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U.S. Judge Rules Qualcomm Must License Modem Technology To Rivals

A U.S. district judge ruled on Tuesday that chipmaker Qualcomm Inc. (QCOM) must license some of its industry-essential patents to rival chipmakers.

The ruling marks a major setback for Qualcomm in its legal battle with the U.S. Federal Trade Commission or FTC. Qualcomm has refused to offer licenses to rival chipmakers, such as Intel Corp. (INTC) and MediaTek Inc.

The ruling is also seen as posing a threat to Qualcomm's patent licensing business model, which collects patent royalties based on the wholesale prices of smartphones, rather than the individual components inside them.

The FTC brought an antitrust lawsuit against Qualcomm in early 2017. The lawsuit is set to go to trial in 2019.

In a preliminary ruling on Tuesday, Judge Lucy Koh in the the U.S. District Court for the Northern District of California ruled that Qualcomm must license its essential patents to competing modem chip suppliers.

In the complaint, the FTC has alleged that Qualcomm is a "dominant supplier" of modem chips and the holder of standard essential patents or SEPs essential to "widely adopted cellular standards." According to the FTC, Qualcomm has harmed competition and violated the FTCA via interrelated policies and practices.

The FTC alleges that because of those practices, customers for Qualcomm's modem chips must pay elevated royalties, while Qualcomm's refusal to license its SEPs to competing modem chip suppliers ensures that Qualcomm's customers must depend on the company for their modem chip supply.

The judge agreed with the FTC that Qualcomm's two industry agreements with standard setting organizations or SSOs - Telecommunications Industry Association or TIA and the Alliance for Telecommunications Industry Solutions or ATIS - require the company to license its SEPs to other modem chip suppliers.

"…the Court agrees with the FTC that as a matter of law, the TIA and ATIS IPR policies both require Qualcomm to license its SEPs to modem chip suppliers. Because after considering the language of the contract and any admissible extrinsic evidence, the meaning of the contract is unambiguous," the judge said in her ruling.

The judge also noted that in a past infringement lawsuit with Ericsson (ERIC), Qualcomm had argued that the network equipment maker could not discriminate against the company by refusing to grant it a license.

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