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DOJ weighs in on FTC’s case against Qualcomm

The Justice Department weighed in Thursday on a years-long legal battle between the Federal Trade Commission and Qualcomm, warning that the outcome in the case could hurt the ability of U.S. companies to compete in 5G wireless technology.

The Federal Trade Commission first sued Qualcomm in January 2017, claiming the maker of mobile phone technology violated antitrust rules in its licensing agreements with phone manufacturers. Qualcomm fought the charges at trial in January this year, and U.S. District Judge Lucy Koh has yet to make a ruling in the case.

While the Justice Department did not argue directly against the merits of the FTC’s case, the filing could pit the two federal agencies against one another in a philosophical battle over how the inventors of new technology should be compensated, and how best to incentivize new technological development.

The Justice Department said Thursday that, should Koh rule in the FTC’s favor, it does not want the judge to make an immediate decision on the “remedies” in the case, or how Qualcomm should be punished for allegedly violating antitrust rules. Rather, the Justice Department wants the judge to hold hearings first, so that various parties can argue the best course of action. “There is a plausible prospect that an overly broad remedy in this case could reduce competition and innovation in markets for 5G technology and downstream applications that rely on that technology,” the Justice Department wrote in its filing.

Soon after the FTC brought its 2017 case against Qualcomm, Apple sued the company in federal court in San Diego, where Qualcomm is headquartered. That case led to a flurry of more than 80 lawsuits in Asia, Europe and the United States. All of the cases between Apple and Qualcomm were settled last month in the opening hours of a blockbuster jury trial between the two companies. The resolution of that dispute raised questions about how a ruling in the FTC case might affect the settlement.

At the heart of the legal cases against Qualcomm, be it the FTC’s or Apple’s, is the value of Qualcomm’s technology. In addition to designing cellphone modem chips, Qualcomm holds patents covering a wide range of wireless technology that it has developed over decades. When Qualcomm sells its chips to phone manufacturers, it also licenses all of its patents as a bundle, charging a percentage of revenue on phone sales.

Apple and contract manufacturers argued in court that Qualcomm’s fees were too high, and the FTC believes Qualcomm was using its market dominance in the wireless industry to keep its technology expensive. Qualcomm has argued that it charges a market rate for the technology and that its business model is built around reaping the rewards of billions of dollars spent on research and development, all the while pushing wireless technology forward.

The Justice Department’s antitrust chief, Makan Delrahim, has expressed concern about the FTC’s case in the past, calling the criticism of Qualcomm’s business model overblown. The FTC did not immediately respond to a request for comment.

The development of 5G modems, the next major step in wireless standards, has played a significant role in Qualcomm’s legal battles. At the time of its lawsuit against Qualcomm, Apple had already replaced Qualcomm’s 4G, or “LTE,” chips with a competing component made by Intel. But as Qualcomm pioneered 5G technology, the dispute with Apple meant it was unclear which company would supply Apple with similar chips in future iPhones. There are only a small number of companies capable of making the chips, and there were rumors that Intel was falling behind on its 5G efforts.

Soon after Apple and Qualcomm announced a settlement, Intel announced it had pulled out of the 5G market altogether, paving the way for Qualcomm as the 5G supplier for Apple.

In its quarterly earnings release Wednesday, Qualcomm said it would record about $ 4.5 billion in revenue next quarter as a result of its settlement with Apple.

Tony Romm contributed to this report.

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