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Qualcomm’s Anti-Competitive Conduct Could Be Exacerbated By Mergers

· December 8, 2017

(Cross-post on Patent Progress.)

Qualcomm’s been busy over the past few months.  Defending against accusations of anti-competitive conduct from competition authorities in the US and elsewhere around the world, trying to acquire NXP Semiconductors, fending off an acquisition attempt from Broadcom, and—most recently—filing yet another round of new lawsuits to try to force Apple to pay higher-than-FRAND rates for their patents.

Patent Progress has covered Qualcomm’s anti-competitive conduct in the past [1][2][3][4][5], but the proposed mergers would increase Qualcomm’s ability to suppress competition and provide them with the ability to do so in new markets.  That could be a particular problem in growing markets like the Internet of Things and automotive computing.

BroadQualNXP Would Control Key Semiconductor Markets

A merged Broadcom/Qualcomm/NXP entity would have controlling positions in cellular baseband processors, smartphone application processors, connectivity chips (Wi-Fi, Bluetooth, and NFC), and would even be the largest chipmaker in automotive electronics.  Controlling NFC chips would in turn give the merged entity significant control over mobile payment systems, as NFC is a key element of mobile payments.  And of course, Qualcomm’s activities in the cellular space are well-known, having led to multiple competition lawsuits over the past several years.

But it’s important to bear in mind—having a monopoly isn’t illegal in and of itself.  And a patent is an explicitly legal monopoly, one that “reflects a balance between the need to encourage innovation and the avoidance of monopolies which stifle competition.”

It’s when you use your monopoly power to maintain your monopoly or extend your power into new areas that it becomes an antitrust issue.  It’s when you apply your patent in ways that extend beyond preventing competitors from using the technology you patented, or enforce it in ways you’ve promised not to, that antitrust takes an interest.

And, between the FTC, the KFTC, the Taiwanese FTC, China’s competition authorities fining Qualcomm, and a host of antitrust complaints from private companies, Qualcomm has faced a lot of accusations that they abuse their monopoly positions, and that they enforce their patents to shore up and extend unrelated monopolies.

What Effects Could This Merger Have?

Assuming Qualcomm continues to use similar tactics to those they’re already employing in the cellular space, we could see new threats to innovation in a number of areas.  The NXP purchase could result in Qualcomm creating enormous barriers to entry in mobile payments, by exerting control over NFC and “secure element” technologies, as well as in automotive electronics, using NXP’s automotive portfolio.  They could even extend both of these, along with their local wireless networking portfolio, into autonomous vehicles, combining their automotive and wireless portfolios to try to drive out innovators in self-driving cars.

Similar problems could crop up in the Internet of Things (IoT).  It’s hard to create an ecosystem of inexpensive, ubiquitous computing devices when you’re being double-taxed on both the chip and on patent licenses.  The necessity of dealing with Qualcomm’s licensing tactics would drive the kind of small, innovative companies who are key creators in the IoT ecosystem away from the market, given the choice between onerous licensing tactics and the risk of a ruinous patent suit.

There will always be questions about any merger.  A hypothetical BroadQualNXP might not employ the kinds of tactics that Qualcomm currently uses, tactics that give rise to a reasonable fear of continued and extended anti-competitive behavior by the merged entity.  But any merger that creates market power in so many areas of the innovation economy, involving an entity with Qualcomm’s track record of anti-competitive behavior, deserves a special level of scrutiny.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.