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Qualcomm Attempt to Cast Intel as Hypocrite Backfires in Antitrust Trial

Ian King and Kartikay Mehrotra
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Qualcomm Attempt to Cast Intel as Hypocrite Backfires in Antitrust Trial

(Bloomberg) -- Qualcomm Inc.’s lawyers saw a chance to score some points in a government antitrust case against the chipmaker by making an example of rival Intel Corp. as a company accused of abusing its dominance of an industry. They were wrong.

After an interrogation of Intel’s chief strategy officer largely backfired this week, a Qualcomm attorney on Friday declined a judge’s invitation to bring Aicha Evans back to the witness stand as a non-jury trial brought by the Federal Trade Commission moved into its fourth day of testimony.

“Not from us, your honor,” Qualcomm lawyer Antony Ryan told U.S. District Judge Lucy Koh, prompting a cheer from Evans, which provoked widespread laughter in the San Jose, California, courtroom after one of the liveliest showdowns so far in the case. It also ended something of an ordeal for him.

Testimony later Friday from Qualcomm Chief Executive Officer Steve Mollenkopf was decidedly more stolid, with a reference to shipment practices amid stalled royalty payments and a cross examination about the ethos of the San Diego-based company. No fireworks, cheers or laughter ensued.

Evans, who formerly ran Intel’s mobile phone chip unit, repeatedly turned Ryan’s questions into opportunities to restate her company’s opinion that Qualcomm unfairly used technology licensing and its leadership in smartphone components to lock out competition.

Qualcomm Faces FTC Trial Threatening Smartphone Dominance

Ryan frequently sought to corner Evans by citing piecemeal excerpts from her emails and pretrial testimony, a common tactic in trials to save time. Evans had none of it, asserting her right to read documents aloud in their entirety while insisting context was crucial. When Ryan tried to interrupt her, she ignored him and read on.

Evans was born in Senegal, putting her in a very unusual category in the chip industry: a black female executive. Her mission at Intel was to gain market share in mobile phones to try to match the company’s dominant hold of the personal computer processor industry.

“Mr. Ryan, Mr. Ryan, you’re going very fast. Easy,” she told the attorney at one point. Earlier she’d said: “I’m a French speaker, numbers are hard. I’d ask you to please slow down."

Intel, the world’s second-largest chipmaker, holds about a 90 percent share in the lucrative market for computer server chips. In personal computer processors, it rakes in more than 80 percent of revenue. Its only remaining competitor, Advanced Micro Devices Inc., once accused Intel in a lawsuit of using its control of that market to force PC makers into remaining exclusive users of its products. The two sides settled the case with Intel paying AMD more than $1 billion in 2009.

Qualcomm Dealt Another Setback Ahead of FTC Antitrust Trial

Evans argued that Qualcomm had muscled Intel out of contracts with Apple Inc. by locking the iPhone maker into exclusive agreements.

“They came back and told us we’d have a chance in 2016, but in 2014 we’d lost because of a pre-existing agreement Apple had with Qualcomm,’’ she said. “We were set back two years. It was a near-death experience.”

Mollenkopf has argued that the government has no evidence that its “no license, no chips” policy has hurt competition in the industry. Qualcomm asserts that Intel’s current status as exclusive chip supplier for Apple proves that the industry is, in fact, healthy.

Evans complemented Qualcomm but took another dig at the company that the FTC’s lawyers will like.

“They are excellent technical engineers,’’ she said. “That doesn’t give them the God-given right to perform unfair business practices.”

Friday’s session concluded after Mollenkopf’s testimony, in which both sides tried to make progress with their central arguments. The CEO, like other Qualcomm representatives, acknowledged the company has a policy of not providing chips to phone makers who don’t pay for its licensing. Its argument is that those license fees go into technology development that benefits the whole of the industry, not just Qualcomm.

The government lawyers tried to build support for their case that Qualcomm willfully used its position in the marketplace to extract high patent licensing fees and force customers to stay exclusive to it.

Qualcomm countered that its business model is a byproduct of the way the market developed and not part of a grand design to disadvantage would-be rivals -- its leadership in technology thrust its patents and chips to the forefront of the industry and supply arrangements have been shaped by supply and demand.

The chipmaker is unique in the industry in that it gets the majority of its profit from licensing patents it says underpin all modern phone systems. Handset makers pay it a percentage of the price of a phone regardless of whether they use its chips or not.

The case is Federal Trade Commission v. Qualcomm Inc., 17-cv-00220, U.S. District Court, Northern District of California (San Jose).

(Updates with Mollenkopf’s testimony starting in fourth paragraph.)

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net;Kartikay Mehrotra in San Francisco at kmehrotra2@bloomberg.net

To contact the editors responsible for this story: Elizabeth Wollman at ewollman@bloomberg.net, ;Jillian Ward at jward56@bloomberg.net, Peter Blumberg

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