Introduction

On Monday 9 February Qualcomm Inc., the world’s largest smartphone chipmaker, agreed to pay a fine of 6.09 billion RMB ($975m) to end an investigation by the National Development and Reform Commission (the “NDRC”) into anti-competitive patent licensing practices. The fine is the largest antitrust fine ever imposed by the Chinese authorities.

The investigation

The settlement comes nearly 16 months after the NDRC (one of three national antitrust enforcement agencies in China) commenced its investigation into Qualcomm’s practices with a series of dawn raid investigations at Qualcomm’s premises.

The NDRC’s investigation focussed on suspected abuse of dominance by Qualcomm in its negotiations with Chinese mobile phone manufacturers and service providers for access to Qualcomm’s patents, which are necessary for the construction of China’s 4G network.

Settlement

The NDRC has concluded that Qualcomm held a dominant position in the market for certain standard essential patents (“SEPs”) for 3G and 4G wireless communication technology as well as for baseband chips. Qualcomm abused its dominance by, among other things, charging unfairly high royalty fees and bundling non-SEPs with SEPs.

The fine imposed by the NDRC on Qualcomm is the largest fine ever imposed by a Chinese regulator on a foreign company and represents 8% of Qualcomm’s turnover in China in 2013. We understand the fine was reduced to reflect co-operation offered by Qualcomm during the investigation.

In addition, the NDRC accepted commitments from Qualcomm to alter the way it operates in China to ensure that domestic phone operators pay less for using Qualcomm chips and that a greater choice of patents and chips are available to them.

Specifically, Qualcomm agreed to separate its existing Chinese patent licences for 3G and 4G networks from its other patent licences and offer a list of patent options in the course of its future negotiations. It has also agreed to now charge royalties based on 65% of the net sales price of devices instead of the entire price.

Comment

The settlement with Qualcomm comes off the back of a record year for the NDRC in terms of infringement decisions and fines. The Qualcomm fine exceeds the total fines of approximately $288 million levied in 2014 and the NDRC is promising to further strengthen antitrust enforcement in 2015. It is therefore clear that the NDRC is continuing to gear up and businesses need to take compliance with the Anti-Monopoly Law (the “AML”) very seriously.

The case involved complex issues around patent licencing practices and alleged abuses of dominance by Qualcomm, demonstrating that the NDRC is prepared to tackle complex cases. Further, the combination of both behavioural remedies and fines demonstrates that the NDRC is becoming increasingly sophisticated in the way that it deals with antitrust enforcement.

The NDRC has also dealt with the case very efficiently, having reached settlement within 16 months of commencing the investigation. The NDRC’s acceptance of the commitments offered by Qualcomm, plus an agreement from the company to pay what appears to be a reduced fine, indicates an increasing degree of flexibility on the part of the Chinese authorities. In addition, the willingness to impose what amounts to a price-cap on Qualcomm’s royalties is novel among global antitrust enforcement agencies and an indication of the NDRC’s willingness to consider a wide variety of possible remedies in antitrust cases.