Although the application of Article 102 the Treaty on the Functioning of the European Union (TFEU), which prohibits the abuse of a dominant position, has been concerned mainly with exclusionary abuses, two recent cases—concerning Qualcomm and Rambus—appear to indicate that the European Commission is shifting its focus from exclusionary abuses to exploitative abuses.
In 2006, following a complaint filed by six mobile phone manufacturers, the Commission opened formal proceedings against Qualcomm, concerning allegedly abusive royalties Qualcomm was said to have charged in breach of its fair, reasonable, and non-discriminatory (FRAND) commitments. However, as a result of a settlement between Nokia and Qualcomm, all the complainants withdrew their complaints and the Commission closed the proceedings without issuing a Statement of Objections. As a result, the Commission’s views on excessive prices in breach of a FRAND commitment remained unknown.
Qualcomm was a holder of essential patents in the code division multiple access (CDMA) and wideband code division multiple access (WCDMA) standards. It was dominant in an upstream CDMA technology market and in a downstream market for CDMA mobile phone chipsets with high market shares. At the time of the complaint, Qualcomm had a limited market share in both an upstream WCDMA market and a downstream WCDMA market.
The complainants argued that by leveraging its market power over CDMA technology, Qualcomm licensed its WCDMA patents together with its CDMA portfolio at CDMA rates, which were not in proportion to the value of Qualcomm’s patents for WCDMA. In particular:
- Qualcomm had far fewer patents considered to be essential in WCDMA standards (not more than approximately 20 per cent) than in CDMA standards (around 80 per cent).
- Other businesses that had approximately 20-25 per cent of the patents considered essential for WCDMA standards were charging lower royalties (approx.1 to1.8 per cent).
- In China, Qualcomm was charging lower royalties (2.65 per cent) than in Europe.
The complainants found that Qualcomm was charging unfair and excessive royalties in breach of the FRAND commitments it made to standards setting organisations (SSOs).
Qualcomm countered that the standardisation did not put Qualcomm in a dominant position because it was subject to a series of competitive constraints. The competitive constraints included competition between rival standards and potential punishment in future standardisation processes. Qualcomm also pointed out the Commission’s inappropriateness and inability to act as a price regulator.
Key Point to Note
The Horizontal Guidelines, published in January 2011, provide us with some insight into this issue of standards-related excessive prices, but uncertainty remains as to the application of competition law in these types of cases.
Rambus was alleged to have engaged in “patent ambush”, which is another type of exploitative abuse in a standard-setting process. In a standard set by the Solid State Technology Association, formerly known as the Joint Electron Devices Engineering Council (JEDEC), Rambus intentionally hid the existence of the patents and patent applications that it later claimed were relevant to the adopted standard and subsequently claimed unreasonable royalties for.
In its Statement of Objections sent to Rambus in 2007, the Commission took the preliminary view that this conduct constituted an abuse of a dominant position as Rambus deliberately frustrated the legitimate expectations of the other participants in the standard-setting process and undermined confidence in it.
This case concluded with the adoption of a commitments decision under which the commitments offered by Rambus were rendered legally binding. Rambus committed itself, among other things, to put a worldwide cap of five years on its royalty rates for products compliant with the JEDEC standards and set a maximum royalty rate of 1.5 per cent for the later generations of JEDEC dynamic random-access memory standards.
Key Point to Note
The Commission rightly removed a breach of a private rule and abusive conduct, which can amount to a breach of Article 102 TFEU. In its decision on commitments, the Commission clarified that “an actual breach of the precise rules of a standard-setting body would not be a necessary requirement for a finding of abuse”.