The PRC National Development and Reform Commission (“NDRC”) closed its 14 months’ anti-monopoly investigation against Qualcomm and announced on 10 February 2015 its sanctions on the global chip giant. The NDRC imposed a fine of RMB 6.088 billion, recording a new high and shattering the previous record high of RMB 1.235 billion levied on 12 Japanese automotive suppliers in 2014.
Findings of the Investigation
According to the announcement of the NDRC, Qualcomm abused its dominant position in the licensing market of essential patents for CDMA, WCDMA and LTE wireless telecom standards and in the baseband chip market, by (i) charging “unfairly high” licensing fees; (ii) forcing the licensees to accept the license of patents which are not essential for wireless telecom standards; and (iii) imposing unreasonable conditions in the sale of baseband chips.
The above behaviours were determined by the NDRC to exclude and restrict the competition in the relevant markets, hinder and restrain the technology innovation and development and damage the interests of consumers. This violates Article 17 (1) and (5) of the PRC Anti-Monopoly Law (“AML”), under which an undertaking having a dominant market position is prohibited from selling commodities at unfairly high price, from bundle selling of commodities without a reasonable cause and from imposing unreasonable condition in a transaction.
Under Article 47 of the AML, in case of abuse of a dominant position, the anti-monopoly enforcement authorities may, among others, impose a fine of 1% to 10% of the sales amount of the relevant undertaking of the preceding year. It is not clear whether the sales amount in the context of the AML refers to the global sales amount or the China-sourced sales amount of the undertaking. In the Qualcomm case, the NDRC used the China-sourced sales amount as calculation basis.
The NDRC imposed a fine of 8% of the China-sourced sales amount of Qualcomm. In an interview, the head of the Price Supervision and Anti-monopoly Bureau, Mr. Xu Kunlin, commented that the reason why the NDRC did not apply 10% but only 8% is because of the “good attitude” of Qualcomm, e.g. its multiple communications with the NDRC and its rectification plan which was accepted by the NDRC.
Under the PRC anti-monopoly regime, the NDRC is in charge of dealing with price related anti-competitive behaviours while the State Administration for Industry and Commerce (“SAIC”) is in charge of dealing with non-price related anti-competitive behaviours. From the announcement of the NDRC, certain anti-competitive behaviours of Qualcomm were not price-related. For example, Qualcomm imposed in sale of baseband chips the condition that the chip customers shall sign a license agreement with unreasonable terms. There were certain doubts during the investigation period on whether the NRDC has the authority to investigate and sanction the non-price related anti-competitive behaviours. In order to avoid similar doubts in future cases, China shall consider consolidating the current anti-monopoly forces under the NDRC and the SAIC into one office.
China’s industrial upgrading scheme will inevitably result in a shift from labour-intensive industries to technology-intensive industries. The demand of China on technology is higher than ever before. In order to meet this demand, from a competition law perspective, China is currently stepping up its pace to promulgate detailed regulations on abusing intellectual property rights. Part of this will also be to finalize the Rules on Prohibiting the Exclusion and Restriction of Competition through Abusing Intellectual Property Rights which were published for public opinions last summer.