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Qualcomm CEO defends chip-licensing business in FTC trial

There's nothing wrong with the 'no license, no chips' accusation at the heart of the government's case against the mobile chipmaker, Steve Mollenkopf argues.

Qualcomm and the FTC are facing off in the US District Court in San Jose.

Qualcomm and the FTC are facing off in the US District Court in San Jose, California.

Stephen Shankland/CNET

The Federal Trade Commission thinks your phone is being held back by Qualcomm's business practices. But Qualcomm Chief Executive Steve Mollenkopf says the way his company sells chips to smartphone makers is best for everybody involved.

Qualcomm's "no license, no chips" policy is at the heart of the FTC's case against Qualcomm, which lawyers are arguing before Judge Lucy Koh in US District Court in San Jose this month. Mollenkopf was among the witnesses who testified on Friday.

Under the policy, companies must license Qualcomm's patents before it will sell them chips. Qualcomm customers, such as Apple, don't like that one bit. 

Mollenkopf says the practice is simply the best way to get things done for the whole industry, not just for his company. That's because Qualcomm's patent licenses cover lots more technology a phone might use than simply what's in his company's modem chips, which let phones talk to mobile networks.

"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."

The FTC, aided by modem chip rival Intel and iPhone maker Apple, filed a suit two years ago arguing that Qualcomm has a monopoly on modem chips and harmed competition by trying to maintain its power. The trial has revealed the inner workings of tech's most important business, smartphones, showing how suppliers wrestle for dominance and profit.

Apple's 2011 and 2013 agreements to purchase Qualcomm's modem chips are key examples. Before the 2011 agreement, for example, Apple approached Qualcomm about the prospect of exclusively supplying Qualcomm's modem chips in the iPhone in exchange for a $1 billion incentive payment, Mollenkopf testified. An incentive payment was made, although the amount hasn't been disclosed.

Tony Blevins, Apple's vice president of procurement, offered a very different view of the Apple-Qualcomm partnership in earlier testimony on Friday.

"As we source components, we typically strive to get at least two sources and probably not more than six," he said. "We think competition and market forces are very important to us to achieve the best leverage. With exclusivity, there would be no competition."

Blevins said Qualcomm is all but unique in requiring a customer to license its patents before buying its products. Another chipmaker tried to do so once but one call from Blevins to its CEO changed that approach, Blevins said.

Still, Mollenkopf defended his company's practice. Qualcomm even considered splitting its technology licensing business off from its chip sales business in 2015, an idea that Mollenkop, who was recently appointed CEO, argued against.

"The licensing allows us to invest in technology early. It generates a lot of IP," Mollenkopf said. The company uses the proceeds for research and development into new technologies, he added.