UNITED STATES INTERNATIONAL TRADE COMMISSION

WASHINGTON, D.C. 20436

In the Matter of

CERTAIN MOBILE ELECTRONIC DEVICES
AND RADIO FREQUENCY AND ITC Docket: 337-3235
PROCESSING COMPONENTS THEREOF

PUBLIC INTEREST STATEMENT OF PROPOSED RESPONDENT APPLE INC.
 

 
In the face of a rising tsunami of regulatory sanctions and litigation, Complainant Qualcomm

Inc.’s (“Qualcomm”) request for an exclusion order in this case is unprecedented. Qualcomm seeks to

extend its monopoly over premium LTE baseband chipsets1 by using the Commission’s authority to

exclude its only remaining competitor. Qualcomm does not ask the Commission to exclude all allegedly

infringing Proposed Respondent Apple Inc. (“Apple”) products; it instead asks the Commission to exclude

only a subset of the allegedly infringing Apple products with baseband chipsets purchased from Intel.

Because Intel is Qualcomm’s only competitor in the sale of premium LTE chipsets, the net effect of

Qualcomm’s action is to complete and extend its monopoly. That is not all. Qualcomm’s action seeks an

end-run around the agency and parties challenging its exclusionary monopoly practices under the antitrust

laws. The selective exclusion order Qualcomm requests would grant it a monopoly by fiat, and effectively

strip agencies and courts of authority to challenge Qualcomm’s abuses. It is no coincidence that

Qualcomm’s request follows a very strong ruling against Qualcomm’s interests by the district court

presiding over the Federal Trade Commission’s (“FTC”) challenge to Qualcomm’s practices.2 Never

before has a monopolist so blatantly sought to abuse this Commission’s processes in order to advance an

illegal monopoly already under scrutiny in enforcement actions at home and abroad.

Qualcomm’s anticompetitive business practices have come under scrutiny and been challenged by

competition agencies around the world, including South Korea, Japan, China and the European

Commission (“EC”).3 This year, Qualcomm also has been challenged in lawsuits and amicus briefs in

                                                                                                                                                                                                                            

1
A baseband processor chipset is a component that acts as a small wireless radio and “plugs in” to a
standardized telecommunications network. Such networks are created and maintained by carrier
companies, including, for example, AT&T, Verizon, Sprint, and T-Mobile. The leading 3G standards are
the Universal Mobile Telecommunications system (“UMTS”) and third-generation CDMA (“3G-CDMA”)
standards. The leading 4G standard is Long-Term Evolution (“LTE”).
2
FTC v. Qualcomm Inc., No. 17-CV-00220-LHK (N.D. Cal. Jan. 17, 2017).
3
For example, the Korea Fair Trade Commission found that Qualcomm refused or restricted the
licensing of mobile communication SEPs despite the request by rival modem chip makers and coerced
mobile phone makers to sign unfair license agreements by linking chipset supply with patent license
contracts. In 2015, the EC issued two statements of objections based on Qualcomm’s anticompetitive and
illegal conduct, including that “since 2011, Qualcomm has paid significant amounts to a major
smartphone and tablet manufacturer [(Apple)] on condition that it exclusively use Qualcomm baseband
chipsets in its smartphones and tablets” and that “this conduct has reduced the manufacturer’s incentives
to source chipsets from Qualcomm’s competitors and has harmed competition and innovation in the
markets for UMTS and LTE baseband chipsets.”

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federal courts for the same essential business practices. Challenges have come from all sectors: large

technology companies like Apple, Samsung, and Intel, consumers, Qualcomm licensees, and

governments. For example, the FTC filed a lawsuit charging Qualcomm with monopolizing the market

for CDMA and premium LTE baseband processor chipsets—the same chipsets that are at issue here. The

FTC charged Qualcomm with refusing to license its SEPs to Qualcomm’s chipset competitors, insisting

that any chipset purchaser must also purchase a separate license (the so-called “No License-No Chips”

Policy), and imposing exclusivity on Apple, all of which has harmed chipset competition and elevated

prices above competitive levels. (FTC Compl., ¶¶ 3-9, 61-145.)

Market actors and government agencies that rarely see eye to eye agree that Qualcomm’s

practices must be stopped. Qualcomm’s reaction has been to retaliate against those who dare challenge its

entrenched monopoly, including Apple and Intel. Only recently, after years of monopolistic practices by

Qualcomm that suppressed competition, stifled innovation, and resulted in price gouging, has Intel finally

gained a foothold in the premium baseband chipset business as Qualcomm’s only true competitor.

Excluding the accused products, which are the first and only Apple mobile devices that include a non-

Qualcomm premium LTE baseband processor, will destroy this nascent competition. Apple is Intel’s only

customer for its premium LTE baseband processor chipsets. Thus, Qualcomm’s requested relief will

remove Intel as a supplier for these baseband processor chips in Apple phones and drive Intel out of the

market.

