By Michael Martinez
Qualcomm, the world’s largest smartphone chipmaker that became a proxy in the U.S.-China battle over who will lead next-gen 5G speed, has long drawn awe and controversy in technology because of its innovations, its leadership under cofounder Irwin M. Jacobs, and its ongoing lawsuits with the Federal Trade Commission and Apple, according to research by the IEEE Computer Society.
This week, President Donald Trump entered the so-called “5G arms race”– the next generation of cell phone speed — when he blocked the hostile buyout of Qualcomm by Singapore-based Broadcom for $117 billion, which would have been the biggest deal in tech history. The unprecedented White House action reflected views that Broadcom would have diminished Qualcomm’s R&D, giving competitor Huawei of China the edge in the looming 5G bonanza and ultimately jeopardizing U.S. security.
Broadcom subsequently dropped its bid for San Diego-based Qualcomm.
Qualcomm’s dominance in mobile chips began partly under Jacobs, who rose to CEO and chairman and spoke of the firm’s remarkable innovations and strategies during a sweeping 2005 interview with the Computer Society. Now that Jacobs is retired, Qualcomm finds itself facing a lawsuit from the FTC, raising broad questions about who should ultimately profit from standardization in mobile tech, according to IEEE Computer Society researchers and experts. Here’s a summary of their analyses, with the research placed in front of our digital library paywall for a limited time (subscription is usually required).
IEEE Computer Society interviews Qualcomm cofounder & CEO Irwin M. Jacobs
Jacobs, who retired from Qualcomm’s board of directors in 2012, gave a sweeping interview about his life and career in a 2005 issue of IEEE Computer Society’s Design & Test of Computers magazine. Even then, China was a force to be reckoned with, though Qualcomm enjoyed success in entering the Chinese market and even established an research and development center there.
“It took us about 10 years to get CDMA (code division multiple access) into China. We worked with them since the early 1990s. We did a demonstration there, which worked out well. We translated the standards into Chinese, but it was always difficult to move ahead. In China, there is always the feeling that it’s a huge market; therefore, they will provide the market and you provide the technology, and everybody proceeds happily. It took 10 years to convince decision-makers that it doesn’t help to have a large market if you also can’t make a profit. So, there’s balancing between value received and cost to be done,” Jacobs said in 2005.
Jacobs also spoke of his early inspiration for Qualcomm.
“We started Qualcomm with the idea that we would try to be innovative—look for an idea that could make
a significant difference, but we didn’t have anything specific in mind. Within the first six months, however, we
came up with several products. We’ve been running hard ever since to keep up with their development,” he said.
Qualcomm’s road to 5G
Qualcomm’s then chief technology officer Matt Grob, now executive vice president of technology, outlined the firm’s pursuit of 5G technology during a presentation at the 2015 IEEE Hot Chips 27 Symposium (HCS2015) in Cupertino, California.
The superfast speeds of 5G will provide a unified, more capable platform for the next decade, critical in the development of the Internet of Things, Grob said.
The technology must also prove to be highly reliable, with low latency and a high resilience allowing for multiple links for failure tolerance and mobility, Grob said.
Ultimately, 5G will allow for a new connectivity paradigm, with new kinds of data control and convergence of disparate networks, Grob said.
Grob’s presentation was entitled “The Road to 5G: Providing The Connectivity Fabric for Everything.”
A Qualcomm architecture optimized
Qualcomm also highlighted their innovations over the years at other IEEE technical conferences.
Qualcomm’s then senior director Lucian Codrescu, now vice president of technology, gave a slide presentation of how Qualcomm Hexagon DSP provided an architecture optimized for mobile multimedia and communications during the 2013 IEEE Hot Chips 25 Symposium (HCS2013) at Stanford University,
“Hexagon DSP is evolving for use beyond voice and audio to computer vision, video and imaging features,” he said in his presentation.
FTC vs Qualcomm about its dealings with Apple
Qualcomm’s success hasn’t been without controversy — including lawsuits and counter-suits involving another tech giant, Apple.
There’s no love lost between these two tech titans.
Perhaps the most prominent legal controversy recently is the January 2017 lawsuit filed by the Federal Trade Commission, partly on behalf of Apple, against Qualcomm.
