Qualcomm Must License Standard Essential Patents to Component Suppliers

Recently, federal district judge Nancy Koh granted partial summary judgment in favor of the FTC in its antitrust battle against Qualcomm, holding that Qualcomm must license its standard-essential patents (“SEPs”) to competing modem-chip sellers.  Standard setting organizations (“SSOs”) create protocols and guidelines to standardize certain technologies.  Technical standards benefit consumers by enhancing interoperability, lowering product costs, and increasing competition.  SEPs are patents covering technologies necessary to implement standards. Qualcomm argued that it was only required to license its SEPs to applicants supplying complete devices like cellular phones, not suppliers of components like modem chips.

The court disagreed. Under its intellectual property policies and agreements with SSOs, Qualcomm was required to make licenses available “under reasonable terms and conditions that are demonstrably free of any unfair discrimination to applications desiring to utilize the license for the purpose of implementing” the standard.  This is known as the FRAND standard, which stands for “fair, reasonable, and nondiscriminatory.”  The court did not lend any credence to Qualcomm’s argument, which attempted to distinguish between device suppliers and modem chip suppliers.  Because a modem chip is a core component of a cellular handset, a license to “supply modem chips is for the purpose of practicing or implementing cellular standards.” Therefore, Qualcomm must license to the component suppliers, not just suppliers of the complete device. The upshot, according to the Wall Street Journal: “Qualcomm historically has licensed patents by charging device makers a percentage of the sales price up to $400 on handsets. The ruling means that it could only assess fees based on the $15 to $20 cost of modem chips in the future.”

Gesmer will continue to follow updates on this case.  For more information on standard-setting organizations and standard essential patents, please visit www.consortiuminfo.org.

The opinion can be found here.

Shamus J. Hyland

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