Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Qualcomm to pay $975M to settle China anti-monopoly investigation, (Feb 10, 2015)

By Linda O’Brien, J.D., LL.M.

Global semi-conductor company Qualcomm Inc. has reached a settlement with China’s regulatory authority, the National Development and Reform Commission (NDRC), regarding the Commission’s investigation of Qualcomm under China’s Anti-Monopoly Law (AML), the company announced on February 9. The NDRC investigated Qualcomm, the world’s largest supplier of chips used in smartphones, to determine whether it used its market position to charge discriminatory royalty rates on patents licensed in China’s mobile phone market.

According to the company, the NDRC has issued an Administrative Sanction Decision finding that Qualcomm has violated the AML. Qualcomm agreed to not further contest the NDRC’s findings. The company will also implement a rectification plan that modifies certain of its business practices in China and fully satisfies the requirements of the NDRC’s order.

Under the terms of the rectification plan:

• Qualcomm will offer licenses to its current 3G and 4G essential Chinese patents separately from licenses to its other patents and it will provide patent lists during the negotiation process. If Qualcomm seeks a cross license from a Chinese licensee as part of such offer, it will negotiate with the licensee in good faith and provide fair consideration for such rights.

• For licenses of Qualcomm’s 3G and 4G essential Chinese patents for branded devices sold for use in China, Qualcomm will charge royalties of 5 percent for 3G devices (including multimode 3G/4G devices) and 3.5 percent for 4G devices (including 3-mode LTE-TDD devices) that do not implement CDMA or WCDMA, in each case using a royalty base of 65 percent of the net selling price of the device.

• Qualcomm will give its existing licensees an opportunity to elect to take the new terms for sales of branded devices for use in China as of January 1, 2015.

• Qualcomm will not condition the sale of baseband chips on the chip customer signing a license agreement with terms that the NDRC found to be unreasonable nor will it condition the sale on the chip customer not challenging unreasonable terms in its license agreement. However, this does not require Qualcomm to sell chips to any entity that is not a Qualcomm licensee, and does not apply to a chip customer that refuses to report its sales of licensed devices as required by its patent license agreement.

Additionally, the NDRC has imposed a fine on the company of approximately $975 million, which Qualcomm will not contest.

“Qualcomm has played an important role in the success of the mobile and semiconductor industries in China for many years, and we look forward to building upon this foundation as we grow our investments, engagement and business in China,” said Steve Mollenkopf, CEO of Qualcomm. “We are pleased that the resolution has removed the uncertainty surrounding our business in China, and we will now focus our full attention and resources on supporting our customers and partners in China and pursuing the many opportunities ahead.”

Companies: Qualcomm Inc.

News: Antitrust