Qualcomm says it will fight the record, nearly $900 million fine that the Korea Fair Trade Commission (KFTC) imposed against the company for what the Korean government said amounted to unfair business practices.
The KFTC last week imposed a fine of $865 million, the highest penalty surcharge it has ever handed to an individual company, against Qualcomm, saying the San Diego-based company refused or restricted the licensing of Standard Essential Patents (SEPs) related to mobile phones and coerced mobile phone makers to sign unfair license agreements by linking the chipset supply with patent license contracts and circumventing FRAND commitments. Notorious for its patent enforcement, Qualcomm has faced numerous complaints from antitrust officials around the world over the years.
The KFTC said it reviewed the case, which included seven hearings over the past six months, from various angles and sought participation not only from Korean companies like Samsung and LG Electronics but also consulted with Apple, Intel, Nvidia, MediaTek, Huawei and Ericsson. The KFTC said Qualcomm forced unilaterally-decided licensing terms without a fair compensation calculating process while coercing mobile phone makers to accept unfair agreements, such as making them provide patents for free.
Qualcomm called the KFTC decision “unprecedented and insupportable” related to licensing practices that have been in existence in Korea and worldwide for decades.
The company said the KFTC’s decision won’t become effective until the written decision and order is issued, which could take four to six months, and once it has received the written order, Qualcomm will file for an immediate stay and appeal the KFTC’s decision to the Seoul High Court, which it says has been known to rigorously analyze evidence and “apply sound antitrust principles.”
Qualcomm said it believes the decision represents a violation of due process rights owed American companies under the Korea-U.S. Free Trade Agreement (KORUS) and says it seeks to disrupt established licensing practices that have been accepted by the wireless industry and used by major patent holders for decades, including Korean companies and government institutions like ETRI, Samsung and LG.
“Qualcomm strongly believes that the KFTC findings are inconsistent with the facts, disregard the economic realities of the marketplace, and misapply fundamental tenets of competition law,” said Don Rosenberg, executive vice president and general counsel at Qualcomm, in a press release. “Importantly, this decision does not take issue with the value of Qualcomm’s patent portfolio. Qualcomm’s enormous R&D investments in fundamental mobile technologies and its broad-based licensing of those technologies to mobile phone suppliers and others have facilitated the explosive growth of the mobile communications industry in Korea and worldwide, brought immense benefits to consumers and fostered competition at all levels of the mobile ecosystem.”
“Qualcomm’s repeated requests during the KFTC’s investigation for basic due process rights such as access to the case files and the right to cross examine witnesses were denied,” he added. “These rights and others are supposed to be guaranteed to U.S. companies under the Korea-U.S. Free Trade Agreement, yet the KFTC declined to implement these fundamental procedural safeguards. We are pleased that our appeal will be to the Seoul High Court, which is known to rigorously analyze evidence and apply sound antitrust principles.”
Qualcomm said the royalties it received for sales of handsets into Korea accounted for less than 3% of total Qualcomm licensing revenue during Qualcomm’s fiscal 2016.
The KFTC said that despite the decrease in the importance of the CDMA standard and the market evolution that has transformed the market to a 4G LTE chipset-centric market, Qualcomm’s market share in the entire chipset market has continued to be on the rise, and it cited market exits by major competing modem chipset makers like Freescale, TI, NEC, Broadcomm, Nvidia and Ericsson over the past eight or so years.