How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 1.

"Dictator" How has Qualcomm manipulated the smartphone industry for nearly 20 years?

In 2005, Apple contacted Qualcomm as a potential supplier of modem chips in the first iPhone model. Qualcomm's reaction at that time was "unusual". The company sent a letter asking Apple to sign a patent license agreement before Qualcomm considered providing the chip.

"I've had 20 years in the industry, but I've never seen a letter like this," said Tony Blevins, Apple's vice president of shopping.

Most vendors want to talk to new customers, especially big and reputable customers like Apple. But Qualcomm does not. The company has an advantage in a dominant position in the mobile chip market. That gives Qualcomm a lot of power and the company is not afraid to use it.

Blevins' opinion came as he testified earlier this year in the Federal Trade Commission's (antitrust case) against Qualcomm. FTC has filed applications since 2017, partly because of Apple's urging, the company has been dominated by Qualcomm's mobile chip sector for the past decade.

The result of the lawsuit is a sweet vindication for FTC and Apple, drawn by a 233-page verdict by Lycy Koh. Its content claimed that the "strong tactics" in Qualcomm's licensing issue violated US antitrust laws.

This 233 page judgment describes Qualcomm as a monopoly, a ruthless dictator. Over the past 20 years, the company has sought to squeeze contracts with smartphone manufacturers to make other chip makers unable to do anything to change and challenge the dominance of me All customers who do not follow the one-way terms of this company have been threatened to suddenly lose the right to use modem chips.

"Qualcomm has exclusive power over some mobile phone chips and they use that power to charge high rates for everyone," said Charles Duan, a patent expert at the R Street Institute. "Instead of just charging higher chips, they also ask people to buy patent licenses and are charged high for this kind of license."

Now, all that domination may be coming to an end. In his ruling, Koh ordered Qualcomm to stop threatening customers by cutting off chip supply. That makes the company renegotiate all of its agreements with its customers and grants patents to competitors, based on reasonable terms. And if the judge's judgment passes the appeals process, it could for the first time in this century create a truly fair competitive market for chips.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 2.

Different mobile networks operate on different wireless network standards and every few years, these standards change. Over the past 20 years, Qualcomm has taken on the role of a leader and in some cases, a "killer" on chips that support major mobile standards. So, if a smartphone company wants to sell its products worldwide, they have little choice but to do business with Qualcomm.

For example, in the early 2010, Qualcomm led the mobile chip for CDMA standards favored by Verizon and Sprint US carriers, as well as some other overseas operators. Qualcomm's chief technology officer, James Thompson, frankly explained in an 2014 internal email to CEO Steve Mollenkopf that this has given the company a big advantage over Apple.

"We are the only provider currently able to allow them to launch products globally," Thompson wrote, according to court documents. "In fact, without us, they will lose most of the North American, Japanese and Chinese markets. That will really hurt them."

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 3.

Not only Apple is the victim. BlackBerry is also in a similar situation around 2010. BlackBerry CEO John Grubbs stated that without access to Qualcomm's chips, "30% of our device sales will disappear only after one night if we cannot provide CDMA standard devices ".

Over the past two decades, Qualcomm has an agreement with most of the world's leading phone manufacturers including LG, Sony, Samsung, Huawei, Motorola, Lenovo, ZTE and Nokia. These agreements give Qualcomm a huge advantage over these partners. It allows Qualcomm to extract a much higher patent patent rate than other companies that have similar patent portfolios. Specifically, Qualcomm's patent licensing fee is calculated based on the value of the entire phone, not just on the value of chips that use patented technology.

"Qualcomm charges us higher than any other partner," said Jeff Williams, an Apple executive. "We have never seen such a large licensing fee associated with any other component we are licensed," said Todd Madderom, Motorola's chief executive.

The internal documents of Qualcomm proved this. One of them showed that Qualcomm's patent licensing activity brought in $ 7.7 billion in 2016, more than the patent licensing of the other 12 companies combined, although these companies also has an equally important patent portfolio.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 4.

The aforementioned high royalties reflect an unusual negotiation tactic, called "no license, no chips". No one can buy Qualcomm's mobile chips unless they accept a license for Qualcomm's patent lists. And obviously the terms of these agreements bring special benefits to Qualcomm.

Even though a phone manufacturer signed this initial agreement with Qualcomm, the US company still has the right to unilaterally terminate chip supply to its partners after the patent license agreement expires.

