As regulators waver, Apple takes on Qualcomm in courts

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By Stephen Nellis | SAN FRANCISCO

SAN FRANCISCO Apple Inc’s new legal assault on
Qualcomm in the United States and China reflects its conclusion
that regulators are unlikely to put an end to what it considers
the chip maker’s unfair business practices, analysts said.

Apple has long objected to Qualcomm’s practice of
charging for the “modem” chips that help phones use wireless
networks data plans and its demands for a license fee based on
the total price of the phones. Qualcomm was the
original inventor of a number of key wireless technologies.

The U.S. Federal Trade Commission sued Qualcomm over the
practice on Jan. 17. But earlier this week, U.S. President
Donald Trump named FTC Commissioner Maureen K. Ohlhausen to head
the regulatory agency. Ohlhausen had vigorously opposed the
FTC’s lawsuit.

” e have a hard time seeing the case go forward with the
dissenting FTC commissioner slated to become the head of the
FTC,” Morgan Stanley analyst James Faucette wrote in a note to
investors on Wednesday. “If the FTC abandons its case, it
certainly would not be helpful to Apple, but we would guess that
Apple will probably still try to push the issue.”

In the Qualcomm case, Ohlhausen broke her usual practice of
not commenting on her dissenting votes, saying the lawsuit was “based on a flawed legal theory … that lacks economic and
evidentiary support” and “fails to allege that Qualcomm charges
more than a reasonable royalty.”

The FTC did not immediately respond to a request for
comment.

In its U.S lawsuit, filed on Jan. 20, Cupertino,
California-based Apple alleges Qualcomm withheld $1 billion in
rebates and other payments owed to Apple as a result of a Korean
Fair Trade Commission investigation into the San Diego-based
chip maker. That probe led to a $853 million fine for Qualcomm
but no demand for changes to its business model.

“For many years Qualcomm has unfairly insisted on charging
royalties for technologies they have nothing to do with,” Apple
said in a statement the same day it filed the lawsuit.

But the intent of the suit is to challenge Qualcomm’s
full-device royalty model. “They’re very clearly trying to
attack the business model – that’s crystal clear,” said Stacy
Rasgon, an analyst with Bernstein.

Apple also filed two lawsuits against Qualcomm in China this
week. Despite fining Qualcomm $975 million in 2015, Chinese
antitrust regulators did not take immediate aim at the chip
maker’s business practices either.

On its earnings call on Wednesday, Qualcomm said it would
defend its business model in courts around the world.

“There has been no sudden change in the law to make this
practice improper, and it remains the most efficient and fair
method of licensing,” Qualcomm President Derek Aberle said.



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