Qualcomm helped create the smartphone as we know it. Its patents are part of the standard for modern wireless broadband systems, and the company is now the world’s largest producer of baseband processors — the modem chip that lets phones connect to data networks. But over the next few weeks, a judge will determine whether Qualcomm abused that power, hearing a complaint brought by the Federal Trade Commission in 2017.

The Qualcomm trial started on January 4th, and it will run through January 28th. After that, Judge Lucy Koh — the California district judge who presided over Apple and Samsung’s massive patent infringement trial — will have to decide whether Qualcomm unfairly monopolized the baseband processor market. Here’s why the case matters to Qualcomm, the FTC, and everyone who owns a phone.

Why is the FTC suing Qualcomm?

The FTC claims Qualcomm has engaged in monopolistic practices that lock out potential competitors and make phones more expensive for consumers. The complaint includes a few different, but related, accusations:

Qualcomm won’t sell baseband processors to phone makers unless they agree to “disproportionately high” patent royalties, a policy referred to as “no license — no chips.”

Qualcomm unfairly refuses to license essential patents to other chipmakers, which prevents competitors from challenging its dominance.

Qualcomm offered Apple lower patent royalties if the iPhone exclusively used Qualcomm chips, locking competitors like Intel out of an incredibly popular phone. This allegedly stopped Apple from offering the iPhone on Sprint’s WiMAX network — which offered speeds faster than other networks’ 3G systems, but was supported by Intel.

The FTC says these behaviors are all anti-competitive, and that because Qualcomm’s patents are part of an official industry standard, they also violate a requirement to license the patents on fair, reasonable, and nondiscriminatory (FRAND) terms.

Qualcomm has denied these claims. It contends that the FTC’s complaint is “based on a flawed legal theory, a lack of economic support, and significant misconceptions about the mobile technology industry,” and that “Qualcomm has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms.”

What makes Qualcomm so powerful?

Qualcomm arguably holds what FOSSPatents writer Florian Mueller has described as “mutually reinforcing monopolies” — one on wireless broadband modems, and another on certain patents. A 2018 analyst report estimated Qualcomm had a 52 percent share of the baseband processor market, with competitors Samsung and MediaTek trailing far behind. It also owns patents that are vital to wireless broadband, so any device with a high-speed mobile data connection generates royalties for Qualcomm.

As phone makers start building their first 5G-enabled products, Qualcomm and other modem providers will be vying for that new market as well — and, unsurprisingly, Qualcomm is poised to dominate it. If Qualcomm is indeed operating a monopoly, that could drive up the price of any 5G device. And with companies touting 5G as a viable internet option for laptops as well as phones, it would affect a broad swathe of products.

What’s happened in the case so far?

The FTC racked up one victory last year: in November, Judge Koh ruled that rival chipmakers should be able to directly license Qualcomm’s patents, based on the rules around standard-essential patents.

The actual trial, however, started on January 4th. The first day saw testimony from Huawei and Lenovo, both of which contended that Qualcomm had threatened to withhold chips unless they signed a licensing deal. “Qualcomm has in the past retaliated against customers who have attempted to challenge its legal terms by either delaying, or cutting off supply of chips,” said Lenovo intellectual property vice president Ira Blumberg. “We don’t know if Qualcomm would follow through on their threat to cut off supply, but we can’t take that risk.”

Who else has sued Qualcomm over this?

Several other countries have already fined Qualcomm for anti-competitive behavior. China ordered it to pay around $975 million in 2015, and South Korea imposed a roughly $854 million fine in 2016. In January of 2018, the European Union fined it $1.2 billion for cutting exclusivity deals with Apple. And Qualcomm settled a $774 million fine from Taiwan in mid-2018, paying a reduced amount and agreeing to help launch the country’s 5G network.

But Qualcomm’s most high-profile legal headache is Apple. Apple sued Qualcomm three days after the FTC filed its complaint, making several of the same accusations about inflated prices and “no license, no chip” policies. It also claimed that Qualcomm had withheld a $1 billion royalty refund because Apple had cooperated with Korean antitrust regulators during the agency’s investigation. (Apple used Qualcomm chips for years, but it’s switching to Intel ones for newer phones.)

Qualcomm also has several of its own lawsuits pending against Apple. It’s accused Apple of patent infringement in China and Germany, where it’s had some success getting older iPhone models banned. And last fall, it claimed to have found documents proving Apple secretly shared Qualcomm code with Intel to speed up its modems. The companies discussed settling, but last month, a judge officially scheduled that trial for April 15th.

Is there anybody else on the FTC’s side?

Intel and Samsung both filed amicus briefs supporting the FTC in 2017. (Both of these companies are direct competitors, and Samsung is a phone manufacturer as well.) Intel accused Qualcomm of running an “interlocking web of abusive patent and commercial practices” that prevented companies from buying other companies’ chips. Samsung also complained that it couldn’t sell its Exynos chips to other phone manufacturers, due to Qualcomm’s exclusionary licensing policies.

The app company industry group ACT (formerly known as the Association for Competitive Technology) filed a brief supporting the FTC’s push for more strictly enforced FRAND rules. Conversely, Nokia submitted one in favor of Qualcomm — arguing that companies shouldn’t have to license essential patents to competitors.

What happens if Qualcomm loses?

The FTC is demanding that Qualcomm stop the practices described above, and like regulators in other countries, it could impose a fine. And this trial’s verdict will likely influence the outcome of Apple’s case against Qualcomm — or convince the two companies to settle that particular suit.

Qualcomm announced last year that it would set a lower cap for the maximum royalty cost per phone, and it’s licensing 5G technology at a lower rate than earlier patents, partly in an apparent attempt to prevent more disputes with its customers. If the courts rule in the FTC’s favor, that could make the company even more cautious about drawing future lawsuits. More broadly, this case will affect any future dispute between two companies over essential patents.

Qualcomm has argued that the FTC is trying to “hobble a quintessential American technology company” while opening the door for foreign companies to take over the 5G hardware market, “stifling innovation just when it’s needed most.” Alternately, an antitrust ruling could create stronger competition between chipmakers and bring down prices, just as the industry is moving into a new generation of mobile broadband.

If prices drop and more competitors emerge, as the FTC suggests, that doesn’t mean individual customers will see huge discounts. (Even at the high end, Qualcomm says its royalties top out at $20 per phone.) But it could change how manufacturers approach building the phones we use, letting them spend more money on other features — or help other chipmakers succeed with potentially groundbreaking new designs.

Update January 10th, 1:00PM ET: Updated the price of phone royalties with detail provided by Qualcomm.