(Image courtesy of Qualcomm).

Qualcomm Fined by Antitrust Regulators Again

The European Union slapped Qualcomm with a $1.23 billion fine Wednesday for paying Apple to exclusively use its wireless modem chips in tablets and smartphones over a span of five years. The deal hurt competition in chips  that connect devices to 3G and 4G networks, regulators said.

Following the fine, Qualcomm appealed the general court of the European Union. The company, the world’s largest supplier of LTE baseband chips, is now fighting regulatory battles across three continents. It has been increasingly under the microscope for the way it goes about negotiating deals with companies buying its chips and licensing the underlying patents.

The penalty is one of the worst black eyes that the company has suffered from regulators in the last three years. The company is fighting regulators in the U.S. for abusing its monopoly status over chips and it has been slammed  with fines over the last three years totaling around $3.8 billion, which we go through in reverse order below.

Vestager Imposes Hefty Fine While Another Investigation Looms

The argument from European regulators is that Qualcomm shelled out billions of dollars of rebates as part of its contract with Apple, which agreed in exchange to use its wireless modems exclusively. The contract lasted from 2011 to 2016. Since it expired, Apple has started to source chips from Intel as well.

“These payments were not just reductions in price – they were made on the condition that Apple would exclusively use Qualcomm's baseband chipsets in all its iPhones and iPads,” Margarethe Vestager, the E.U. competition commissioner, said in a statement. “This meant that no one could challenge Qualcomm effectively in the market for LTE baseband chipsets.”

“This shows that Qualcomm’s payments were decisive to shut out rival chip manufacturers from the market. Qualcomm's behavior denied rivals the chance to compete effectively, no matter how good their products were. And that denied consumers and other companies the benefits of choice and innovation.”

Qualcomm said that the decision is not related to its patent licensing business, which has been the focus of other regulatory probes around the world. Apple has also fired several lawsuits over the licensing fees charged by Qualcomm, which subsequently accused Apple of demanding the rebates and collaborating with regulators to slash the billions it pays in chips and licensing fees.

Vestager and the European Commission are running a separate inquiry into allegations that Qualcomm severely discounted its chips to crush rivals in the market for modem chips – ones that could not survive being undercut on price. In response, Qualcomm sued the commission for harassment last year.

Qualcomm said that it strongly opposed the European Commission’s decision. “We are confident this agreement did not violate E.U. competition rules or adversely affect market competition or European consumers,” said Don Rosenberg, the company’s vice president and general counsel, in a statement.

Taiwan Penalizes Qualcomm for Seven Years of Local Violations

In October 2017, Qualcomm incurred another fine in Taiwan said it had violated local laws by not supplying chips to clients who refuse to sign licensing deals or disagree with other conditions. Following a two year investigation, the fine came out to NT$23.4 billion or around $773 million.

Taiwan’s Fair Trade Commission said that local companies had spent $30 billion on Qualcomm’s wireless modems and that it had reaped NT$400 billion in licensing fees from Taiwanese companies over the last seven years. It has been violating antitrust laws for at least that long, the regulator 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,” the company said in a statement. Qualcomm intends to appeal the ruling, denying that it has violated neither local laws nor industry norms.

Qualcomm, an International Brawler, Begins Battle on Home Soil

Qualcomm had been under investigation two years when the United States Fair Trade Commission sued it for violating antitrust rules right before the end of the Obama administration. The company, which is based in San Diego, California, had been seemingly safe on its home soil.

The agency said that Qualcomm had refused to supply chips to smartphone makers that did not agree to also pay for the underlying patents. The FTC claims that the company has also hoarded its standard-essential patents for 3G and 4G networks and refused to license them to customers in a fair, reasonable, and non-discriminatory way.

Qualcomm has denied the allegations, which include claims that Qualcomm gave discounts to smartphones makers using its product portfolio exclusively. The company said that it even if the allegations were true, they were not illegal. “The FTC does not have the authority to rewrite industry policy,” Rosenberg said in a statement.

“That is for the industry, not a regulator, to decide,” he said. Qualcomm plans to fight the lawsuit in court.

In June, a federal judge blocked Qualcomm’s attempt to throw out the case. The Federal Trade Commission can proceed with its lawsuit, which Qualcomm takes issues with for another reason. Rosenberg pointed out that only three out of the five normal commissioners were available to vote on the decision.

South Korea Charges Qualcomm for Taking Its Monopoly Too Far

In December 2016, South Korea’s regulator slapped Qualcomm with an $853 million fine for taking advantage of its monopoly over wireless modems to marginalize rivals and exploit customers. The Korean Fair Trade Commission ruled that the company had withheld chips from smartphone makers in the country that refused to also sign patent licensing deals.

The regulator also said that Qualcomm had taken advantage of its monopoly to strike licensing deals for its entire patent portfolio – overkill for many customers. The fine was also because Qualcomm refuses to license its standard essential patents to rivals that want to pay for them – hurting competition, the regulator said.

The ruling capped another $225 million that the Korean Fair Trade Commission fined Qualcomm in 2012. The regulator accused the company of giving rebates to companies that exclusively purchased chips from Qualcomm, which was also accused of charging higher royalty rates to smartphone makers that bought chips from rivals.

Both cases are under appeal with the Korean Supreme Court. The decision could have sweeping consequences for how and with whom Qualcomm negotiates licensing deals, potentially giving a boost to rivals Mediatek and Intel. But like Qualcomm’s other legal battles, the lawsuits could still take years to finish.

Qualcomm Pays Fine to Stabilize Its Standing in China

In 2015, China’s competition cops forced Qualcomm to pay $975 million in fines and renegotiate deals to take a smaller cut from devices sold by Chinese companies using its patents. The company and its investors looked at the regulatory whipping as the cost of doing business in China, which is Qualcomm’s second largest market.

The regulator did not demand that Qualcomm change the patent licensing business, which contributes to a third of its annu profits. It actually helped stabilize its standing in the world’s largest smartphone market, where it had struggled to collect royalties from Chinese firms. It is typically thought that Qualcomm charges 5% of the sale price of the device.

On Thursday, the company said that top Chinese smartphone vendors, including Lenovo and Xiaomi, had express interest in buying RF front end components with a total value of no less than $2 billion over three years. These include power amplifiers, envelope trackers, switches, discrete filters, antenna tuners, and other products.

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