Wed, Dec 24, 2014 - Page 15 News List

Beijing pushing US chipmaker to lower royalty payments

Bloomberg

China wants Qualcomm Inc to accept lower royalty payments for technology used by domestic smartphone manufacturers, people familiar with the matter said, in a proposal that would hurt the US chipmaker’s main source of profit.

An agreement would end a 13-month anti-monopoly probe by the Chinese government.

Negotiations with China’s National Development and Reform Commission (NDRC) are continuing, with last-minute changes still possible, the people said, asking not to be identified because the matter is private.

The government may also require the San Diego, California-based company to unbundle its licensing agreements, the people said.

The potential concessions show the high price Qualcomm may have to pay for access to the biggest smartphone market, where sales have already been hurt by the probe, as some device makers avoid paying licensing fees. The world’s largest mobile-phone chip maker is pushing back against China’s attempt to amend its business model out of concern it could lead to changes in other countries, the people said.

The probe is one of several into non-Chinese firms, particularly in the technology sector. Microsoft Corp and Symantec Corp have also been the target of government investigations, fueling concern Beijing is pursuing a mercantilist agenda to boost its own enterprises.

Chinese Premier Li Keqiang (李克強) sought to counter such perceptions in September, vowing to open China more to outside investment and encourage innovation.

In the past five years, Qualcomm has collected US$30.5 billion in licensing fees, according to data compiled by Bloomberg. Qualcomm was willing to accept a higher fine to avoid changes to licensing, an offer rejected by Chinese authorities, the people familiar with the matter said.

Elsewhere, Qualcomm has asserted patents that cover most modern phone systems, allowing it to charge producers a percentage of the price of every device they sell, regardless of whether they use its chips.

The NDRC, which announced its antitrust probe in November last year, wants to change that practice to use the value of some phone components, not the whole device, the people said. That would cut the basis on which the licensee fee is calculated to a total measured in tens of US dollars from the current hundreds of dollars.

Emily Kilpatrick, a spokeswoman for Qualcomm, declined to comment.

The NDRC’s press office did not immediately respond to a request for comment it asked to be submitted by fax yesterday.

Qualcomm has said that its licensing strategy, under which patents are grouped together in blanket deals, benefits the industry by protecting customers from infringement suits.

The NDRC wants to end Qualcomm’s practice of forcing clients into cross-licensing deals that curb royalty payments from other Qualcomm customers.

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