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Home / Technology / The FTC Thinks You Pay Too Much for Smartphones. Here’s Why

The FTC Thinks You Pay Too Much for Smartphones. Here’s Why



The Federal Trade Commission thinks you're paying too much for smartphones. But do not blame cellphone manufacturers like Apple and Samsung or wireless operators. Instead, the agency blames Qualcomm, which owns key wireless technology patents and manufactures chips that can be found in most high-end Android phones and many iPhones.

Qualcomm charges Apple as a fixed percentage of the total price of a telephone in exchange for the right to use its technology, according to the antitrust lawsuit filed by the FTC. Percentages vary, but Qualcomm typically charges 5% of the value of a device, up to a maximum of about $ 20 per device, based on a legal brief presented by Qualcomm. Manufacturers of phones such as Apple and Huawei claim that Qualcomm requires a cut more than any phone sales than is right, but they pay because Qualcomm essentially threatens to stop the supply of important wireless chips if they do not. The FTC describes it as a "tax" on mobile phones that drives up prices and hurts the competition.

In court Friday, the Apple executive, Tony Blevins, accused the chipmaker of strong-arm tactics. Blevins said that during the negotiations in 201

3, Qualcomm's president Cristiano Amon told him: "I'm your only choice, and I know that Apple can afford to pay for it," reports CNET.

Blevins also said that Apple had taken into account the use of Intel chips in the iPad Mini 2, but crushed the idea when Qualcomm in 2013 offered a discount for exclusive use of its chips. The FTC claims that Apple has not adopted the WiMax 3G standard, supported by Intel. Qualcomm CEO Steven Mollenkopf said Friday that it was Apple that pursued the exclusive deal, according to CNET journalist Stephen Shankland . Apple has been using Intel wireless chips since 2016. It has stopped using Qualcomm chips in the past year

Mollenkopf has also confirmed that Qualcomm requires companies that purchase its chips also have the license of its patents, which is unusual for a chip maker, but claimed that it does so for legitimate business reasons, according to FOSS Patents blogger Florian Mueller, who was in the live tweeting trial. Qualcomm claimed in its preliminary brief that it does not take into account the price of its intellectual property in its chips, which is why it charges a separate patent royalty. The company claims that its policy of applying for patent royalties goes back decades, before the company has the market power it has today and has not increased its patent royalty rates while its market share has grown as one would expect from a company with a monopoly.

The FTC sued Qualcomm for antitrust violations in 2017, but the case came to trial only this week. It is unclear whether smartphone prices will drop if the FTC wins or if the phone manufacturers would simply pocket any savings. But if it loses, Qualcomm may have to rethink its business model, which heavily depends on patent licenses.

The case is just one of the many legal conflicts that have afflicted Qualcomm since 2015. Regulators in China, the European Union and South Korea have Qualcomm fined for antitrust violations. Apple also sued the company by claiming that Qualcomm had withheld the rebates due to Apple for retaliation for the company's cooperation with South Korean regulators. Qualcomm has backed down and Apple has extended its case. The case is ready to go to court in April. More recently, Qualcomm has been hit by a collective legal action on behalf of every consumer who has purchased a Qualcomm chip phone since 2011.

Qualcomm claims to be facing competition in the chip market more than ever before, and in its brief legal quotation a 34% decrease in the average price of the smartphone between 2010 and 2017 to demonstrate that it did not damage the competition. Qualcomm also says its market share decreased last year when new competitors such as Intel, MediaTek and Samsung gained ground in the wireless chip industry.

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That may be the company's best defense, says David Reichenberg, an anti-trust agent from Cozen O'Connor, who claims that Qualcomm should try to refute the 39. FTC's argument that telephone prices are too high and that innovation has been damaged.

But US District Judge Lucy Koh, who is hearing the case, has already stated that Qualcomm can not present more recent evidence than March 2018 when the discovery process for the case is over; this means that some of the data showing a decline in Qualcomm's fortunes may not be processed.

Richard Brunell, general counsel of the American Antitrust Institute, which supports a robust antitrust application, says that although Qualcomm can prove that the smartphone market is healthy, it does not prove that the market would not be even stronger if we it was more competition.

In November, Judge Koh ruled that Qualcomm must license its patents to competitors, resolving part of the case. The FTC case claimed that Qualcomm did not license its technology to its competitors. Some of Qualcomm's patents are part of the standards for wireless networks. Under agreements with the standardization bodies, Qualcomm is obliged to license such patents to competitors on the basis of "fair, reasonable and non-discriminatory" terms.


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