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Apple Submits their Response to the U.S. International Trade Commission's Investigation that covers 5G Spectrum & Qualcomm

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Apple has submitted their response to the U.S. International Trade Commission's investigation (# 337-TA-1065) in the matter of "Certain mobile electronic devices and radio frequency and processing components thereof." In the big picture, Apple stresses the ramifications for 5G being controlled by a single supplier, Qualcomm. Apple's powerful argument is definitely worth reviewing


The following information is from a statement from Apple. All emphasis and highlighting shown below has been added by Patently Apple. Some information has been removed due to heavy redacting or that represent legal documents that we can't link to for clarity.


Apple's Submission In-Part to the U.S. International Trade Commission


Apple notes in their submission that "In a public document here and in the 1093 Investigation, Qualcomm attempts to use patent claims as the basis for relief that would restore its monopoly in a critical technology market.


Qualcomm seeks to halt imports of Apple products that include cellular (or “baseband”) chipsets from Intel Corporation (“Intel”)—Qualcomm’s only competitor in the open (or “merchant”) market for premium baseband chipsets—while exempting from exclusion the same products that include Qualcomm’s own chipsets.


As ALJ Pender found, such an exclusion order would harm competitive conditions in the United States and undermine national security due to its impact on U.S. 5G leadership. Indeed, Qualcomm’s facially discriminatory remedy—accusing only certain iPhones because of the baseband chipset supplier—makes plain that Qualcomm’s aim is to harm competition, not to remedy purported infringement.


The Market for Premium Baseband Chipsets Is Critical to Cellular Innovation


Although Qualcomm has sought to focus the public interest inquiry solely on the market for smartphones, this Investigation directly implicates the market for premium baseband chipsets, components that are vital to cellular innovation.


As Apple, Intel, and Qualcomm witnesses confirmed, 'premium' baseband chipsets comprise a distinct market. Such chipsets support the latest releases of cellular standards and the highest data speeds, offer superior power management, and cost more than lower-tier chipsets. Because innovation is concentrated in the premium tier, advancements in that tier will be critical to the development and implementation of the next generation of wireless standards: 5G


There are only two merchant-market suppliers of premium baseband chipsets: Qualcomm and Intel. Before Intel’s recent emergence in that market, Qualcomm exercised monopoly power through a variety of interrelated anticompetitive practices to exclude competition and collect exorbitant royalties from licensees.


Among other tactics, it reinforced its market power by conditioning a reduction of Apple’s net royalty payments on Apple’s agreement to use Qualcomm chipsets exclusively.


Qualcomm also refused to license rival chipset suppliers, which made it impossible for Apple to source chipsets elsewhere. It is therefore unsurprising that in the past decade, multiple U.S. baseband chipset suppliers—including Broadcom, Marvell, and Texas Instruments—exited the market.


In late 2016, after years of inability to add a second supplier, Apple finally began to dual-source premium baseband chipsets for iPhones from Intel and Qualcomm. But even with Intel’s entry, there remain just two suppliers of premium chipsets in the merchant market, including in the United States. Except for Intel’s portion of sales to Apple, Qualcomm is the sole merchant supplier to every other manufacturer supplying premium smartphones in the United States. 


An Exclusion Order Would Force Intel to Exit and Restore Qualcomm’s Monopoly


Although an exclusion order would formally bar Intel-based iPhones from only the United States, its practical effect would be to destroy Intel’s baseband chipset business globally, thus reinstating Qualcomm’s monopoly in a market critical to the U.S. public interest.


The effects of Intel’s exit would also cascade into 5G markets. As ALJ Pender found, “Intel would also not be a player in the coming critical 5G baseband chip market” if an exclusion order were issued.


Intel is now a leader in 5G development, but an exclusion order would undermine that leadership.


Most importantly, "5G is crucial to U.S. national security and competitiveness in the national economy and thus Intel’s exit would harm the national interests of the United States."


The Committee on Foreign Investment in the United States (CFIUS), which investigates proposed foreign acquisitions of U.S. companies, recently recommended that Qualcomm—the only other U.S. chipset supplier participating in 5G innovation—not be sold to a foreign company, because "technological competitiveness and influence in standard setting would significantly impact U.S. national security” and because it was important to prevent “a shift to Chinese dominance in 5G."


In a recent order, the President stated that "it is imperative that America be first in fifth-generation (5G) wireless technologies." If Intel exits the market, leaving Qualcomm as the only U.S.-based chipmaker, foreign firms will be positioned to overtake the United States in 5G leadership."


Apple's statement further added: "The harms would not be confined to national security. Hundreds of billions of dollars in anticipated domestic 5G investments—expected to generate $500 billion in economic growth and three million jobs— would be jeopardized.


Intel’s exit would compromise access to technologies powered by 5G with implications for health and safety—such as healthcare tools and autonomous vehicles. Further, the FTC’s ability to restore competition in this market through its antitrust litigation against Qualcomm in district court would be vitiated.


There are no countervailing benefits to these harms. If the Commission denies an exclusion order as against the public interest, Qualcomm will not be left without a remedy; it is asserting the same patents in district court and, if it prevails, it can obtain monetary damages. “Qualcomm introduced no credible evidence that an exclusionary order against the accused products is necessary to protect its domestic industry, its incentive to innovate, or profitability." 


The Commission Should Not Enter an Exclusion Order


If the Commission adopts ALJ Pender’s infringement recommendation, it should also adopt his conclusion that the public interest factors preclude any exclusionary remedy. ALJ Pender explained: If the Commission does issue an exclusion order as Qualcomm requests, it will do so with the near certainty there will be real harm to the United States on a potentially very broad basis.” For that reason and those set forth above, no exclusion order should enter.


There's a much larger conversation on this matter that includes Qualcomm's submission. For the legal minds among us, check out FOSS Patents latest report here.


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