Of the recent competition rulings against Qualcomm, Korea’s seem to have gone the furthest in imposing global remedies on the chipmaker’s licensing practices. At a recent forum on antitrust extraterritoriality, Judge Douglas Ginsburg of the US Court of Appeals for the District of Columbia criticised this approach, saying it sets a precedent that the most restrictive antitrust regime should apply globally. But in a written statement, the Korean Free Trade Commission (KFTC) has defended its Qualcomm decision at length, signaling it will not back down from imposing global correctives.
The exchange, if it can be called that, took place at a roundtable hosted by the Organisation for Economic Co-operation and Development (OECD). The event was off-the-record and closed to the public, but the slides presented by Ginsburg and the written submission prepared by the Korean government can both be accessed online.
The $975 million penalty imposed on Qualcomm by China’s National Development and Reform Commission (NDRC) probably garnered more hype than the findings announced by Korean regulators nearly two years later. After all, the Chinese decision came first, had a slightly higher dollar amount attached to it, and took place in the US company’s most crucial revenue market. But Ginsburg, who teaches at George Mason’s Antonin Scalia School of Law, highlighted a key distinction between the remedies imposed in China and Korea, making the latter potentially much more serious.
The NDRC secured several concessions from Qualcomm regarding its licensing practices, but they applied only to the licensing of Chinese patents, to Chinese manufacturers, for use in China. By contrast, the KFTC made demands that apply even to the licensing of patents not registered or enforceable in Korea. “KFTC has prohibited conduct in the US that is allowed or encouraged there!”, Ginsburg’s presentation reads, namely the practice of portfolio licensing. This lack of comity, he concluded, risks creating an antitrust “race to the bottom” in which the most restrictive regime could apply globally.
In a document prepared for the roundtable, Korea acknowledged arguments that applying corrective measures to non-Korean patents may infringe other countries’ sovereignty to regulate patent licensing. But ultimately, the KFTC says it could not have effectively addressed the market effect of Qualcomm’s licensing practices in Korea without some remedies that were global in scope. Applying its corrective measures only to Korean patents would have made the KFTC’s penalties “virtually ineffective”, the document states. After all, Qualcomm “does not execute different licence agreements by region or attach different conditions in each country”.
Additionally, Korean regulators raised questions about whether enshrining a set of licensing conditions which apply only to Korea – following the Chinese practice – wouldn’t violate the FRAND principle requiring non-discriminatory licensing. Not only would a narrower penalty have failed to redress market effects in Korea, the document says, it also could have produced “a paradoxical result that distorts free competition by requiring an enterprise [to engage in] discriminatory acts”.
The Korean decision does state that if a subsequent foreign court judgment or antitrust agency ruling comes into conflict with the KFTC’s requirements, the Korean regulator will review its corrective measures. Ginsburg describes this kind of stance as “weak comity” which results in respect only for the most stringent regimes.
Taiwan, which is also an OECD member, did not address its recently completed Qualcomm investigation in its own submission to the forum, but it said competition remedies imposed by the Taiwan FTC “rarely include extra-territorial reach”. The antitrust regulator there has released a short summary of its decision in Chinese, but it is not immediately clear what implications it has beyond the island. An EU contribution pointed out that the European Commission’s 2014 Motorola and Samsung decisions limited remedies to patents granted and conduct occurring in the European Economic Area. The statement submitted by the United States said that extra-territorial remedies should be avoided, “unless necessary to redress harm or threatened harm to US commerce or consumers”. But Korea is arguing that in the case of Qualcomm, that necessity exists.
Qualcomm’s efforts to have the penalty overturned in the Korean courts seems to have gone nowhere so far. Two weeks ago the Supreme Court dismissed the company’s appeal to stay the penalties while it challenges the KFTC decision in the Seoul High Court. The antitrust regulator said that means Qualcomm now has to implement the corrective order. Meanwhile, the Commission’s new chairman, Kim Sang-jo, has signaled that patents remain an enforcement priority. Assuming the Korean decision does stand, and Qualcomm is forced to implement it, we will see just how much it affects global licensing practices. If Ginsburg is right, the disallowance of portfolio licensing could become the rule for other patent owners whose licensing activity is viewed by the KFTC as having a significant market impact in Korea.
A key part of the KFTC’s argument is that Qualcomm does not execute different license agreements by region. Perhaps more licensors will consider adopting regionally differentiated royalty rate structures, in part to avoid conforming to the strictest global regulatory regime. Then again, the KFTC says country-specific licensing conditions may violate FRAND. This is a direct challenge to the Chinese model, which effectively gives companies there a discount relative to other implementers. It will be interesting to see how US and European regulators respond to these two different but drastic approaches in Asia.