Qualcomm is accused by the FTC of using anti-competitive tactics to maintain its monopoly in the supply of an all-important semiconductor device — baseband processors — in cell phones, which Qualcomm has denied.
Qualcomm was also accused of extracting exclusivity from Apple in regard to the sale of baseband processors, a tactic that allegedly kept competitors from doing business with Apple and from becoming stronger under such arrangements, the FTC alleges.
Meanwhile, Apple and Qualcomm sued each other for patent infringement in November 2017.
By itself, the FTC lawsuit is an example of “skullduggery” surrounding the standardization of cell phones, according to Richard H. Stern, a patent and antitrust attorney in Washington, D.C., and a law professor at George Washington University Law School, who has written a recent series of articles for IEEE Micro magazine about Qualcomm and its legal woes.
FTC and Apple Sue Qualcomm for Cell Phone Standardization Skullduggery
At its core, the FTC allegations focus on Qualcomm’s licensing of its patents — specifically, standard-essential patents (SEPs) — and its marketing of chipsets essential to the manufacture of standard-compliant smartphones and similar devices, Stern says.
Qualcomm must provide its patents to smartphone makers under various fair, reasonable, and nondiscriminatory (FRAND) terms, but the FTC accuses Qualcomm of instead extracting exorbitant royalties and other unreasonable licensing terms, in effect creating a “tax” on the use of it baseband processors in standard-compliant smartphones, Stern explains.
“How the FTC’s case will fare, given current political realities, is uncertain,” Stern says. “But…Apple has too much money at stake to abandon its case readily. (Apple claims that Qualcomm owes it billions of dollars.)” Stern writes.
Details of the “grudge match” between Apple and Qualcomm
The dispute became more complicated by how Apple sued Qualcomm shortly after the FTC filed its lawsuit.
Apple alleges that Qualcomm owes it a billion dollars — possibly $20 billion — in unpaid rebates for forcing Apple to yield to what the FTC alleges is an illegal exclusivity agreement on baseband processor supply, Stern writes.
The stakes are clearly enormous, and it’s another turn in the ongoing feud between Apple and Qualcomm, which Stern describes as “grudge match.”
“Apple’s allegations are similar to those of the FTC,” Stern says. “There is a slightly different spin, however. Despite its litany of Qualcomm’s many different misdeeds, Apple’s central complaint is that Qualcomm breached its contract to pay Apple a billion dollars in rebates for an unlawful promise not to buy baseband processors from anyone but Qualcomm—a promise which Apple in fact carried out.
“Qualcomm failed to perform its side of the bargain, however, in retaliation for Apple’s allegedly urging worldwide antitrust authorities to sue Qualcomm for standardization skullduggery and related restrictive trade practices, which led them to levy billions of dollars in fines against it. Qualcomm says this backstabbing provides grounds for it to renege on the rebate agreement, or as Qualcomm puts it, to forfeit the right to the payments,” Stern writes.
Determining SEP Reasonable Royalty in Apple vs Qualcomm
Honest differences could be behind disputes between SEP holders and SEP users, which is the nature of the conflict between Qualcomm and Apple, Stern says.
Determining royalty differences raises important policy questions and controversial questions.
“One fundamental and highly disputed question is: Who should ‘own’ (or capture) the benefits of standardization (particularly of interoperability)? Should standardization be considered to belong to the public, like the use of streets and street lights? Does calling it property further the analysis? To what extent should limits be placed on the conduct of actors who seek to make individual profits from standardization? Who should get the financial benefit from standardization, or how should the value of standardization be divided among actors?
“More specifically, to focus on a hotly disputed example in the US cell phone industry, who is entitled to capture the benefit from the adoption of standards implemented in cell phones, such as the IEEE 802.11 Wi-Fi standard? Who should cash in on that? Device manufacturers—cell phone and chipset 802.11 implementers? Cellular network service companies? SEP owners? The general consumer public?
“To answer these questions calls for a sensitive balance of interests. It also demands an evaluation of relative values, among others, of promoting innovation and protecting the public from forced wealth transfers,” Stern says.