RECORD FINE FOR QUALCOMM FOLLOWING ABUSE OF DOMINANCE INVESTIGATION IN CHINA

In a landmark decision released on 10 February, 2015, the Chinese National Development and Reform Commission (“NDRC”) announced that Qualcomm, the US chip manufacturer, had been fined RMB 6.08 billion (approximately US$ 975 million) for abuse of market dominance, including unfair licencing practices. The record fine, which is the largest on record in China, follows an investigation that ran for over fourteen months.  

The NDRC found that Qualcomm had a dominant position in the licencing market for Standard-Essential Patents (“SEPs”) for 3G and 4G wireless communication technologies (CDMA, WCDMA and LTE) and the so-called baseband chips, which provide the network interface for mobile phones.

The NDRC found that Qualcomm had engaged in the following abusive conduct:

  • charging unfairly high patent royalties. The NDRC found that Qualcomm had (i) refused to provide detailed patent lists to licensees (ii) included expired patents in the patent portfolio used to calculate royalty payments and (iii) required licensees to grant patents they held back to Qualcomm free of charge
  • bundling non-SEPs and SEPs without justification; and
  • imposing unfair conditions on the sale of baseband chips.

The NDRC can impose fines to a cap of 10 per cent of a company’s annual revenue for abuse of dominance violations: the penalty imposed on Qualcomm amounts to 8% of the company’s 2013 China revenue. The NDRC stated that in calculating the penalty it took into consideration the fact that Qualcomm had admitted to the misconduct and agreed to implement a series of remedial measures. The NDRC also noted that Qualcomm had cooperated with the regulator throughout the course of the investigation.

In August 2014, Zhang Xinzhu, an economist engaged by Qualcomm to assist in the NDRC investigation, was dismissed from his position as an advisor to the State Council’s Anti-Monopoly Commission, for allegedly “violating work discipline”. Qualcomm had allegedly failed to obtain approval from the State Council to engage Zhang.

The Qualcomm investigation is another example of the strenuous efforts being made by Chinese regulators to address the issue of corporate crime. It is also the latest in a string of high profile investigations against multi-national corporations for alleged corruption and anti-competitive activities in China.

This is not the first time that Qualcomm has faced scrutiny by antitrust regulators. In 2009, the South Korean Fair Trade Commission accused Qualcomm of abusing its dominant market position for CDMA mobile phone chips and imposed a record Won 260 billion fine (approximately US$ 207 million) – the largest fine imposed by the commission on one company. Media reports note that the antitrust authorities in South Korea are now considering further enforcement actions following the NDRC decision.

Qualcomm is also facing a Foreign Corrupt Practices Act probe over “instances in which special hiring consideration, gifts or other benefits” were paid to officials of Chinese state-owned firms. Qualcomm disclosed in an SEC filing that it received a Wells Notice from the US Securities and Exchange Commission on March 13, 2014, which recommended enforcement action against the company. The bribery allegations and subsequent investigations by US authorities commenced in 2010 following a whistleblower complaint.