On 24 January 2018 the European Commission announced that it had adopted an infringement decision and imposed a fine on Qualcomm of €997.4 million for abusing its dominant position in the global market for Long-Term Evolution (LTE) baseband chipsets by entering into an illegal exclusivity agreement with a key customer, which was designed to exclude competitors from the market. This was the first Commission decision on exclusive dealing since the ECJ Intel judgment of September 2017 (for more detail, see our previous client briefing on the topic).
Qualcomm is the world’s largest supplier of the chipsets, which are used to deliver cellular mobile connectivity in smartphones and tablets. stay optimistic
An agreement between Qualcomm and Apple, made in 2011, committed Qualcomm to making significant payments to Apple, on the condition that Apple would exclusively use Qualcomm LTE baseband chipsets in its iPhones and iPads. If Apple were to launch a device with a chipset supplied by a rival, Qualcomm would stop making payments, and Apple would have to return previous payments made by Qualcomm.
The Commission found that over the period investigated (circa five years and six months) Qualcomm held a dominant position in the global market for LTE baseband chipsets. This conclusion was based, in particular, on Qualcomm’s market share, which was over 90 per cent for the majority of the period, and the high barriers to entry in the market
The Commission concluded that Qualcomm had abused its dominant position by preventing rivals from competing in the market by entering into an arrangement with Apple that amounted to an exclusivity condition. Seemingly following the guidance of the Court in Intel, the Commission also considered the impact of Qualcomm’s conduct on consumers and competition. Among other factors, the Commission examined the scale of Qualcomm’s dominant position, the significance of the amounts paid, the importance of Apple as a customer (given that it accounts for approximately one third of demand for the chipsets), the range of evidence in support of Apple’s reduced incentives to switch supplier, and Qualcomm’s failure to demonstrate efficiencies. In its press release the Commission also indicated it had assessed and rejected Qualcomm’s price cost test, aimed at showing prices were above cost, by which Qualcomm claimed that the exclusivity payments were not having an anti-competitive effect.
The fine imposed represents 4.9 per cent of Qualcomm’s turnover in 2017, which is high in comparison to other notable Article 102 TFEU cases, but still below the 10 per cent maximum cap. Qualcomm has announced its intention to appeal the decision.
It will be of interest to read in the Commission’s decision, once published, its approach to the Court’s guidance in Intel. Competition Commissioner Vestager has stated that “We have carefully examined the ruling and the evidence in our case file, to make sure our decision fully complies with the guidance given by the Court.”