Qualcomm has been fined 1.03 trillion won ($865 million) by the South Korean Fair Trade Commission (KFTC) over antitrust violations, with the regulator finding the chip giant’s business practices to be in violation of competition law.
Qualcomm’s business model includes collecting royalty payments from clients, which are calculated on the price of the handset using the chip, rather than the price of the chipset itself, and royalties from its patents.
The KFTC has said it will issue a corrective order specifying the precise business practices with which it took issue, although Qualcomm has pointed out that this usually takes between four and six months.
“Qualcomm strongly believes that the KFTC findings are inconsistent with the facts, disregard the economic realities of the marketplace, and misapply fundamental tenets of competition law,” Don Rosenberg, executive vice president and general counsel for Qualcomm, said in response to the fine.
“Importantly, this decision does not take issue with the value of Qualcomm’s patent portfolio. Qualcomm’s enormous R&D investments in fundamental mobile technologies and its broad-based licensing of those technologies to mobile phone suppliers and others have facilitated the explosive growth of the mobile communications industry in Korea and worldwide, brought immense benefits to consumers, and fostered competition at all levels of the mobile ecosystem.”
Qualcomm added that it will file for an immediate stay of the order, and appeal the decision and the fine to the Seoul High Court. It is required to pay the fine within 60 days, however.
Qualcomm said the decision is “inconsistent with the facts and the law”, and a violation of rights specified under the Korea-US Free Trade Agreement (KORUS).
“The decision lacks a coherent theory of competition law violations; lacks any evidence of harm to competition, which is robust among chip and handset suppliers in part because Qualcomm’s business model promotes competition; results from a denial of procedural safeguards guaranteed to American companies under KORUS, including the right to have complete access to evidence and the right to cross examination at the hearing; seeks to disrupt established licensing practices that have been accepted by the wireless industry and used by major patent holders for decades, including Korean companies and government institutions like ETRI, Samsung and LG; undermines incentives to invest in fundamental technology and share it with the industry; and imposes a fine that is insupportable and not reasonably related to the size of the Korean market,” Qualcomm argued.
Rosenberg added that Qualcomm’s requests for access to case files and the right to cross-examine witnesses were denied repeatedly throughout the KFTC’s investigation into the matter, and said its appeal to the Seoul High Court will ensure antitrust principles are applied.
Back in May, sources told ZDNet that the KFTC had already internally deemed Qualcomm’s patent licensing practices as an abuse of standard essential patents (SEP), contrary to fair, reasonable, and non-discriminatory (FRAND) terms, and an abuse of its dominant position in the market.
The investigation was launched by the KFTC in April 2014, which sent a request for information to the company in August 2015 and followed this up by sending requests for information to competitors — which include Intel and AMD — and clients such as Samsung and LG in March 2016.
The KFTC in 2009 similarly fined Qualcomm for collecting “discriminating” royalties for its Code Division Multiple Access (CDMA) patents, as they were deemed to be SEP. Qualcomm also appealed this decision and it remains in the Supreme Court.
In February this year, Qualcomm also agreed to pay $975 million to the Chinese antitrust regulator 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.
The Institute of Electrical and Electronics Engineers (IEEE) early this year also published its decision to change suggested licensing policy for members, calling for a step away from royalties based on handsets rather than chipsets.