"If we can't manage the supply of modem chips, we can't produce handheld devices," said Motorola's chief executive, Todd Madderom. "It takes months to work on designing an alternative, if there is even a viable solution on the market."

That way makes Qualcomm's customers extremely vulnerable every time they're about to expire patent licenses. If a unit tries to negotiate for more profitable terms, Qualcomm just needs to bring the deal to court and can immediately cut off the company's chip supply.

Lenovo's vice president, Ira Blumberg, when he testified in court, said his company had intended to end signing licensing agreements. But in return, a Qualcomm executive "was very calm about that and said that we were comfortable doing that if we needed to. But if we do, we will no longer be able to buy Qualcomm chip anymore ".

"This is not a problem for a few months or a year but is permanently without supply," Blumberg said. "That could bring death to most companies in the industry."

Judge Koh found Qualcomm used this tactic many times over the past 20 years. As threatening to cut Samsung's chip supply in 2001, LG in 2004, Sony and ZTE in 2012, Huawei and Lenovo in 2013 and Motorola in 2015.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 5.

In fact, Qualcomm is still just a company. How can it maintain its influence on the supply of modem chips worldwide?

On the one hand, Qualcomm has recruited talented engineers and spent billions of dollars to keep its chip products ahead of the market. The company also strengthened its dominance by selling on-chip systems including CPUs and other features. This helps devices save significant costs and energy, which smaller chip makers can hardly compete with.

On the other hand, Qualcomm added rules in its agreements to customers to make it difficult for other companies to enter the mobile modem chip business.

For example, terms that require customers to pay royalties for every phone sold are not just phones with Qualcomm chips. This gives Qualcomm a huge advantage in competing with other chip manufacturers. If a chip company wants to reduce product prices, Qualcomm may be willing to offer a lower price, knowing that partners will still have to pay themselves a fee on each manufactured phone.

Microsoft used this technique in the 1990s. The company announced it would cut prices for computer makers if they agreed to pay Microsoft a license fee for each PC sold, regardless of whether it used it. MC-DOS or not. This means that a computer manufacturer will have to pay twice as much if they sell a product that runs non-Microsoft operating systems. As a result, in 1999, a federal judge ruled that this settlement by Microsoft violated antitrust laws by making it difficult for competitors to enter the market. This is also the case led by Koh judge to rule with Qualcomm.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 6.

In addition, some Qualcomm licensing agreements also include provisions that discourage companies using wireless chips from Qualcomm. In return, Qualcomm will cut prices for cell phone manufacturers on each Qualcomm chip they buy. But, mobile phone manufacturers will only receive this discount if they use Qualcomm chips for at least 85% or 100% of phones sold.

For example, Apple signed an agreement in 2013 to ensure that the company will exclusively use Qualcomm's wireless chip. Under the agreement, Qualcomm paid Apple hundreds of millions of dollars in discounts and marketing incentives from 2013 to 2016. However, Qualcomm will stop making those payments if Apple starts to sell used iPhones or iPads. Mobile chips are not Qualcomm.

Apple was even asked to pay back a large amount of money if they used non-Qualcomm mobile chips before February 2016. An internal email from Qualcomm calculated that Apple would owe $ 645 million if they launched iPhone with non-Qualcomm mobile chips in 2015.

Qualcomm has made similar agreements with other major mobile phone manufacturers. In 2003, the company signed a 10-year contract for Huawei with a royalty reduction of 2.65% if Huawei bought 100% CDMA chips for the Chinese market. If Huawei buys CDMA chips not Qualcomm, the copyright rate will automatically increase to more than 5%.

In 2014, a discount agreement was signed with LG if the company purchased at least 85% of Qualcomm's CDMA chips. The deal also requires LG to pay a higher patent patent tax if it sells another phone with a mobile chip from another firm.

In 2018, Qualcomm signed a similar payment agreement with Samsung, with terms related to 100% high-end mobile chips. With low-end chips, this ratio will also be reduced.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 7.

To maintain the above exclusive or monopoly terms, a company like Qualcomm needs a large scale of production to be profitable in this business. Remember, it takes hundreds of millions of dollars to design a mobile chip that is competitive from zero and this design only works for a few years before they become obsolete.

Therefore, a company that wants to join several chip manufacturing areas to compete with Qualcomm needs a large number of customers, who can order millions of chips in the first year. Only a few customers are able to place these types of orders, such as Apple.

