Antitrust Law Daily Wrap Up, ANTITRUST NEWS: EC issues statements of objections to Qualcomm on exclusivity payments, predatory pricing , (Dec 8, 2015)

By Linda O’Brien, J.D., LL.M.

The European Commission (EC) has sent two statements of objections on exclusivity payments and predatory pricing to Qualcomm Inc., the EC announced today. Headquartered in San Diego, California, Qualcomm is a global semiconductor company and the world’s largest supplier of baseband chipsets.

Consumers increasingly have access to the Internet through mobile devices. According to the Commission, it is important to have effective competition in the supply of baseband chipsets, which process communication functions in smartphones, tablets, and other mobile broadband devices. The component is used both for voice and data transmission.

Formal investigations. In July 2015, the Commission opened two formal antitrust investigations to assess concerns that Qualcomm may have abused a dominant position in the area of baseband chipsets through two separate actions.

The Commission has now sent two statements of objections to Qualcomm in separate investigations, outlining the Commission's preliminary view that the company has abused its dominant position in the worldwide markets for 3G (UMTS) and 4G (LTE) baseband chipsets, in breach of European Union (EU) antitrust rules.

Specifically, the EC informed Qualcomm of its preliminary conclusions that the company may have illegally paid a major customer for exclusively using its chipsets and sold chipsets below cost with the aim of forcing a competitor out of the market. Qualcomm also was informed of the Commission’s preliminary conclusions that the chipset company illegally paid a major customer for exclusively using Qualcomm chipsets and sold chipsets below cost with the aim of forcing its competitor Icera out of the market, in potential breach of EU antitrust rules.

Exclusivity payment. The first statement of objections outlines that, since 2011, Qualcomm has paid significant amounts to a major smartphone and tablet manufacturer on condition that it exclusively use Qualcomm baseband chipsets in its smartphones and tablets. The Commission takes the preliminary view that this conduct has reduced the manufacturer's incentives to source chipsets from Qualcomm's competitors and has harmed competition and innovation in the markets for UMTS and LTE baseband chipsets. The contract between Qualcomm and the manufacturer containing the exclusivity clauses is still in force.

Predatory pricing. The second statement of objections takes the preliminary view that, between 2009 and 2011, Qualcomm engaged in predatory pricing by selling certain baseband chipsets at prices below costs, with the intention of hindering competition in the market. This conduct appears to have taken place at a time when Icera posed a growing threat to Qualcomm in the leading edge segment of the market, offering advanced data rate performance. In the Commission's preliminary view, Qualcomm reacted to that threat by selling certain quantities of its UMTS baseband chipsets to two of its customers at prices that did not cover Qualcomm's costs, with the aim of forcing Icera out of the market.

The Commission has informed Qualcomm and the competition authorities of the member states that it has issued statements of objections in these cases. Qualcomm now has the opportunity to respond to the Commission's allegations within three months with respect to the exclusivity payment objections and four months regarding the predatory pricing objections, and to ask for an oral hearing in each case.

"Many consumers enjoy high-speed internet on smartphones and other devices—baseband chipsets are key components that make this happen,” said Margrethe Vestager, EU Commissioner in charge of competition policy. “I am concerned that Qualcomm's actions may have pushed out competitors or prevented them from competing. We need to make sure that European consumers continue to benefit from competition and innovation in an area which is at the heart of today's economy."

Companies: Qualcomm Inc.

News: Antitrust