This year promises to be full of litigation for Qualcomm (NASDAQ:QCOM). The mobile chip giant received a twofer in January when the FTC and dominant customer Apple (NASDAQ:AAPL) both filed suit against Qualcomm just days apart. The underlying allegations were largely the same — namely, that Qualcomm enforces an unofficial “no license, no chips” policy that precludes competition in the marketplace for cellular baseband modems.
On the Apple front, the legal battle continues to escalate, expanding into numerous court systems across the world and dragging suppliers into the crossfire. As far as the FTC suit goes, it seemed like there was considerable uncertainty regarding whether or not the federal agency would take the complaint seriously.
The acting chairwoman originally dissented
The complaint was filed following a 2-1 vote, but then-Chairwoman Edith Ramirez had already announced her resignation. The commissioner that voted against the complaint, Maureen Ohlhausen, issued a strongly worded dissenting opinion and was subsequently named acting FTC chair by President Trump. The FTC is one of the many federal agencies that Trump has failed to fill in a timely manner, and there are currently only two commissioners out of five.
This is partially why when Qualcomm filed a motion in the U.S. District Court of San Jose, California, requesting that the suit be dismissed, it seemed conceivable that the complaint could be dropped. However, the decision on whether or not the FTC suit moved forward was up to federal Judge Lucy Koh, and Koh this week denied Qualcomm’s request, according to The Wall Street Journal. The FTC case is moving forward.
What happens next?
Qualcomm will still need to prepare its legal defense in the FTC suit, which it was probably expecting anyway since it was always unlikely that the case would get dismissed.
There is some uncertainty, both in terms of the FTC’s leadership due to three vacancies, as well as how seriously the FTC will take the case given Ohlhausen’s dissent. Even if Trump were to fill the vacancies, the Commission would skew toward Republicans (no more than three commissioners can be of the same political party), who tend to prefer less regulation and government intervention in general. And even though Ohlhausen feels strongly that the suit is “based on a flawed legal theory” and “lacks economic and evidentiary support,” prosecuting the case would be up to one of the FTC’s career litigators.
Though the case wasn’t dismissed, Qualcomm could still end up settling with the FTC, paying a fine in the process.
Apple remains the greater threat
Ultimately, it’s still true that Apple’s lawsuit represents far greater risk. There is a lot more on the line: Apple’s suit revolves around $1 billion, but the implications are far-reaching and pose an existential threat to Qualcomm’s very business model. To be clear, there are several billion dollars hanging in the balance, which FOSS Patents does an excellent job of detailing.
So while regulators frequently settle these types of cases and impose fines, those fines are relatively small in comparison to the financial risk that Apple’s lawsuit poses.
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