By Asa Fitch 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 24, 2019).

This week's court ruling against Qualcomm Inc. was more than a business setback: It came with a stinging rebuke of the chip giant's leaders from the federal judge who delivered the decision.

Federal District Judge Lucy Koh repeatedly criticized Qualcomm executives for their sworn testimony during the Federal Trade Commission's antitrust case against the chip maker, pointing to discrepancies between their words and the evidence.

Judge Koh called out Qualcomm witnesses including Chief Executive Steve Mollenkopf, President Cristiano Amon, and retired co-founder Irwin Jacobs for what she said were dubious statements and, in some cases, for their demeanor on the stand.

"In addition to giving testimony under oath at trial that contradicted their contemporaneous emails, handwritten notes, and recorded statements to the IRS, some Qualcomm witnesses also lacked credibility in other ways," Judge Koh wrote. She said that the court "largely discounts Qualcomm's trial testimony prepared specifically for this litigation," relying instead on that contemporaneous evidence.

Judge Koh, in a ruling made public late Tuesday, found that Qualcomm unlawfully suppressed competition in the market for mobile-phone chips and used its dominant position to exact excessive licensing fees.

Qualcomm sharply criticized the ruling, in which Judge Koh raised scant concerns about witnesses the FTC called. She didn't refer, positively or negatively, to the FTC's main expert witness, Carl Shapiro, an economics professor at the University of California, Berkeley, whose arguments Qualcomm had sought to discredit. Qualcomm said it would pursue a stay on the judge's order and an appeal.

"Qualcomm believes many aspects of Judge Koh's decision are flawed, and [the decision] disregards many key facts that contradict her conclusions, " Mr. Mollenkopf said. The decision "also, without basis, casts aspersions on our company and its witnesses, all of whom have demonstrated their complete integrity and expertise successfully many times in multiple legal disputes around the world."

Messrs. Amon and Jacobs didn't respond to requests for comment.

Qualcomm's top brass had been in a celebratory mood since mid-April, when the company signed a deal with Apple Inc. that ended a lengthy and bitter legal dispute that threatened to undermine the chip maker's business model.

The deal lifted a cloud that had hung over Qualcomm for years, and sent its stock soaring by more than 50%. In recognition, five top executives were awarded bonus shares. Mr. Mollenkopf's were valued at around $3.2 million as of Tuesday's close; Mr. Amon's, at around $1.9 million.

Judge Koh's ruling again throws doubt on Qualcomm's outlook. Qualcomm shares have fallen sharply from the highs they reached in the weeks after the Apple deal, and were down 1.5% Thursday. They have now dropped more than 20% since last Wednesday's close.

The judge said the executives' testimony during the antitrust trial, which took place in January, didn't align with their notes and internal documents, and was evasive in other ways.

Mr. Mollenkopf testified he wasn't aware of Qualcomm ever exercising its right to cut off chip shipments to a customer if there was a dispute over royalties, Judge Koh wrote. But she pointed to a case where Qualcomm had done it to Sony, and enumerated at least seven others in which she said a cutoff had been threatened, affecting customers including LG Electronics Inc., Samsung Electronics Co., Huawei Technologies Co., Motorola Solutions Inc., Lenovo Group and Nokia Corp.

Mr. Amon testified that he hadn't been informed of such threats being used as a negotiating tactic, the judge wrote, though he "himself approved joint QTL and QCT plans to cut off chip supply during patent licensing disputes." QTL and QCT are Qualcomm's two main business units.

Another executive "pretended not to recall" a meeting with the Internal Revenue Service until he was played an audio clip from it and made reference to a disagreement that came up later in the recording, she wrote.

Patrick Moorhead, the president of Moor Insights & Strategy, called it odd that the ruling was so one-sided when there were significant questions about the reliability of the FTC's chief expert, Mr. Shapiro. Mr. Shapiro put forth a theory of how Qualcomm could cause anticompetitive harm, but offered no on-ground evidence that actual harm had been done.

Mr. Shapiro declined to comment.

As Qualcomm seeks relief from higher courts, Mr. Mollenkopf said, "We will continue focusing on running our business and delivering every day for our customers and shareholders."

Write to Asa Fitch at asa.fitch@wsj.com

 

(END) Dow Jones Newswires

May 24, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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