Qualcomm asks appeals court to delay contract renegotiations because of 5G

The chipmaker also asks the US Court of Appeals for the Ninth Circuit for an expedited appeals process.

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Shara Tibken was a managing editor at CNET News, overseeing a team covering tech policy, EU tech, mobile and the digital divide. She previously covered mobile as a senior reporter at CNET and also wrote for Dow Jones Newswires and The Wall Street Journal. Shara is a native Midwesterner who still prefers "pop" over "soda."
Shara Tibken
4 min read

In a January trial, UC Berkeley economics professor Carl Shapiro testified on behalf of the Federal Trade Commission that Qualcomm hurt competition. Judge Lucy Koh ruled in the FTC's favor, and Qualcomm is appealing.

Vicki Behringer

Until its appeal is heard, Qualcomm has asked for a delay to reforms ordered by a district court, including the requirement that the chipmaker must renegotiate licensing deals with phone makers. And it's using the 5G race to help justify a reprieve. 

The company on Monday filed a motion with the US Appeals Court for the Ninth Circuit, asking the court to grant a stay because carrying out the actions would "fundamentally change the way it has done business for decades." If the appeals court ultimately finds in Qualcomm's favor, the chip giant said, the company won't be able to undo the changes it's made. Qualcomm also filed a request for an expedited briefing and hearing for the appeal. 

"This court has repeatedly found that a stay is warranted when -- as here -- an injunction imposes changes on a party's business practices and commercial arrangements that cannot be undone by this court's later reversal of the district court's judgment," Qualcomm said in its filing requesting the stay. "There is no basis to depart from that settled, sound practice."

Watch this: Powerful chipmaker Qualcomm is just too powerful, judge rules

Qualcomm also invoked the global race to 5G and the US' priority to lead when it comes to the super fast, next-generation technology. 

"Unless stayed, the injunction will significantly impair an American company that is the worldwide leader in the development of cellular technologies, at a critical moment in the development of the worldwide standards for next-generation 5G cellular systems, thereby forfeiting the lead to foreign interests," Qualcomm's filing said. 

The company said firms are already are trying to renegotiate their contracts with Qualcomm and noted it "will be forced to negotiate under the cloud of an injunction requiring it to accept terms to which it would not otherwise agree."

The appeals court filings come days after US District Court Judge Lucy Koh denied Qualcomm's request to delay carrying out remedies she ordered after Qualcomm lost an antitrust case and was found to be a monopoly in wireless chips. The reforms included renegotiating licensing agreements previously reached with handset makers like LG and submitting to monitoring by the Federal Trade Commission. Qualcomm wanted the injunctions to be put on hold while the case made its way through the appeals process. 

Instead, Koh, in a ruling filed last week in the court's Northern District of California, said she denied Qualcomm's motion for a stay pending appeal after reviewing the motion, amicus briefs filed in opposition to Qualcomm by LG and others, arguments and evidence from the trial and other documents relevant to the case. 

Monopoly battle

Two years ago, the FTC accused Qualcomm of operating a monopoly in wireless chips. The FTC said Qualcomm forced customers like Apple to work exclusively with it and charged "excessive" licensing fees for its technology, in part by wielding a "no license, no chips" policy. Qualcomm's practices prevented rivals from entering the market, drove up the cost of phones and in turn hurt consumers, who faced higher handset prices, the FTC said.

Qualcomm argued the FTC's lawsuit was based on "flawed legal theory" and that customers choose its chips because they're the best. It also argued that competition is fierce in the mobile chip market and that Qualcomm never stopped providing processors to customers, even when they'd been arguing over licenses.

The parties faced off in an 11-day trial in January. In May, Koh ruled in the FTC's favor, saying Qualcomm was a monopoly that illegally hurt competitors in the wireless chip market. The ruling, which came four months after the trial ended, said Qualcomm must change how it does business and renegotiate license deals with its customers. To hold the company accountable, the court said Qualcomm must also submit compliance and monitoring reports for the next seven years and report to the FTC on an annual basis.

"Qualcomm's licensing practices have strangled competition in the CDMA and premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process," Koh wrote in her ruling in May.

The ruling came as a surprise to Qualcomm and others in the mobile market. For Qualcomm, the verdict called into question the company's entire business model. While it sells processors that connect devices to mobile networks, it also generates a significant percentage of its revenue from licensing. If it can't collect royalties based on the value of a handset -- which it had done in the past -- it will generate less money and may have to rethink its model entirely. Even though it's appealing the ruling, Qualcomm's licensees likely will try to alter their contracts.

Koh, in her ruling, said Qualcomm can't force a customer to sign a license before it'll supply that company with chips. It "must negotiate or renegotiate license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical support or access to software."

Following the ruling, Qualcomm said it would seek a stay of the district court's judgment and an expedited appeal to the Court of Appeals. The decision is now in the appeals court's hands.

Though Qualcomm likely won't have to renegotiate its new agreement with Apple -- the two settled their long-running licensing and patent disputes during opening arguments in a May trial -- it'll have to offer other customers the chance to change their terms.

The company in a filing Monday said that there's "good cause" to expedite its appeal. And the FTC consented to Qualcomm's request for a faster process, Qualcomm said. 

"As described at length in Qualcomm's contemporaneously filed motion for partial stay, Qualcomm will suffer irreparable harm from the injunction as it stands, necessitating prompt resolution of the appeal," the company said.