Apple hated to depend on Qualcomm and sought to nurture the supply of the second modem chip for itself. The strongest candidate is Intel, which does not have a large modem chip business but is interested in participating in this field. In 2012, Apple planned for Intel to design the iPad 2014 mobile chip.

However, Qualcomm soon realized this. In the 2013 deal with Apple, Qualcomm forced the company to stop working with Intel. Without Apple as a potential customer, Intel is also forced to plan to make its modem chip behind.

But Intel and Apple resumed this partnership before the expiration of Apple's 2016 contract with Qualcomm. That year, Apple introduced the iPhone 7. Some smartphones shipped with Qualcomm modems inside, while others used Intel's new modems.

Apple's commitment to purchase allows Intel to boldly pour resources into its chip development efforts. Soon after reaching an agreement with Apple, Intel bought VIA Telecom, one of the few companies struggling to compete with Qualcomm in the CDMA chip market. Intel needs competing CDMA chips as well as compensating for the development capabilities to meet the schedule Apple requires. Apple's promise has given Intel motivation and financial support to join this gamble.

Not only that, this relationship also has other effects. Information that the next iPhone model will use mobile chips Intel has prompted network operators to help Intel test their chips on the current network. As an Apple supplier, Intel began to gain more power in organizations that set network standards.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 8.

Apple's agreement with Intel has created a serious threat to Qualcomm's dominance in mobile chip business. After Intel fully developed the mobile chips that Apple needed for the iPhone, Intel could supply chips to other smartphone manufacturers. At that time, by the time of renewal of patent licenses with Qualcomm, a large-scale uprising could appear. Therefore, Qualcomm has been at war with Apple and Intel.

In contrast, when it was freed from the threat over the years, Apple began not accepting Qualcomm's high patent patent rates. Qualcomm responded by cutting the chip usage rights for new iPhone models launched in 2018, forcing Apple to rely entirely on Intel. The company also sued Apple for violating patents in courts around the world. Apple is also not passive, the company forces the Federal Trade Commission to investigate Qualcomm's business operations.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 9.

The disputes have put both Apple and Intel in a precarious position. Qualcomm tried to use "arsenal" as its patent system to make iPhone banned from sale in some parts of the world. If Qualcomm takes the advantage, it will force Apple to stay at the negotiating table and force the company to buy fewer Intel chips, thereby eliminating the potential threat. At the same time, this will make other smartphone manufacturing companies tremble.

Intel also has a lot of pressure. As an Apple partner, their rival is the leading company in wireless chip technology for many years. Intel has successfully developed a modem chip suitable for iPhone 2017 and 2018 models, but the industry is turning to 5G technology. iPhone is a premium product, so it always needs to support the latest wireless standards. If Intel failed to develop a 5G chip fast enough to use the iPhone 2020, it could push Apple into an awkward position.

It seems that this scenario has finally happened. Last April, Apple announced that it had signed a "truce" with Qualcomm and agreed to pay for rival patents. A few hours later, Intel announced the cancellation of the development of a 5G modem chip.

Some information on the sidelines suggests that from the beginning of the year, Apple began to doubt Intel's ability to provide 5G modem chips and found it not fast enough to meet its needs. That makes the company no longer advantage on negotiating table with Qualcomm. Immediately, Apple had to reconcile with Qualcomm and cut hopes from Intel.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 10.

The story of Qualcomm's battle with Apple and Intel illustrates how Qualcomm used its patent portfolio to consolidate monopoly in the chip manufacturing sector, thereby pushing its competitors into a difficult position.

Finbarr Moynihan, CEO of MediaTek chip maker said: "The popular message from all customers is that we expect a licensing agreement with Qualcomm, before considering buying a 3G chipset from MediaTek."

If a Qualcomm-licensed chip maker, Qualcomm will only make a promise not to sue the chip maker itself. The company also asked these chip makers to sell only to an "Authorized Buyer" list provided by Qualcomm. These are the people who signed Qualcomm's patent license agreement.

Needless to say this puts every Qualcomm competitor in a dilemma. They are not only subject to Qualcomm's tax, but they also allow Qualcomm to choose customers for themselves.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 11.

Qualcomm even asked other chip makers to provide them with data on the number of chips sold to each customer. Sensitive commercial data will allow Qualcomm to find out exactly how much pressure is needed to prevent this manufacturer from becoming its rival.

