The US Federal Trade Commission's case against Qualcomm is now in the hands of a judge. 

On Tuesday the two sides presented their hour-long closing arguments in a case that could have big implications for the technology world. The FTC has accused Qualcomm of operating a monopoly in the mobile chip market, which hurt rivals and caused handset makers to raise their prices. 

For the FTC to win the case, it has the burden of showing that Qualcomm had a monopoly, that it had market power and that it used that power in negotiations with handset makers to command high royalties. The FTC also has to show that Qualcomm's conduct hurt competitors and that the anticompetitive actions continue or will start again in the future. 

FTC attorney Jennifer Milici kicked things off Tuesday afternoon by detailing how Qualcomm used its power in the 3G and 4G chip market to force handset makers like Apple to sign licensing agreements with excessively high royalties. If Qualcomm isn't stopped, she said, it'll do the same thing in the 5G market.

Qualcomm "acquired monopoly power in the modem chip market and instead of simply competing on its merits" put up "roadblocks" that hurt rivals, Milici said. "It's beyond dispute the conduct is ongoing."

Qualcomm attorney Robert Van Nest of law firm Keker, Van Nest & Peters, argued during his closing that the FTC didn't meet its burden in the case and that Qualcomm won business "through superior innovation and better products."

"High royalties alone is not the basis for their complaint of harm," Van Nest said. "They have to show harm to competition." But he said such harm hasn't occurred: Intel now supplies all modems for Apple's iPhones, MediaTek is the world's second biggest wireless chipmaker, and Samsung and Huawei have developed their own modems. 

"If the task is to decide whether Qualcomm maintained its position through innovation, skill, technology or through licensing practices, it's a lay-down hand," Van Nest said. The FTC hasn't "proven anything with respect to licensing practices that had impact on advancement of this technology."

Qualcomm has been battling the FTC in a San Jose, California, courtroom since Jan. 4. The FTC wrapped up its antitrust case against the company on Jan. 15, and Qualcomm rested its defense Friday. The trial has revealed the inner workings of tech's most important business, smartphones, showing how suppliers wrestle for dominance and profit. 

Judge Lucy Koh will now decide the outcome of the case. She noted earlier in the trial that she likely won't be issuing her normal speedy decision, as she has a lot of evidence, testimony and case law to consider. Still, the FTC on Tuesday asked for a possible timeline for the decision. It's facing another government shutdown in mid-February and would have to justify keeping lawyers on the clock if a verdict was impending.

Koh said she didn't know how long it would take but asked the FTC to check in again before a potential shutdown. 

"I'm generally fairly fast," Koh said. "[But] something of this magnitude is going to take longer" than other average motions.

Qualcomm is the world's biggest provider of mobile chips, and it created technology that's essential for connecting phones to cellular networks. The company derives a significant portion of its revenue from licensing those inventions to hundreds of device makers, with the fee based on the value of the phone, not the components.

Because Qualcomm owns patents related to 3G, 4G and 5G networking technology, as well as other features like software, all handset makers building a device that connects to cellular networks have to pay it a licensing fee, even if they don't use Qualcomm's chips.

But the FTC lawsuit could break that model. The US government has accused Qualcomm of operating a monopoly in wireless chips, forcing customers like Apple to work with Qualcomm exclusively and charging "excessive" licensing fees for its technology, in part by wielding its "no license, no chips" policy. Qualcomm's practices prevented rivals from entering the market, drove up the cost of phones and in turn hurt consumers, who faced higher handset prices, the FTC said. 

Qualcomm says the FTC's lawsuit is based on "flawed legal theory." It's also says customers choose its chips because they're the best and that it's never stopped providing processors to customers, even when they're battling over licenses.

"The FTC hasn't come close to meeting its burden of proof in this case," Don Rosenberg, executive vice president and general counsel of Qualcomm, said in a statement Tuesday following closing arguments. "All real-world evidence presented at trial showed how Qualcomm's years of R&D and innovation fostered competition, and growth for the entire mobile economy to the benefit of consumers around the world. Our licensing rates -- which were set long before we had a chip business, and revalidated time and again -- fairly and accurately reflect the value of our patent portfolio. Qualcomm's technology has been the foundation of a thriving, competitive industry."

No license, no chips

During the trial, the FTC called witnesses from companies like Apple, Samsung, Intel and Huawei and had experts testify about the alleged harm Qualcomm's licensing practices have caused the mobile industry. 

Qualcomm, meanwhile, called company executives, representatives from handset makers and chip rivals, and economics experts to dispute the FTC's allegations in the case. The company sought to show that competition is healthy in the mobile chip market and that Qualcomm hasn't hampered the industry. 

