Qualcomm fined $773 million by Taiwan trade commission

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Taiwan’s Federal Trade Commission (TFTC) has announced that it will fine Qualcomm NT$23.4 billion ($773 million) for violating competition law in the mobile communication standard baseband chip market.

According to the TFTC’s decision, Qualcomm used its patents, which are standard essential patents (SEP) for CDMA, WCDMA, and LTE mobile technologies, to force rivals to agree to various contractual clauses that had the effect of driving up prices and maintaining its dominance in the Chinese cell phone market.

“Qualcomm refused to provide baseband chips if cell phone manufactures did not sign the patent authorisation contract, which led to cell phone manufactures — providing the demand of chips — having to accept the terms that had more benefits for Qualcomm,” the TFTC said in its decision.

“Furthermore, Qualcomm offered exclusive transaction to major dealers providing special offers on patent royalties, which led to rivals losing the opportunities of making deals or at disadvantage.

“These behaviors have damaged the competition of baseband chips. It is considered as an unfair approach that directly or indirectly impedes the competition between competitors, which violates Section 9, clause 1 of the Fair Trading Act.”

The fine was calculated under Sections 9 and 15 of the Fair Trading Act, with the TFTC pointing to the “severe” nature of the breach, having lasted for seven years and Qualcomm having obtained around NT$400 billion during the period.

As well as the fine, Qualcomm has been asked to stop including clauses in its contracts that require sensitive information from competitors on chip prices, sales targets, sales volumes, and product models; clauses that refuse to provide chips to cell phone manufacturers; and clauses that mandate exclusive trading concessions with specific businesses.

Qualcomm is required to notify its competitors and phone manufacturers within 30 days of the changes, with new patent authorisation contracts to then be drawn up.

“After receiving the contracts, Qualcomm should negotiate with these companies fairly,” the TFTC added.

Qualcomm must then report to the TFTC every six months on its negotiations.

In response, Qualcomm said it will appeal the decision to the Taiwanese courts after the TFTC’s formal decision is published within a few weeks.

“Qualcomm disagrees with the decision summarised in the TFTC’s press release, and intends to seek to stay any required behavioural measures and appeal the decision,” the company said.

“The fine bears no rational relationship to the amount of Qualcomm’s revenues or activities in Taiwan, and Qualcomm will appeal the amount of the fine and the method used to calculate it.”

Qualcomm’s competitive practices globally have come under fire repeatedly; in February 2016, the Chinese antitrust regulator required it to pay $975 million and lower its royalty rates on patents in the Chinese mobile phone market in order to end a 14-month investigation into its patent-licensing practices.

In December 2016, the South Korean Fair Trade Commission (SKFTC) similarly fined Qualcomm 1.03 trillion won ($865 million) over antitrust violations after finding the chip giant’s business practices to be in violation of competition law, as it was collecting royalty payments calculated on the price of the handset using the chip, rather than the price of the chipset itself.

Back in May, sources told ZDNet that the KFTC, which launched its investigation in April 2014, had already internally deemed Qualcomm’s patent licensing practices as an abuse of SEP contrary to fair, reasonable, and non-discriminatory (FRAND) terms, and an abuse of its dominant position in the market.

The KFTC similarly fined Qualcomm for collecting “discriminating” royalties for its SEP CDMA patents back in 2009.

Qualcomm has also been facing legal issues with Apple, with the United States International Trade Commission (ITC) announcing in August that it will be launching an investigation into whether various Apple devices, including the iPhone 7, infringe on Qualcomm patents.

The announcement followed Qualcomm asking the ITC in July to investigate whether the importation of the iPhone 7 and device components including baseband processor modems violates the Tariff Act 1930, and to ban Apple from importing into the US iPhones using cellular baseband processors not supplied by Qualcomm’s affiliates.

In effect, such a ban could keep Intel-powered iPhones out of the US, which Intel said would “severely damage competitive conditions in the United States economy by reinforcing Qualcomm’s hold on the premium LTE modem merchant market” in “a transparent effort to stave off lawful competition from Qualcomm’s only remaining rival”.

The case is set to be heard by an ITC administrative law judge, with this determination subject to review by the ITC and a final decision “at the earliest practicable time”.

Apple had originally filed a lawsuit against Qualcomm in January, accusing the semiconductor giant of overcharging for chips and withholding $1 billion in contractual rebate payments.

A legal dispute with BlackBerry earlier this year, meanwhile, saw Qualcomm pay a final settlement of $940 million to compensate the former for overpaying royalty fees between 2010 and 2015.

Qualcomm in April said during its financial results that it was out $974 million in revenue reductions after reaching an initial arbitration settlement for $814.9 million with BlackBerry that month.

Qualcomm president Derek Aberle will be stepping down at the end of 2017.

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