Qualcomm has twice refused to grant a patent to Intel, 2004 and 2009, to delay Intel's entry into the wireless modem business. A chip venture between Samsung and Japanese company NTT DoCoMo, called Project Dragonfly, was also rejected by Qualcomm in 2011. In 2015, when Samsung tried to create some modem chips for private use, it even promised not to supply it. Grant them to others, Qualcomm also refuses to grant patent licenses.

Similarly, in 2012 and 2014, Qualcomm refused a patent license for Texas Instruments and Broadcom.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 12.

When a standard group is developing a new wireless standard, they will gather a list of patents needed to implement this standard. These are called standard patents. Then, the group will ask the patent owner to promise to license those patents under fair, reasonable and non-discriminatory terms (FRAND). Patent holders often agree to these terms because incorporating a patent into a standard will enhance its value.

But Qualcomm does not. The company does not seem to place FRAND commitments in the eye and refuses to license essential patents to other chip makers. And when handset makers try to license Qualcomm patents to meet new standards, Qualcomm will show them a deal that requires signing. This agreement usually involves a new patent list, including patents that do not comply with FRAND's commitments and in many cases have nothing to do with modem chips. Therefore, handset manufacturers will have to pay more for Qualcomm's standards.

The problem is that Qualcomm works with device manufacturers and not chip makers, so these units have no reason to retort.

But Judge Koh ruled that Qualcomm's disrespect of FRAND commitments is a violation of antitrust laws. Qualcomm is obliged to license its patents to anyone who wishes and the company is obliged to do so at a reasonable price.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 13.

Judge Koh proposed a number of requirements to change and prevent Qualcomm's anti-competitive behavior, as well as restore some balance and competition for the modem chip market.

The most important change is to separate Qualcomm's patent licensing efforts from chip business. Koh ordered Qualcomm not to "set the conditions for providing modem chips on client patent licenses". The company will have to renegotiate all of its patent licenses and not threaten to stop providing modem chips to anyone.

The judge also asked Qualcomm to license the necessary patents for other chip makers under FRAND terms and submit it to international arbitration if necessary to determine a fair payment rate. These licenses must be "comprehensive", meaning that Qualcomm is not allowed to sue chip manufacturer customers for violating its patent.

Third, Koh banned Qualcomm from participating in exclusive agreements with customers. That means no more chip discounts if customers buy 85% or 100% of Qualcomm chips.

How has dictator Qualcomm manipulated the smartphone industry for nearly 20 years? - Photo 14.

According to patent expert Charles Duan, Judge Koh's ruling "solved the biggest problems that can be observed in Qualcomm's behavior".

And there's a big winner here. That is Samsung, one of the few major technology companies that has kept significant internal modem design. In recent years, Samsung has often shipped smartphones with self-developed Exynos chips in a number of markets, while selling Qualcomm chips elsewhere, especially in the US and China. Many people are not sure exactly why the Korean company does this, but a reasonable guess is that Samsung believes it is more vulnerable to Qualcomm's patent threats in those countries.

Now, Samsung will be easier to use its own chips worldwide, helping to simplify product design and bring greater profits. Even Samsung could start offering these chips to other smartphone manufacturers, which it tried to do in 2011.

On the other hand, Intel will still be unhappy. Phán quyết của Koh có thể đến quá muộn, bởi công ty này tuyên bố đã dừng các nỗ lực trên chip 5G và có thể không thoải mái hoặc có đủ thời gian để khởi động lại dự án này.

Nhưng nói gì thì nói, trước tiên phán quyết này phải tồn tại sau khi Qualcomm kháng cáo lên tòa phúc thẩm. Khách hàng và đối thủ của Qualcomm sẽ chỉ có thể thở phào sau khi khi quá trình kháng cáo này kết thúc.

Nhưng cho dù là như vậy, trong tương lai, có thể Qualcomm sẽ tìm ra các biện pháp mới để khôi phục lại quyền lực của mình.

"Tôi tưởng tượng rằng trong năm tới hoặc lâu hơn nữa, Qualcomm sẽ đưa ra một số quy chế mới để quay trở lại với mô hình doanh thu cũ của nó", chuyên gia Duan nói. "Chính quyền sẽ phải tiếp tục cảnh giác để đảm bảo Qualcomm tuân thủ phán quyết của thẩm phán Koh".

Refer ArsTechnica

Trường Dương

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *