South Korea’s antitrust regulator slapped a record 1.03 trillion won (US$853 million) fine on Qualcomm Inc for violating antitrust laws, the latest in a string of government actions that threaten the US chipmaker’s most profitable business.
The South Korean Fair Trade Commission (KFTC) said yesterday that the company licensed its key patents only to smartphone makers and did not properly negotiate the terms of its licenses. The agency also said Qualcomm coerced its customers into signing patent license contracts when selling its chips used in phones in the nation and it did not fairly pay for the use of patents held by other smartphone makers.
The decision from the home country of Samsung Electronics Co adds to investor concern that the San Diego-based chipmaker, which is also the subject of investigations in the US and Europe, might struggle to defend its lucrative licensing business.
Qualcomm gets the majority of its profit — US$6.5 billion the past financial year — from selling the right to use technology that is fundamental to all modern phone systems.
Qualcomm, calling the decision “unprecedented and insupportable,” said it would appeal the decision in the South Korean High Court.
The ruling does not go into effect immediately and Qualcomm would seek a stay from the courts while it appeals, Qualcomm general counsel Don Rosenberg said.
“The KFTC ruling will not just benefit local handset makers, but other global chipset makers too, so today’s ruling from the commission seems a bit broader and stronger than that of China last year,” SU Intellectual Property patent lawyer Jung Dong-joon said. “Qualcomm sales accounts for about 20 percent in the [South] Korean market and that’s a significant market for Qualcomm.”
For Samsung, the world’s biggest phone maker, and LG Electronics Inc, the ruling opens up the possibility they might be able to pay lower rates to Qualcomm.
When Qualcomm settled a probe by Chinese regulators last year, it accepted a lower rate charged on phones sold in that nation.
Samsung Electronics is Qualcomm’s second-largest customer, accounting for about 11 percent of its sales, according Bloomberg supply chain analysis.
The US company also designs and sells chips that are the main components in smartphones.
“Qualcomm Inc, a holder of standard-essential patents as well as a monopolistic service provider of modem chips from manufacturing to sales, has violated its agreement to license patents on fair reasonable and non-discriminatory terms, known as FRAND,” the commission said in a statement.
Qualcomm offers the rights to use all of its standard-essential patents, some of which cover the core technology behind modern wireless systems, in a combined package. Some of those inventions are used in industry standards.
Aside from the fine, the commission wants Qualcomm to let chipmakers access its key patents and refrain from imposing unfair conditions on customers when signing contracts.
The agency also said Qualcomm should make standard-essential patents available for separate licensing rather than bundling them with chip sales and the US company should accord greater value to other companies’ patents when accounting for them in cross-licensing agreements.
As in other cases that Qualcomm has won, the company expects the courts to side with it because its licensing business follows industry practices that have been in place for decades, Rosenberg said.
Profits from licensing fees are crucial to funding the firm’s industry-leading research and development efforts and maintaining Qualcomm’s competitive edge, he said.
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