The company has argued that its broad patent portfolio and innovations justify its fees. CEO Steve Mollenkopf, who took the stand early in the trial, defended the company's licensing practices, saying the way his company sells chips to smartphone makers is best for everybody involved and is the simplest way to license the technology. 

The heart of the FTC's case against Qualcomm is a so-called "no license, no chips policy." Qualcomm sells processors that connect phones to cellular networks, but it also licenses its broad portfolio as a group. For a set fee -- based on the selling price of the end device, typically a phone -- the manufacturer gets to use all of Qualcomm's technology. It's phone makers that pay the licensing fee, not chipmakers. 

To get access to Qualcomm's chips, which are broadly considered to be on the bleeding edge of wireless innovation, a phone maker first has to sign a patent licensing contract with Qualcomm. The company has long been the leader in 4G LTE, and it's ahead of rivals in the nascent 5G market. The highest-end phones, like those from Samsung, have tended to use its modems. But the FTC argues such a requirement hurts competition and cements Qualcomm's monopoly power.

Apple Chief Operating Officer Jeff Williams testified that his company felt it had to sign contracts for amounts it thought too high -- a royalty of $7.50 per iPhone -- to maintain access to Qualcomm's chips.

"We were staring at an increase of over $1 billion per year in licensing, so we had a gun to our head," Williams said as he explained why Apple signed another licensing agreement in 2013, despite being unhappy with the terms. He added that Apple has wanted to use Qualcomm's chips for its newer devices, but Qualcomm refused to sell processors for the iPhone. 

Other companies, like Huawei and Lenovo, made similar comments during their testimony. And during the trial, the FTC has pointed to communication from a former Qualcomm licensing executive, Eric Reifschneider, to mobile chip customers like Motorola and Sony Mobile as evidence of threats to cut off supply. 

In one instance, Reifschneider wrote in an email to a Sony Mobile executive that "QCT (Qualcomm's chip business) has been shipping chips to SMC (Sony Mobile) for almost three weeks now without a license in place. It will not be possible for that to continue." 

But Qualcomm and executives from some companies have testified that Qualcomm has never cut off chip supply during contract negotiations. Some of those executives have said in live testimony and video depositions presented by Qualcomm that its rivals didn't have the technology required for their devices. 

Matthias Sauer, an Apple executive and a witness called by Qualcomm, testified earlier in January that Intel's modems didn't meet the technical standards required for the company's iPhones in 2014. Though Intel also couldn't meet Apple's chip requirements for the iPad, it would've used them anyway, he said, had Qualcomm not offered incentives to stay with its chips. His remarks echoed comments from colleague Tony Blevins early in the trial.

Qualcomm, meanwhile, has said it had legitimate business reasons for having strict contracts with Apple, including how expensive it is to design modems specifically for Apple. 

Sparring during closing arguments

On Tuesday, FTC attorney Milici argued that the no license, no chips policy "put up roadblocks for competitors." She said there was "consistent" testimony from handset makers such as Apple, Samsung, Lenovo, Motorola and LG that they worried they'd lose access to Qualcomm's modems if they didn't sign licenses under terms they didn't like. 

"Qualcomm has stated unambiguously that it has never threatened chip supply," Milici said. "This is just a semantic trick." In "example after example," she said, Qualcomm demanded tough terms, the customer resisted, then Qualcomm said if the two sides didn't reach agreement, the customer wouldn't be able to buy chips anymore.

"Customers who heard these statements certainly viewed them as threats," she said. "Internal Qualcomm documents show Qualcomm executives knew their comments would be taken as threats, and they were intended to be taken that way." 

Milici added that "the fact they didn't have to cut off chip supply is proof of market power." Customers had no other viable modem options, so they had to sign licensing deals with Qualcomm to get its chips. 

"We don't know and can't know what the market would look like without" Qualcomm's licensing practices hurting rivals, Milici said. She said there's no way to know if Qualcomm would've been first in LTE had it not thrown up obstacles for chip competitors. "The entire market was affected by roadblocks," she said. "We don't know how successful [Qualcomm's rivals] would have been."

Qualcomm attorney Van Nest, meanwhile, said during his closing arguments that the companies that testified did so because they want to pay lower licensing rates. 

"They're all big sophisticated companies with their own leverage," he said. "Their testimony was, 'Oh yeah, we felt threatened and had to do what we did.' I would say this testimony was presented to this court in a very misleading fashion."

Van Nest noted that the FTC presented video testimony from companies like BlackBerry and Lenovo, where executives said they felt threatened by Qualcomm. But Qualcomm couldn't present contradictory testimony -- where the executives said they never actually received threats or had their chip supply cut off -- until it was its turn to present its defense.