I. Background on Qualcomm’s Anticompetitive Conduct

Qualcomm has an illegal and anticompetitive monopoly in the CDMA and premium LTE

baseband chipset markets both in the United States and abroad. Qualcomm has repeatedly undertaken to

preserve and extend this monopoly, including through an outright refusal to license patents it has declared

essential to industry standards (“SEPs”) on “fair, reasonable and non-discriminatory” (“FRAND”) terms

to either Apple or Qualcomm’s chipset competitors. Instead, Qualcomm has leveraged a thicket of patents

to extort royalties, to demand royalties based on the entire market value of the finished device, to

discriminate between potential licensees by failing to license its competitors, to condition any royalty

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relief on Apple’s agreement not to deal with any other chipset manufacturer, and to impose on Apple a

“gag clause” that prevented it from bringing concerns to law enforcement. In addition to the regulatory

actions described above, pending district court actions by consumers, Apple, and Apple’s Contract

Manufacturers, all seek determinations regarding Qualcomm’s anti-competitive practices.4

From 2011 to 2016, Qualcomm used its monopoly power and its patents to exclude competition,

including by conditioning any reductions of its royalty demand on Apple’s agreement to use Qualcomm

chipsets exclusively. (FTC Compl., ¶126.) Those royalties were far above what any other cellular SEP

licensor has ever charged Apple on either a per-patent or an aggregate basis (without any justification by

reference to the relative merits of any patent). When Apple introduced a degree of competition by dual-

sourcing from Intel starting in late 2016, Qualcomm responded by increasing significantly the royalties it

demanded from Apple. Qualcomm also retaliated against Apple for its cooperation with law enforcement

agencies investigating Qualcomm by withholding rebates (worth almost $1 billion).

The anticompetitive effects of Qualcomm’s illegal monopoly are undeniable: in 2006, there were

multiple vendors of baseband chipsets, including Broadcom, Ericsson, Renesas, and Texas Instruments.

Today, Intel is Qualcomm’s only competitor in the market for premium LTE chipsets, and Qualcomm has

no competition at all in the market for premium LTE chipsets with CDMA functionality.

II. Factors 1 and 2: The Public Health and Welfare and Competitive Conditions.

The U.S. economy and the competitive marketplace would suffer should the Commission grant

the requested relief. First, the relief requested here is irreconcilable with the relief the FTC seeks in its

action and that Apple, consumers, and Qualcomm licensees seek in their actions—an end to Qualcomm’s

monopolistic practices and greater competition among chip manufacturers. Subjecting Intel-based Apple

products to an exclusion order would force Apple back into an exclusive relationship with Qualcomm—

the very circumstances that have led to multiple pending antitrust lawsuits and investigations. The
                                                                                                                                                                                                                            

4
FTC v. Qualcomm Inc., No. 5:17-cv-00220-LHK (N.D. Cal. Jan. 17, 2017) (charging Qualcomm with
monopolizing the market for baseband processor chipsets); Bornstein v. Qualcomm Inc., No. 5:17-cv-
00234 (N.D. Cal. Jan. 18, 2017) (antitrust class action suit regarding Qualcomm’s monopolization);
Qualcomm Inc. v. Compal Elecs., Inc. et al., No. 3:17-cv-01010-GPC-MDD (S.D. Cal. May 16, 2017)
(breach of contract case against contract manufacturers and counterclaims challenging Qualcomm
monopoly practices); Apple Inc. v. Qualcomm Inc., No. 3:17-cv-00108-GPC-MDD, ECF No. 83 (S.D.
Cal. June 20, 2017) (contract, monopolization, unfair competition, patent, and FRAND claims).

3
district court recently denied Qualcomm’s motion to dismiss the FTC’s lawsuit, stating “Qualcomm’s

exclusive dealing arrangements with Apple did, in fact, ‘significantly impede[] the development of other

[modem chip] suppliers into effective competitors to Qualcomm,’ and that Qualcomm’s agreements with

Apple ‘foreclosed a substantial share of the market for premium LTE” modem chips.’” FTC v. Qualcomm

Inc., No. 17-CV-00220-LHK, 2017 WL 2774406, at *24 (N.D. Cal. June 26, 2017). If the ITC excludes

all Apple “mobile electronic devices that do not incorporate a Qualcomm brand baseband processor

modem,” the effect will be an ITC imposed Qualcomm monopoly and exclusive relationship with Apple,

even if Qualcomm’s anticompetitive practices are found illegal by the district courts.

Second, a requested remedy furthering Qualcomm’s illegal and anticompetitive conduct would be

detrimental to public welfare and competitive conditions. As Commissioner Pinkert noted, Congress

intended that “‘any evidence’ of ‘price gouging or monopolistic practices’ on the part of the domestic

industry would be a proper basis for denying exclusion.” In re Certain Elec. Devices, Including Wireless

Commc’n Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-

TA-794, Comm’n Op. (July 5, 2013), at D4 (Pinkert dissent) (emphasis added) (citing Senate Rep. No.

