As part of the Qualcomm and Federal Trade Commission trial this week, Qualcomm CEO Steve Mollenkopf continued to defend his company’s business practices. As reported by CNET, Mollenkopf said the practices are what’s best for the whole industry, while Apple continues to claim the tactics are monopolistic.
The FTC’s case against Qualcomm centers on the chipmaker’s “no license, no chips” policy. The trial is ongoing in front of Judge Lucy Koh in a US District Court in San Jose, with Mollenkopf testifying on Friday.
The “no license, no chips” policy refers to Qualcomm’s practice that requires companies like Apple to license Qualcomm’s patents before it will sell them modems. Apple, in its own separate case against Qualcomm, has likened this practice to double-dipping.
On Friday, Qualcomm’s Steve Mollenkopf said this practice is the best way for the whole industry to advance as the company generates a “tremendous amount of IP that makes the system work.” Essentially, he argues that not all the intellectual property is in the chip itself:
“We only sell to companies with a license because not all the IP [intellectual property] is covered in the chip. What we want to do is make sure the [phone makers] are covered,” Mollenkopf said.
He pointed to the security framework used when phones connect to a network as an example. “It’s not embodied in the chip, it’s not in the phones, but it’s in all these things,” Mollenkopf said. “There’s a tremendous amount of IP we generate that makes the system work.”
Meanwhile, Apple’s Tony Blevins, VP of procurement, testified on Friday as a witness for the FTC. Blevins cited an early meeting with Qualcomm when Apple was looking for modem suppliers for the iPad mini 2, CNET explains.
Blevins hoped that the iPad mini 2 could help begin a longer-term relationship with the chipmaker, and had a meeting with Qualcomm president Christiano Amon in 2013. Amon, however, simply told Blevins that, “I’m your only choice, and I know Apple can afford to pay it.” This is what kickstarted “Project Antique,” which we reported on yesterday.
Further, Blevins recounts his experience trying to source sample chips from Qualcomm. Qualcomm, however, wouldn’t offer any samples until Apple signed a licensing agreement:
“We would go out to potential suppliers and ask for samples and technical specifications to do value analysis,” Blevins said. With Qualcomm, “we were surprised. Instead of offering samples and specifications, we got a letter indicating they had a license agreement that had to be completed prior to getting any samples.”
Additionally, Qualcomm demanded as part of that license agreement that Apple cross-license its own IP to Qualcomm:
“We don’t understand why in order to buy a component from them we have to enter into a license agreement that requires Apple to license all its IP back to them. We don’t understand why that would be in anyone’s best interest other than Qualcomm’s,” Blevins said.
Mollenkopf also testified that Apple approached Qualcomm about exclusively supplying Qualcomm chips for the iPhone in exchange for a $1 billion incentive payment. Apple is said to have wanted the $1 billion payment to help cover transition costs.
Mollenkopf said an incentive payment was made, but did not disclose the amount. Meanwhile, Apple’s Blevins offered a different view, saying “with exclusivity, there would be no competition.”
Ultimately, Mollenkopf says its licensing strategies allow Qualcomm “to invest in technology early” and fund further research and development. Qualcomm will have to defend those practices as the case continues.