On the Rationality of Bundled Rebate Program in Modem Chip Industry: an Analysis on Qualcomm’s Case

Abstract:

This paper examines the motivations of a patent holder, for example, Qualcomm holding many standard essential patents (SEPs) on modem chips, to implement a bundled rebate program for its customers, Apple for instance, under the risk of violating antitrust law. This study originates from the lawsuit between Qualcomm, Federal Trade Commission (FTC), and Apple. In early 2017, both FTC and Qualcomm’s customer, Apple, sued Qualcomm for violating antitrust law. Qualcomm was alleged to have manipulated “web of contracts” by implementing so-called no license, no chips policy to achieve its anticompetitive purpose. By addressing the case law of antitrust regime related to bundled rebate and loyalty discount, we understand legal risks that Qualcomm might face. Moreover, in this paper, we build a game- theoretical model to explore business reasons why Qualcomm insists on implementing the bundled rebate and loyalty discount program, regardless of latent legal risks. It is shown that Qualcomm might desire to mitigate future loss from price war with potential competitors. Finally, this article concludes with expectations for future studies on the impact of the Federal Court if SEPs and modem chips cannot be bundled together.

DOI: https://doi.org/10.1007/s10842-019-00311-6