Qualcomm is one of at least thirty foreign firms to come under
scrutiny as China seeks to enforce a 2008 anti-monopoly law -
efforts some critics say have unfairly targeted overseas businesses,
raising protectionism concerns.
The Korea Fair Trade Commission (KFTC) fined San Diego-based
Qualcomm more than $200 million in 2009 for abusing its dominant
market position, but the stakes are bigger in China, where an
investigation by the National Development and Reform Commission (NDRC)
could trigger changes to Qualcomm's licensing deals and fines of as
much as a tenth of a company's annual revenue.
Qualcomm had total revenue of almost $25 billion in the year to
Sept. 29, 2013, about half of it in China.
"The Chinese authorities were very interested in how South Korea
handled such issues and asked a lot of questions about South Korea's
experiences," said a person who was present at meetings in May and
June between the KFTC and the NDRC's price supervision and
It's unlikely the NDRC could use exactly the same rationale as South
Korea against Qualcomm, added the person, who didn't want to be
named because of the sensitivity of the case.
"What China takes most exception to is that royalties on
intellectual properties are comparatively higher in China. But high
price itself shouldn't be an antitrust matter. It's only a problem
when there are elements like discriminatory practices," the person
Qualcomm has been under investigation by the NDRC, one of China's
three antitrust regulators, since November last year over how it
licenses its patents and prices its chipsets.
Exchanges between regulators are not uncommon, but some experts say
the NDRC has relied on pressure tactics instead of detailed economic
analysis to drive its cases. That the NDRC went to the KFTC months
after the case was announced, they say, could indicate the bureau is
looking for a legal justification for a case it had already
There are concerns that a central aim of the meetings between China
and South Korea was to "solicit advice in an economic argument
against Qualcomm," a person in the U.S. business community familiar
with the case said. "It's putting the cart before the horse. They
have reached a conclusion and attempted to get the facts later," the
In a statement about the meeting that took place in South Korea, the
KFTC said: "China's NDRC, seeking to advance its regulatory
enforcement, requested that the Fair Trade Commission share economic
analysis techniques used to deal with actual cases." A KFTC official
declined to comment further on the meetings when contacted by
The NDRC antitrust bureau, its delegation led by Director General Xu
Kunlin, said in statements issued after the meetings that the two
sides held "thorough exchanges". The NDRC did not respond to a
Reuters request for comment.
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None of the statements specifically mentioned Qualcomm.
Xu, an outspoken advocate of expanding the use of China's
anti-monopoly law, has publicly stated that his bureau is hamstrung
by under-staffing. That, lawyers say, is one likely element behind
the bureau's reputation of employing less rigorous analysis in its
At a conference in May, Xu said that because he had only around 40
staff - compared to hundreds at U.S. and European agencies - he had
to rely on tip-offs of violations when pursuing cases. "If you
increased my staff by 100 workers, perhaps then I could actively
investigate," he said.
"I think everybody would agree they are understaffed – they don't
have enough people – and they are very new at this," said Peter
Wang, an antitrust expert and Shanghai-based partner for law firm
Jones Day. "It's often easy to find theories for possible antitrust
problems, but it takes an extensive amount of experience to be in a
position to make good decisions about when something is likely to be
a real problem and, just as important, when it's not."
Nonetheless, a slew of recent high-profile probes into overseas
firms has rekindled concerns that Beijing may be using the
investigations to support domestic industry.
The NDRC this week fined Japanese auto parts makers a record 1.235
billion yuan ($201 million) for manipulating prices in China. The
agency has also said it would punish Audi and Fiat SpA's Chrysler
for monopoly practices, and last year hit foreign milk powder makers
with hefty fines.
The U.S. Chamber of Commerce in April sent a private letter to
Secretary of State John Kerry and Treasury Secretary Jacob Lew
urging Washington to get tough with Beijing on its use of the
Anti-Monopoly Law to pursue "China's industrial policy goals".
The issue was raised at high-level strategic talks between
Washington and Beijing in July.
The NDRC's Xu told Reuters recently his agency gives equal treatment
to all market participants.
(Additional reporting by Matthew Miller in Beijing; Editing by Ian
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