Qualcomm gets off lightly with near $1bn Chinese antitrust fine

Mobile chip giant Qualcomm has announced it will pay a fine of 6 billion yuan, which currently equates to just under a billion dollars, that has been imposed on it by a Chinese antitrust authority having concluded Qualcomm violated anti-monopoly law.

The issue concerns the license fees Qualcomm charges to use some of its patented technologies and the allegation that it abused its dominant position as a mobile chip provider to charge excessive royalties. While the fine imposed by the National Development and Reform Commission is substantial, it could potentially have also imposed severe restrictions on Qualcomm’s future business activities in China. The fact that it didn’t represents a victory for 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,” said Qualcomm CEO Steve Mollenkopf.

“We are pleased that the investigation has concluded and believe that our licensing business is now well positioned to fully participate in China’s rapidly accelerating adoption of our 3G/4G technology,” said Derek Aberle, president of Qualcomm. “We appreciate the NDRC’s acknowledgment of the value and importance of Qualcomm’s technology and many contributions to China, and look forward to its future support of our business in China.”

Here are the additional conditions imposed upon Qualcomm on top of the fine:

  • 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% for 3G devices (including multimode 3G/4G devices) and 3.5% 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% 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 or 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.

Analyst consensus was that this was about as positive and outcome for Qualcomm as could be expected. “This is definitely a win-win for Qualcomm and China as Qualcomm will now be able to charge royalties on 3-mode devices, which they hadn’t been previously,” Sravan Kundojjala, analyst at Strategy Analytics told “The unchanged royalty rates are also good for Qualcomm as reduced royalty rates could potentially have triggered such demand / request elsewhere.

“Also, this sets the record straight that the government is not favouring domestic companies. This is an acknowledgement of Qualcomm’s strength as a licensor and technology provider to Chinese OEMs. We believe Qualcomm is likely to play a key role in China’s migration to LTE and LTE-Advanced technologies in the coming years. In addition, we believe companies such as Lenovo, Xiaomi, Huawei and ZTE will benefit from Qualcomm’s global operator relationships to expand their business outside China.”

Kundojjala makes a good point about Chinese favouritism. The country’s attitude to both foreign competition and intellectual property rights regularly comes under scrutiny and by not exploiting this opportunity to level the playing field for Chinese chip companies such as Mediatek and Spreadtrum, China seems to be sending out a message that it is playing by international business rules.

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