overall licensing fees that manufacturers need to bear. This method is called the "minimum salable unit" principle.

　　Of course, such a calculation method may seem wishful thinking. The final level of royalties is not determined by only one factor, the royalty base. Simply lowering the base does not necessarily lead to a lower overall royalty rate.

　　The patent owner's choice to grant a license to the provider of the end product is not necessarily entirely for the purpose of increasing the royalties. It may be due to operational reasons such as information asymmetry and execution costs. For example, when the royalties are calculated based on output, monitoring costs will arise.

　　If patent holders are required to monitor all standard implementers at all levels, their costs will be greatly increased. Selecting downstream manufacturers that are relatively easy to monitor as licensees has become the mainstream practice of patent holders in licensing. Once this practice model is changed, the greatly increased licensing costs will be transferred to the various downstream links of standard implementation, resulting in a decline in overall social efficiency.

　　The determination of Qualcomm's "no license, no chip" policy may also be questionable and requires more specific factual evidence. On the surface, it is an act of "binding" or "tying" chips and patent licenses, and the antitrust review authorities in South Korea and Taiwan believe that Qualcomm uses its dominant position in the chip market to obtain more favorable conditions for patent licenses.

　　This conclusion needs to be based on a specific analysis of Qualcomm's actual behavior, such as what kind of patent license is being "bundled". If it is a standard essential patent, then according to the analysis of the National Development and Reform Commission of China, Qualcomm actually occupies a more powerful dominant position, and does not need to rely on chip sales to achieve it. Moreover, for chip buyers, if the chips are used in the production process, Qualcomm's relevant patents will inevitably be implemented. If the relevant license is not purchased, it will be at risk of infringement.

　　Compared with the ruling of China's National Development and Reform Commission, the two rulings in South Korea and Taiwan seem to force Qualcomm to fundamentally restructure its licensing model.

　　Stimulate innovation or promote competition?

　　The antitrust and patent war between Qualcomm and Apple, if we go back to the origin of the system, is the contradiction and tension between the incentive for innovation represented by the patent system and the promotion of free competition by the antitrust system.

　　Usually, patents are legal monopolies artificially created by the law, which encourage investment in innovation and promote it by granting innovators exclusive rights for a period of time. Only through such legal monopolies can patent holders collect licensing fees or obtain higher profits by implementing patents on their own to cover the cost of innovation input and risks and make profits.

　　After patents and standards are combined, the market power of standard essential patent holders is believed to be further expanded, which has aroused concerns about antitrust law. Therefore, standard essential patents have become a key focus of antitrust review.

　　However, excessive restrictions on the rights of standard essential patents will make such patents a weaker right and face the risk of "reverse hijacking". The consequence may be that the right holders of high-quality patents are unwilling to participate in the standardization process, affecting the quality of the standards.

　　In the long run, it may also lead to the suppression of R&D investment in related fields, thereby inhibiting the innovation process in the entire field.

　　Therefore, maintaining a delicate dynamic balance mechanism, preventing excessive intervention, and maintaining sufficient incentives for innovation become the responsibilities that antitrust reviewers should shoulder.

　　The purpose of government intervention in the market is to correct the factors of market failure when it occurs and to encourage market players to achieve efficient arrangements through rational negotiation and cooperation. It should not attempt to dismantle or reconstruct the existing structure with reasonable factors in the market.

　　Moreover, if the two parties in a transaction or confrontation are evenly matched Apple and Qualcomm, there will be more obvious competitive constraints in the market, and neither party may be as strong as imagined. Therefore, it is usually not a typical scenario where the government needs to intervene based on antitrust laws.

    The above is an introduction to the Qualcomm-Apple War in mobile phone portability: the institutional contest between patents and antitrust. If you want to know more related information, please pay more attention to eeworld. eeworld Electronic Engineering will provide you with more complete, detailed and updated information.