U.S.A:FEDERAL TRADE COMMISSION update

FTC Charges Qualcomm With Monopolizing Key Semiconductor Device Used in Cell Phones Company’s sales and licensing practices hamper Qualcomm’s competitors and threaten innovation in mobile communications, according to FTC The Federal Trade Commission filed a complaint in federal district court charging Qualcomm Inc. with using anticompetitive tactics to maintain its monopoly in the supply of a key semiconductor device used in cell phones and other consumer products. Qualcomm is the world’s dominant supplier of baseband processors – devices that manage cellular communications in mobile products. The FTC alleges that Qualcomm has used its dominant position as a supplier of certain baseband processors to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors. Qualcomm also holds patents that it has declared essential to industry standards that enable cellular connectivity. These standards were adopted by standard-setting organizations for the telecommunications industry, which include Qualcomm and many of its competitors. In exchange for having their patented technologies included in the standards, participants typically commit to license their patents on what are known as fair, reasonable, and non-discriminatory, or “FRAND,” terms . When a patent holder that has made a FRAND commitment negotiates a license, ordinarily it is constrained by the fact that if the parties are unable to reach agreement, the patent holder may have to establish reasonable royalties in court. According to the complaint, by threatening to disrupt cell phone manufacturers’ supply of baseband processors, Qualcomm obtains elevated royalties and other license terms for its standard-essential patents that manufacturers would otherwise reject. These royalties amount to a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors, a tax that excludes these competitors and harms competition. Increased costs imposed by this tax are passed on to consumers, the complaint alleges. By excluding competitors, Qualcomm impedes innovation that would offer significant consumer benefits, including those that foster the increased interconnectivity of consumer products, vehicles, buildings, and other items commonly referred to as the Internet of Things. The FTC has charged Qualcomm with violating the FTC Act. The complaint alleges that Qualcomm: Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.   Refuses to license standard-essential patents to competitors. Despite its commitment to license standard-essential patents on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.   Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors. The FTC is seeking a court order to undo and prevent Qualcomm’s unfair methods of competition in violation of the FTC Act. The FTC has asked the court to order Qualcomm to cease its anticompetitive conduct and take actions to restore competitive conditions. The Commission vote to file the complaint was 2-1. Commissioner Maureen K. Ohlhausen dissented and issued a statement. Both a public and sealed version of the complaint were filed in the U.S. District Court for the Northern District of California on January 17, 2017. In Two Separate Actions, FTC Charges Investors with Violations of U.S. Premerger Notification Requirements To settle charges, Ahmet H. Okumus will pay $180,000 and Mitchell P. Rales will pay $720,000 Hedge fund founder Ahmet H. Okumus has agreed to pay $180,000 in civil penalties to resolve Federal Trade Commission allegations that he violated the Hart-Scott-Rodino Act by failing to report his purchases of voting securities in the internet services company Web.com Group Inc. In a separate action, entrepreneur Mitchell P. Rales has agreed to pay $720,000 in civil penalties to resolve Federal Trade Commission allegations that he violated the Hart-Scott-Rodino Act by failing to report his purchases of shares in two industrial companies, Colfax Corporation and Danaher Corporation. Under the Hart-Scott-Rodino Act, companies and individuals must notify the FTC and the Department of Justice of large acquisitions above certain annually adjusted thresholds and and then observe a waiting period before closing their transactions. The FTC alleged that Okumus violated the HSR Act by exceeding the filing threshold and failing to file as required when he bought shares of Web.com through his hedge fund, Okumus Opportunistic Value Fund, Ltd. According to the complaint, he was in violation of the HSR Act from June 27, 2016, when he purchased the shares, to July 14, 2016, when he sold enough shares so that he did not exceed the threshold. Although the Commission found his HSR violation to be inadvertent, it determined to seek penalties because, as noted in the complaint, this is Okumus’s second HSR violation in two years regarding Web.com. After the first violation, the Commission advised Okumus that he was still “accountable for instituting an effective program to ensure full compliance with the Act’s requirements.” In the second matter, the FTC alleged that Rales violated the HSR Act by failing to file as required when his wife purchased shares in Colfax in 2011. The shares, which are attributed to Rales under the applicable HSR Rules, were above the filing threshold.  According to the complaint, Rales was in violation of the HSR Act from 2011, when the shares were purchased, to 2016, when he made a corrective filing and observed the waiting period. The complaint also alleged that in 2008, Rales violated the HSR Act by buying shares of Danaher that exceeded the filing threshold and failing to file. Rales was in violation of the HSR Act between 2008, when he bought the shares, and 2016, when he made a corrective filing and observed the waiting period. Although Rales contended that the violations were inadvertent, the Commission determined to seek penalties because, as noted in the complaint, Rales had paid civil penalties to settle an earlier HSR enforcement action brought by the Department of Justice in 1991. The Commission vote in each case referring the complaint and proposed stipulated court order to the Department of Justice for filing in federal court was 3-0. The Department of Justice filed the complaints and proposed orders in the U.S. District Court for the District of Columbia on Jan. 17, 2017. Consistent with the requirements of the Tunney Act, the proposed settlements, along with the competitive impact statements in the Okumus matter and in the Rales matter will be published in the Federal Register. Any person may submit written comments concerning the proposed settlements during a 60-day comment period to Daniel P. Ducore, Assistant Director for Compliance, Bureau of Competition, c/o Federal Trade Commission, 600 Pennsylvania Avenue, NW, CC-8416, Washington, D.C. 20580. E-mailed comments should be sent to: DDUCORE@ftc.gov. At the conclusion of the 60-day comment period, the U.S. District Court for the District of Columbia may approve the proposed settlement upon finding that it is in the public interest. The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about how competition benefits consumers or file an antitrust complaint. Like the FTC on Facebook, follow us on Twitter, read our blogs and subscribe to press releases for the latest FTC news and resources.