He also said the FTC failed to show that Qualcomm had any market power after 2016. That September was the first time Apple used Intel chips in the iPhone. And competition in mobile chips has only gotten more fierce since then, with Qualcomm losing share in that market and MediaTek and Intel saying they'll soon have 5G chips available. 

"We know 5G is going to be competitive," Van Nest said. "There is no evidence of plausible chip leverage."

'Heavy hammer'

Both sides presented economics experts throughout the course of the trial to back up their arguments. 

In the case of the FTC, Carl Shapiro, a professor of economics at the University of California, Berkeley, provided the key testimony about Qualcomm's impact on the mobile market. His testimony sought to show that Qualcomm's "unusually high" royalty rates hurt competitors, handset makers and consumers.

Shapiro initially took the stand two weeks ago, detailing how Qualcomm continues to hurt the mobile chip market. He testified again Monday as the FTC's key rebuttal witness. 

Losing access to Qualcomm's modems would impose costs on handset makers, including not being able to supply to consumers, Shapiro said in his initial testimony. 

"That's a very heavy hammer that Qualcomm is bringing down, at least as a threat, in those negotiations," Shapiro said. 

As part of its defense, Qualcomm last week called three economics experts to rebut Shapiro's claims. They testified that Shapiro's methodology was flawed and that he didn't consider what was happening in the real world. 

Dueling experts

Aviv Nevo, a University of Pennsylvania economics and marketing professor, on Friday called into question Shapiro's use of theory to determine the damage allegedly caused by Qualcomm's licensing practices. Instead, Nevo said he examined the "real-world" agreements Qualcomm had with companies to determine that the rates weren't excessive. 

Nevo testified that the FTC's theory that Qualcomm uses its power in the chip market to charge excessive royalty rates "is just not born out of actual market data." He said "there's no support for the theory in the data." Nevo also testified that the mobile industry is strong. 

"At a high level, this is a thriving industry," Nevo said. "Prices are declining. Quantities are skyrocketing."

Nevo also said there were legitimate business reasons for Qualcomm's licensing policies. "One is reduction in transaction cost," he said. "The other is allowing rival chipmakers to operate freely with access to tech without a need for a license."

Shapiro on Monday said some of Nevo's methodology, conclusions and assumptions were "fabricated," "outrageous" and "all messed up." He noted that Nevo's methodology had "measurement problems." He also said that Nevo fell short by not doing a test to determine when Qualcomm had market power.

Last Tuesday, Edward Snyder, dean of the Yale School of Management and a professor of economics and management, criticized Shapiro's methodology and said the problems Qualcomm's rivals had were due to choices they made that had nothing to do with Qualcomm. 

He noted that three factors explain a company's success or failure: foresight, investment and execution. Snyder evaluated Intel, MediaTek, Broadcom and others to examine their position in the market and how they performed based on those three factors.

Intel, for one, "exhibited ... poor foresight about the industry. They invested inefficiently, and they encountered execution problems," said Snyder, who at one time worked for the Justice Department's antitrust division. MediaTek had good foresight and investment, but it had some execution problems, Snyder said. It has now resolved those, helping it become the No. 2 modem supplier in the world. Broadcom, for its part, failed on all three, Snyder said, causing it to leave the modem industry. 

And Tasneem Chipty, a specialist in competition policy and antitrust economics from consultancy Matrix Economics, attacked Shapiro's definition of the market and of market power. 

She accused Shapiro of taking a "shortcut" when evaluating whether the mobile chip market was competitive and said he "has overstated Qualcomm's market power." She said there's no "evidence of consistent and unconstrained market power of the type" that would hurt competition or "coerce OEMs [handset makers] into onerous business terms that would rob them of billions of dollars."

Licensing rivals?

The FTC has said Qualcomm's refusal to give licenses to its chip rivals is part of its efforts to maintain its monopoly. Judge Koh in November agreed and ruled that Qualcomm has to license its wireless chip patents to its chip competitors like Intel.

But Dirk Weiler, head of standards policy at Nokia, testified last week that it has long been industry standard to license technology to handset makers, not chipmakers. Along with his role at Nokia, Weiler also serves as chairman of the European Telecommunications Standards Institute. The nonprofit standards body's Intellectual Property Rights Policy requires companies to give licenses for equipment.  

"What is my understanding of the industry practice is in the case of the cellular business, this means these companies license, for example, the handset and not any subpart of the handset," Weiler said. 

And Nevo on Friday said if Qualcomm doesn't license at the device level anymore, things could get complicated fast. If the company switched to simply licensing at the chip level, it would need to offer multiple tiers, because some of the technology would apply to an overall phone and not just the processor. 

"The number of license agreements would be large," Nevo said. But the real issue "is the fact each negotiation now will become a lot more complex. Parties, chipmakers and OEMs, would have incentives to point to the other party as the one actually practicing on the license." 

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