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Federal Trade Commission hits Qualcomm with a lawsuit over its licensing practices

Why it matters to you

Qualcomm is allegedly charging extra for its patents, which means you could be paying more for phones than you otherwise would.

Qualcomm has been sued by the Federal Trade Commission for allegedly violating antitrust laws in the way that it licenses its patents and sells modems for smartphones and other similar devices.

So how exactly did Qualcomm allegedly do this? According to the FTC’s statement, Qualcomm uses its dominance in the smartphone industry to elbow out the competition. Manufacturers are then given a choice — either pay extra for the use of Qualcomm’s essential patents, or be faced with releasing a phone on a limited scale.

According to the lawsuit, Qualcomm maintains a “no license, no chips” policy, in which it refuses to sell smartphone chips to companies that don’t agree to its elevated royalty fees. That means companies are often forced to comply if they want to release a phone on a wide basis, as there are few semiconductor companies that can manufacture chips on the same scale as Qualcomm.

Qualcomm agreed to license its patents on a fair, reasonable, and nondiscriminatory basis because they’re considered essential to the industrywide standards, but it reportedly won’t license them to competitors at all, which is how it can overcharge phone makers.

More: Expect more smartwatches and wearables this year, Qualcomm executive says

The lawsuit also goes into detail about the relationship between Qualcomm and Apple. According to the FTC’s statement, Apple agreed not to use other companies’ tech for five years, and in exchange, Qualcomm paid back some of those high fees. That explains why Apple waited until this year to switch from Qualcomm modems to Intel modems.

So what happens next for Qualcomm? Well, the FTC is asking that the courts undo and prevent Qualcomm’s methods of competition. The lawsuit could be a pretty big issue for the company because while it’s known for building smartphone processors, it makes most of its money by licensing patents.