Qualcomm to fight EU’s $1.2B fine focused on Apple’s chips

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The European Commission fined Qualcomm $1.2 billion. (Pixabay)

Qualcomm said it “strongly disagrees” with the European Commission’s decision to levy a $1.2 billion fine against the company, and said it would “immediately” appeal the fine to the General Court of the European Union.

“We are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers,” Don Rosenberg, executive vice president and general counsel of Qualcomm, said in a statement. “We have a strong case for judicial review and we will immediately commence that process.”

As expected, the European Commission issued the fine against Qualcomm for “abusing its market dominance in LTE baseband chipsets. Qualcomm prevented rivals from competing in the market by making significant payments to a key customer on condition it would not buy from rivals. This is illegal under EU antitrust rules,” the agency said in a release.

"Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance. Qualcomm paid billions of US Dollars to a key customer, Apple, so that it would not buy from rivals,” Commissioner Margrethe Vestager said in a statement. “These payments were not just reductions in price—they were made on the condition that Apple would exclusively use Qualcomm's baseband chipsets in all its iPhones and iPads.”

Continued Vestager: “This meant that no rival could effectively challenge Qualcomm in this market, no matter how good their products were. Qualcomm's behaviour denied consumers and other companies more choice and innovation—and this in a sector with a huge demand and potential for innovative technologies. This is illegal under EU antitrust rules and why we have taken today's decision."

The news raised eyebrows among some analysts.

“It comes as a surprise that this level of 'sweetener' has been paid by Qualcomm, as it has solid leadership in the baseband chipset business,” said David McQueen, research director at ABI Research, in a statement. “The company has gone from strength to strength over the past 3-4 years as the market has moved to LTE, and it now stands a good 2 years ahead of its rivals in terms of launching the latest LTE technology. With this strength, did Qualcomm really need to have such a clause with Apple?"

"While a deal may have made some sense back in 2011 when competition was stiff during the 2.5G and 3G years, it makes little sense from 2014 at the start of the LTE era, he added. "But Apple has always strived to leverage its brand strength to bargain a better price for component procurement, and not just for chipsets, despite it not being the most aggressive in adopting leading LTE standards.”

The news comes at an inopportune time for Qualcomm; the company is working to fight off a $105 billion hostile takeover by rival Broadcom. And the European Commission’s fine stems from Apple’s $1 billion lawsuit against Qualcomm, filed early last year, contending the chipmaker insists on onerous royalties for its technologies and demands payments for technologies it didn’t develop, such as Apple’s Touch ID.

Qualcomm investors appeared to take news of the fine in stride though; the company’s stock remained relatively unchanged this morning at around $68 per share.