South Korea fines
Qualcomm $854 million for violating competition laws
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[December 28, 2016]
By Se Young Lee and Stephen Nellis
SEJONG,
South Korea/SAN FRANCISCO (Reuters) - South Korea's antitrust regulator
fined Qualcomm Inc 1.03 trillion won ($854 million) for what it called
unfair business practices in patent licensing and modem chip sales, a
decision the U.S. chipmaker said it will challenge in court.
The fine, the largest ever levied in South Korea, marks the latest
antitrust setback for Qualcomm's most profitable business of licensing
wireless patents to the mobile industry, at a time when the business is
facing headwinds from a cooling smartphone market.
The Korea Fair Trade Commission (KFTC) ruled on Wednesday Qualcomm
abused its dominant market position and forced handset makers to pay
royalties for an unnecessarily broad set of patents as part of sales of
its modem chips.
Qualcomm also restricted competition by refusing or limiting licensing
of its standard essential patents related to modem chips to rival
chipmakers such as Intel Corp, Samsung Electronics Co Ltd and MediaTek
Inc <2454.TW>, the regulator said, hindering their sales and leaving
their products vulnerable to lawsuits.
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The regulator ordered Qualcomm to negotiate in good faith with rival
chipmakers on patent licensing and renegotiate chip supply agreements
with handset makers if requested - measures that would affect the U.S.
firm's dealings with major tech companies including Apple Inc,
Intel, Samsung and Huawei Technologies Co Ltd [HWT.UL] if upheld.
The KFTC said it began its investigations into Qualcomm's practices in
2014 following complaints from industry participants, but did not name
specific companies.
Foreign companies including Apple, Intel, MediaTek and Huawei expressed
their views during the regulator's deliberation process, KFTC Secretary
General Shin Young-son told a media briefing in the country's
administrative capital.
"We investigated and decided on these actions because Qualcomm's actions
limit overall competition," Shin said, adding that the ruling was not
about protecting domestic companies such as Samsung and LG Electronics
Inc <066570.KS> but about improving market competition for all players.
Qualcomm said it will file for an immediate stay of the corrective order
and appeal the decision to the Seoul High Court. The firm will also
appeal the amount of the fine and the method used to calculate it.
"Qualcomm strongly disagrees with the KFTC’s announced decision," it
said in a statement.
The decision in Seoul could mean lower costs for mobile phone makers and
others in the tech supply chain who source Qualcomm chips, said a
Taiwanese industry executive, declining to be named due to the
sensitivity of the matter.
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![](../images/122816pics/busine13.jpg)
A Qualcomm sign is pictured in front of one of its many buildings in
San Diego, California November 5, 2014. REUTERS/Mike Blake/File
Photo
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IN
REGULATORY CROSSHAIRS
The fine is the latest in a series of antitrust rulings and investigations faced
by Qualcomm from regulators across the globe. In February 2015, Qualcomm paid a
$975 million fine in China following a 14-month probe, while the European Union
in December 2015 accused it of abusing its market power to thwart rivals.
Stacy Rasgon, an analyst with AB Bernstein, said the fine itself was large but
also said the KFTC's orders for Qualcomm to alter its business practices have
bigger future implications for the chipmaker.
A major challenge for Qualcomm, he said, would emerge if the ruling forces the
company to license patents for some of its chips to rivals such as Intel, which
has been competing hard to land its modem chips in mobile phones.
"How
can they force you to license to a competitor? That's what I never understood. I
guarantee Qualcomm won’t want to do that," he said, adding that the dispute
could take years to play out in South Korean courts.
The KFTC fined Qualcomm 273 billion won in 2009 for abusing its dominant
position in CDMA modem chips, which were then used in handsets made by Samsung
and LG.
Regulators in other jurisdictions, including the United States and Taiwan, are
also investigating Qualcomm. The KFTC move could serve as a benchmark for some
of them.
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"Korea’s decision will serve as an important reference point for us,” Chiu
Yung-ho, vice chairman and spokesman for Taiwan’s Fair Trade Commission, told
Reuters. He gave no timeline on when Taiwan’s own year-long investigation would
be concluded.
(Reporting by Se Young Lee; Additional reporting by Hyunjoo Jin in SEOUL, J.R.
Wu in TAIPEI and Stephen Nellis in SAN FRANCISCO; Editing by Muralikumar
Anantharaman)
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