93-1298 at 197 (1974)). Here, multiple competition agencies around the world have already found

Qualcomm’s licensing practices to be anticompetitive, and the FTC filed a lawsuit on that same basis.

(FTC Compl., ¶¶61-145.)

Third, the requested relief will remove Qualcomm’s only competition, Intel, from the premium

LTE baseband chipset market, adversely impacting competition and innovation. As the FTC has stated:

“If Qualcomm’s remaining competitors were to exit the business as a result of Qualcomm’s

anticompetitive conduct, this would have a significant adverse impact on competition in baseband

processor markets and on innovation. (FTC Compl., ¶140; see also id. at ¶¶129, 139.)

III. Factor 3: Qualcomm Lacks Sufficient Evidence of U.S. Production of Like or
Directly Competitive Articles That Could Replace the Challenged Articles.
Qualcomm’s Public Interest Statement brazenly argues that an exclusion order limited to Apple

products with Intel chips is in the public interest because Qualcomm will then offer to provide all of the

needed chips to Apple so that, with Qualcomm as a sole source supplier, consumers will still have access

4
to iPhones and iPads. But even with the Qualcomm monopoly’s offer to supply all the needed chips, third

parties could not easily ramp up production to replace any excluded Apple products. For iPhone users on

networks that carry only Intel-based Apple products, the requested exclusion threatens to leave these

customers with no readily-available substitute until a substitute iPhone is certified to ensure compatibility

with the networks. Considering the iPhone’s 92% customer retention rate, the lack of choice would harm

users and severely disrupt businesses.5

IV. Factor 4: The Requested Relief Would Harm Consumers

Apple iPhones are widely used by millions of consumers to perform essential personal,

commercial, governmental, health, and safety-related tasks unrelated to the asserted patents. These tasks

include placing calls, sending email, navigation, monitoring health, and receiving help in the event of

emergencies. The iPhone 7 includes increased features that improve access to those technologies for

people with visual impairments and other disabilities,6 including through vibrational feedback to assist

visually-impaired users and tactile sensations to assist users who are partially deaf.

The relief Qualcomm requests would negatively affect U.S. consumers who rely on Apple

products. An exclusion order will protect Qualcomm’s illegal monopoly, stifle innovation, and harm

competition. Qualcomm’s requested remedy would also result in shortages and price spikes that would

substantially harm U.S. customers.

V. Conclusion

Given that Qualcomm is improperly using this Commission to advance its anticompetitive

practices, Apple urges that the Commission consider Qualcomm’s complaint with eyes wide open as to

the risks to the public interest that would stem from Qualcomm’s requested relief. If the Commission

elects to institute an investigation, Apple respectfully requests that the Commission delegate the public-

interest question to an ALJ for development of an evidentiary record that reveals the full measure of

Qualcomm’s wrongful conduct and the strong public interest in refusing an exclusion order here.

                                                                                                                                                                                                                            

5
http://appleinsider.com/articles/17/05/18/apples-iphone-scores-92-loyalty-rate-ahead-of-iphone-8-
launch-study-finds.
6
See http://abc7chicago.com/technology/new-haptic-technology-helps-people-with-disabilities/829715/;
https://www.imore.com/iphone-7-brings-accessibility-tactile-future.

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Respectfully submitted,

FISH & RICHARDSON P.C.

Dated: July 20, 2017 /s/ Ruffin B. Cordell                                                   
Ruffin B. Cordell
Lauren A. Degnan
FISH & RICHARDSON P.C.
The McPherson Building
901 15th Street, NW, Suite 700
Washington, DC 20005
Tel: (202) 783-5070
Facsimile: (202) 783-2331

Juanita R. Brooks
FISH & RICHARDSON P.C.
12390 El Camino Real
San Diego, CA 92130
Tel: (619) 678-5070
Facsimile: (619) 678-5099

Benjamin C. Elacqua
FISH & RICHARDSON P.C.
1221 McKinney Street, Suite 2800
Houston, Texas 77010
Tel: (713) 654-5300
Facsimile: (713) 652-0109

Betty H. Chen
FISH & RICHARDSON P.C.
500 Arguello Street, Suite 500
Redwood City, California 94063
Tel: (650) 839-5070
Facsimile: (650) 839-5071

William A. Isaacson
Karen L. Dunn
Michael J. Gottlieb
Amy J. Mauser
Christopher G. Renner
BOIES SCHILLER FLEXNER LLP
1401 New York Avenue, N.W.
Washington, DC 20005
Tel: (202) 237-2727
Facsimile: (202) 237-6131

Counsel for Proposed Respondent Apple Inc.

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