U.S. Paints Qualcomm Ex-Licensing Chief as Monopoly Enforcer

(Bloomberg) -- One name keeps coming up during a trial over the U.S. government’s claim that Qualcomm Inc. illegally sought to monopolize the smartphone chip market: Eric Reifschneider.

The Federal Trade Commission, with the assistance of Huawei Technologies Co., Samsung Electronics Co. and Motorola, repeatedly points to Reifschneider’s alleged threats while he worked for Qualcomm to cut off chip supply as evidence of anti-competitive practices. Although Reifschneider won’t set foot in the San Jose, California, federal courthouse for this trial, his name is invoked almost hourly.

Reifschneider was Qualcomm’s general manager of technology licensing for four years until June 2016, preceded by years as the company’s outside counsel. He was the government’s first witness last week, when FTC lawyers showed his February video deposition to the judge at the beginning of a 10-day non-jury trial.

The FTC claims that Qualcomm abused its strength in the market for smartphone components to force Apple Inc. and others to pay inflated license fees.

While former Qualcomm president Steve Altman is seen as the father of the company’s “no license, no chips” regime, Reifschneider emerged as its global enforcer, issuing ultimatums to clients and competitors to ensure Qualcomm’s chip-sale dominance while maximizing profits for its library of semiconductor patents, according to trial testimony and court filings.

Aggressive Tactics

Qualcomm argues it has never terminated vendors’ chip deals or halted shipments to customers seeking to renegotiate licensing agreements, although company documents suggest it has threatened to do so.

Qualcomm President Cristiano Amon testified Tuesday that he wasn’t aware of Reifschneider issuing any threats. An FTC lawyer presented Amon with his own handwritten notes from a meeting with former Motorola president Rick Osterloh in which he had scribbled a complaint from Osterloh about Reifschneider’s aggressive tactics.

“Eric constantly threatening to cut off supply,” reads the note in blue ink on pink paper dated December 2015. Amon subsequently testified that he later informed Reifschneider that such a threat was unnecessary since the company was covered by a supply agreement, and that any steps to cut off supply to Motorola, or any other client, “would be devastating,” he said.

The interaction with Osterloh was swift, Amon testified, and Osterloh didn’t return to the subject again during the meeting.

Dragon Fly

Earlier in the day, Samsung senior counsel Andrew Hong testified that Reifschneider played a central role in torpedoing Project Dragon Fly, a proposed joint venture in 2009 among Asian phone makers and carriers to make their own semiconductors. Since Qualcomm adamantly declined to license other manufacturers to make its chips, Project Dragon Fly began searching for other partners.

Hong said in a video deposition that Reifschneider was aware of the search and intervened. According to Hong, he said, “‘If you try to develop this on your own chip, it’ll take several years, and I’m not going to let you enter the market in a year.”’

Samsung has since started an in-house chip venture.

In his own deposition, Reifschneider was asked to explain his 2013 “carrot and stick” negotiation tactic with Lenovo Group Ltd. to convince the company to sign a new 4G license agreement. He said the so-called carrots were various incentives but couldn’t explain what the “stick” meant.

According to Ira Blumberg, Lenovo’s vice president of intellectual property, the method worked. Lenovo had considered terminating its agreement with Qualcomm until Blumberg met with Reifschneider in person.

“He was very calm about it,” Blumberg said. “He said we should feel free to do that, but we could no longer purchase chips.” Initially, Blumberg thought Reifschneider may have been joking. “But he meant it.”

In another instance, Reifschneider was brought in to negotiate a deal with Huawei, using the company’s leverage as the industry’s premier chipmaker and patent holder to reach the most lucrative deal possible with the Chinese company. Qualcomm was again successful, after Reifschneider allegedly levied his threat.

“Eric made it very clear that we have to sign a license agreement in some form,” Huawei General Counsel Nanfen Yu said in a video deposition. Huawei now also makes its own chips.

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

(Updates with comment in eighth graph.)

To contact the reporter on this story: Kartikay Mehrotra in San Francisco at kmehrotra2@bloomberg.net

To contact the editors responsible for this story: Elizabeth Wollman at ewollman@bloomberg.net, Peter Jeffrey, Steve Stroth

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