Any patent regime is supposed to do two things: protect the rights of the inventor and, in doing that, foster the spirit of innovation in the population. The idea is that the protection will incentivize potential inventors, providing them with the financial certainty that their invention is usable only by them for a pre-determined number of years. The specifics of patent regimes in different jurisdictions have changed over time, but this remains the founding ideal of the system.
The actual implementation of any legal objective, however, usually meets with some roadblocks. In the technological field, one of these problems is larger and more powerful manufacturers sidelining smaller, independent innovators using a variety of tactics. Aggressive patent assertion, patent thicketing and patent evergreening are a few of the common patent law based tactics we see today.
Qualcomm is the producer of, among other products, the ubiquitous Snapdragon microchip used in a majority of the mobile handsets available in the market. The American company holds more than a hundred thousand patents, many of which are categorized as Standard Essential Patents. Standard Essential Patents or SEPs, are innovations which have become industry standards. There are generally more rules associated with the exploitation of an SEP than an ordinary patent, such as mandatory fair and reasonable terms of licensing. Criticism has been levelled against Qualcomm for its unusually high 5% royalty rate, with multiple companies alleging unfair practices. As a result, Qualcomm has been sued in various jurisdictions over anti-competitive practices.
The battle between Qualcomm and Apple, which has been raging since has had legal costs of 1 billion dollars in the US alone. The two industry giants reached a settlement in 2019. The settlement included a 4. 7 billion payout from Apple as well as a six-year licensing deal. The licensing deal is curious, considering the billions of dollars Apple spent on chip manufacturing research since 2016.
Qualcomm and Apple have made their peace, however fraught that might be, but other nations and companies are still going after Qualcomm with a vengeance. The Federal Trade Commission’s 2017 complaint against Qualcomm accused it of effectively barring both other chip manufacturers from using the SEP patents and of having an exclusive deal with Apple for comparatively lower chip royalties. A trial court judge found Qualcomm’s practices anticompetitive in 2019, but the 2020 appeal ruled that the question of Qualcomm’s non-FRAND (Fair, Reasonable and Non-Discriminatory) licenses was not a matter for anti-trust law but for Patent law. The court made a distinction between hypercompetitive and anti-competitive when passing the decree.
Other jurisdictions have been less lenient with Qualcomm. In Jan 2021, the Court of Justice of the European Union dismissed Qualcomm’s contention that the Commission had exceeded its scope of investigation in Qualcomm’s case against Nvidia. This is the third case involving Qualcomm and anti-competitive behaviour in the EU, with the previous cases costing the Qualcomm 242 million in fines. Anti-trust regulators in China also fined Qualcomm 975 million dollars. South Korea did the same, ordering Qualcomm to pay 873 million in fines.
Qualcomm’s business strategy makes sense from a financial perspective. The free markets reward a monopoly, prompting companies to use a lot of the capital and energy that could theoretically go into research on making sure nobody else gets to compete on an equal footing with themselves. It’s clearly more profitable in the long term to have a slightly better product and no market threats than it is to have a brilliant improvement that requires you to compete with other innovators. However, this does mean that the basic objective of patent law is compromised for purely monetary interests.
Author: Varsha Valsaraj, Legal Associate at PA Legal.
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