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Qualcomm Denied Patent Licenses to Competitors, Says Securities Class Action

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In order for devices to interact with each other, they must use common standards. But the choosing of a standard could give its owners excessive anti-competitive power. The complaint for this class action claims that Qualcomm promised to license its technology to all on an equal basis, but that it actually used its position to “suppress competition, drive its rivals out of business, and extract supra-competitive royalties.” Its statements to the contrary, the complaint says, were false or misleading, in violation of the Securities Exchange Act of 1934.

The class for this action is all those who acquired the common stock of Qualcomm between February 1, 2012 and January 20, 2017 and were damaged thereby.

Qualcomm holds patents relating to Code-Division Multiple Access (CDMA)  technology that are now essential to cellular communications standards. The complaint claims that in conjunction with the choice of CDMA as its standard, the industry required that Qualcomm agree to license its patents to all on a “fair, reasonable, and non-discriminatory basis.”

The company repeatedly said it was doing so, saying it “never refused a license” or made its patents “available to the industry” and making it so that “the entire market could play.” Failure to do so could lead to regulatory fines, industry lawsuits, and payments of damages, so the issue mattered to investors.

In previous years, Qualcomm’s chipsets had faced tough competition from other chipset makers, but the complaint claims that from 2008 on, Qualcomm’s share of the chipset market mysteriously increased. The complaint claims that in 2014, the company had 60% of the global chipset market and 90% of the CDMA chipset market. According to the complaint, this was the result of Qualcomm’s refusal to license its patents to rival chipset makers, leaving them unable to offer chipsets that met CDMA standards.

In fact, the statements about equal licensing may not have been the only ones in which Qualcomm misrepresented itself. The complaint alleges that the company claimed it did not engage in bundling, when in fact it tied licensing agreements to chipset sales, or agreed to easier licensing terms with the purchase of a certain number of chipsets.

The complaint claims that regulators in the US, Asia, and Europe have now begun enforcement actions against the company for anti-competitive behavior. The complaint points out that at least one such action has resulted in a fine of nearly a billion dollars. During the class period, the complaint says that the company’s stock price has fallen by 33%, causing damage to investors.

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