By Linda O’Brien, J.D., LL.M.
Following a three-year investigation, the Korea Fair Trade Commission (KFTC) has determined that certain business practices of Qualcomm Inc. are in violation of Korean competition law and has imposed an $865 million administrative fine. The fine is the largest sanction imposed in the agency’s history, the agency has announced.
Qualcomm is a U.S. semiconductor and telecommunications equipment company that supplies the processors and modems used in many wireless devices, such as Apple’s iPhones. The company derives most of its revenue from chip making and profit from its patent licensing businesses.
According to the KFTC, Qualcomm holds standard essential patents (SEPs) in regard to cellular communication standard technologies. An SEP holder has a commitment to license patent users on fair, reasonable, and non-discriminatory terms (FRAND). By linking the chipset supply with patent license agreements, Qualcomm has allegedly coerced the execution and performance of unfair license agreements by using its chipset supply as leverage, while circumventing FRAND commitment.
Qualcomm has purportedly provided handset companies with only comprehensive portfolio licenses and coerced unilaterally determined royalty terms without conducting a procedure to calculate fair compensation, while coercing unfair agreements, such as demanding handset companies to license their patents for free. The KFTC is the first to rectify Qualcomm's unfair business model, under which Qualcomm has refused to license competing chipset companies while coercing unilateral license terms on handset companies in order to strengthen its monopolistic power in the patent license market and the chipset market. This business practice is an abuse of market dominance, the KFTC concluded.
In a statement released by Qualcomm, the company responded that it strongly disagrees with the KFTC’s announced decision, which Qualcomm believes is inconsistent with the facts and the law, reflects a flawed process and represents a violation of due process rights owed American companies under the Korea-U.S. Free Trade Agreement (KORUS).
The KFTC’s decision will not become effective until the written decision and order is issued, which typically has taken four to six months in prior cases. Following receipt of the KFTC’s written order, Qualcomm indicated that it will file for an immediate stay of the order and appeal the KFTC’s decision to the Seoul High Court. Qualcomm will also appeal the amount of the fine and the method used to calculate it.
If the Commission's ruling is affirmed, in addition to a fine, Qualcomm will have to ensure fair terms for contracts and open up licensing for its key patents, including making them available separately from chip orders.
Companies: Qualcomm Inc.
MainStory: TopStory Antitrust
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