All you need to know about the mobile license win for Qualcomm

The European Commission reported today that it was closing down an investigation into chip-maker Qualcomm. Four years ago, six major companies reported Qualcomm to the commission, saying it was abusing it’s position in the chip-set market so much that it was damaging the industry. Now those companies have dropped the charges, and the EU has closed the case. But what was behind all of this?

First of all, some info on Qualcomm

Qualcomm is a massive research and development company, working in the field of wireless telecoms. It has operations all over the world, and Qualcomm chips power a truly massive number of mobile devices. The important thing for this story is that Qualcomm is “fabless” - meaning it doesn’t own its own manufacturing plants. It outsources its chip production to other companies who do have manufacturing facilities.

Now, Qualcomm owns some incredibly important patents when it comes to WCDMA chips - which are a core feature in 3G networks. It’s fair to say that without Qualcomm patents, you can’t reasonably make a WCDMA 3G phone… or network. In Europe, it licenses out these chip patents to mobile companies like Nokia, Ericsson and Panasonic so that they can manufacture 3G chips in their own facilities.

And this whole story began because a group of six companies felt that Qualcomm was abusing the position it gained from those patents. So they got together and issued a complaint to the European Commission - the legislative and regulatory arm of the European Union.

So what was the actual complaint?

The year is 2005. Broadcom, Ericsson, NEC, Nokia, Panasonic and Texas Instruments are all extremely angry. Why? Because they claim that Qualcomm has broken an agreement that everyone else is upholding.

The essential details are as follows. A lot of different companies contributed to the WCDMA standard, including Ericsson, Nokia, Qualcomm, Siemens and Motorola. They all pitched their patents into the WCDMA pool, and agreed to license them in a fair and reasonable manner. The complaint is based on the fact that Qualcomm was being neither fair nor reasonable. The two main points in the complaint were these:

First: Qualcomm is unfairly pricing its own chips incredibly cheaply. At the same time, it’s charging a huge amount for the licenses that allow other companies to manufacture their own 3G chips. As a result, the Qualcomm chips are massively cheaper than anyone elses - which is directly in opposition to the agreement the companies made when creating the standard.

Second: Qualcomm is charging the same amount for WCDMA licenses as it charged for earlier licenses on CDMA2000 chips - despite the fact that Qualcomm contributed FAR less to the WCDMA license pool. And this is in opposition to the fairness aspect of the WCDMA agreement.
Another aspect of the complaint was that by unfairly raising the price of the chips, Qualcomm was raising the price of 3G handsets for consumers. If everyone behaved that way, the complainants argued, then 3G handsets would be too expensive to purchase and the service would never take off.

What happened then?

Then there was a two year wait while the EC decided if the complaint was reasonable or not. Finally, in 2007 the European Commission decided that there was something to this. On October 1st of that year, it opened an investigation into whether or not Qualcomm was unfairly overcharging its partners for access to the technologies which were essential for 3G to operate.

How did that pan out?

Not great. Despite initial claims that the whole investigation could be over within six months, the case dragged on and on. Then last year Nokia reached an out-of-court agreement with Qualcomm. This year, a second complainant dropped out when Broadcom reached it’s own agreement with Qualcomm. Now the other companies have dropped charges, and the EC has simply walked away from the matter.

Ericsson isn’t giving up though. It fully intends to pursue the matter with other regulators around the world.

What we think?

Even back in 2007, when the EC officially announced the investigation, there were mixed feelings about this. People remembered the landmark ruling of the Commission against Microsoft in 2004 - but the truth of the matter was that Qualcomm wasn’t profiteering half as bad as Microsoft had been. Was a full blown investigation appropriate? Some commentators suggested that even if the investigation was completed, the ruling would be in favour of Qualcomm.

You have to bear in mind that Qualcomm has been putting up with these kinds of investigation all over the world for years now. Japan is coming down hard on it, and Korea nailed it with a €150 million (over $220 million) fine earlier this year - although considering that it picked up over $2.5 BILLION from Nokia for its license in 2008, I doubt that concerns it much.

The simple fact is that Qualcomm is going to continue charging however much it wants for its licenses - because it is the big dog with the big patents. Dragging out legal proceedings until they are no longer worth it is a fine art, and Qualcomm is very good at it.

Besides, it’s not like the prediction about massively inflated prices for 3G handsets came true. You can pick up a decent 3G phone for cheap in any phone shop in the USA, EU, Korea or Japan. Qualcomm may be overcharging for its licenses, but it doesn’t seem to be doing so in a way that is actually damaging the market.

Also… Qualcomm is the big dog when it comes to CDMA and WCDMA. I wonder if this entire thing has something to do with Qualcomm recently aligning itself with GSMA?