FTC Commissioner Calls FTC's Action Against Qualcomm 'Flawed,' Voted Against Complaint

QUALCOMM, Inc. (NASDAQ: QCOM) has found an unusual ally in FTC Commissioner Maureen Ohlhausen, as it gears up to tackle multiple lawsuits against it.

The Background

The FTC had last week charged Qualcomm with anti-competitive practices, with the agency alleging that Qualcomm maintains a "no license, no chips" policy, forcing cell phone makers to pay elevated royalties on products that use a competitor's baseband processors. Additionally, the agency said Qualcomm has consistently refused to license standard-essential patents to competitors and that it has extracted exclusivity from Apple in exchange for reduced royalty rates.

Qualcomm's Contention

In substantiating its claim that the basis of FTC's case is significantly flawed, Qualcomm said it has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms. The company also pointed to the rare dissension by Ohlhausen, with the commission deciding to sue by a 2–1 margin.

The company also cried foul over the agency's decision to rush to file the complaint on the eve of Chairwoman Edith Ramirez's departure and the transition to a new administration.

Ohlhausen's Take On The Scenario

In her dissenting statement, Ohlhausen said she sees the FTC action as an enforcement action based on a flawed legal theory that lacks economic and evidentiary support, brought on the eve of a new presidential administration. The commissioner feels the action will undermine U.S. intellectual property rights in Asia and worldwide.

Ohlhausen noted that there is no suggestion in the complaint that Qualcomm charges higher royalties to OEMs that buy non-Qualcomm chipsets. Instead, the complaint dances around that essential element, alleging that Qualcomm's practices disrupt license challenges and bargaining in the shadow of law, and that the ensuing royalties are "elevated," the Commissioner added.

Ohlhausen said, "I have been presented with no robust economic evidence of exclusion and anticompetitive effects, either as to the complaint's core "taxation" theory or to associated allegations like exclusive dealing. What I have been presented with is simply a possibility theorem."

The Dissent Put In Perspective

The FTC typically has five commissioners nominated by the president and confirmed by the Senate, with not more than three from a political party. The FTC, which voted 2–1 to initiate a complaint against Qualcomm, had a Democratic majority. With Ramirez, who was appointed by former President Barack Obama set to resign next month, President Donald Trump is expected to bring a Republic majority to the FTC and also support looser regulatory control. Consequently, it is believed that Qualcomm could reach a settlement soon or conclude the investigation without being hit hard.

At last check, Qualcomm was down 12.60 percent at $54.96.

Image Credit: By The Conmunity - Pop Culture Geek from Los Angeles, CA, USA - CES 2012 - Qualcomm, CC BY 2.0, via Wikimedia Commons