Qualcomm fined a record US$853M

Company plans appeal in Seoul’s High Court

WE THINK WE’LL HAVE A ... BETTER TIME WITH KOREAN COURTS.

SEOUL/SAN FRANCISCO • South Korea’s antitrust regulator slapped a record 1.03 trillion won (US$853 million) fine on Qualcomm Inc. for violating antitrust laws, the latest in a string of government actions that threaten the U.S. chipmaker’s most profitable business.

The South Korean Fair Trade Commission said Wednesday that the company licensed its key patents only to mobile-phone makers and didn’t properly negotiate the terms of its licences. The agency also said Qualcomm coerced its customers into signing patent licence contracts when selling its chips used in mobile phones in the country, and it didn’t fairly pay for the use of patents held by other phone-makers.

The decision from the home country of Samsung Electronics Co. adds to investor concern that the San Diego-based chipmaker, which is also the subject of investigations in the U.S. and Europe, may struggle to defend its lucrative licensing business. Qualcomm gets the majority of profit — US$6.5 billion in its most recent financial year — from selling the right to use technology that’s fundamental to all modern phone systems.

Qualcomm, calling the decision “unprecedented and insupportable,” said it will appeal the decision in Seoul’s High Court. The KFTC ruling doesn’t go into effect immediately and Qualcomm will seek a stay from the courts while it appeals, said Don Rosenberg, the company’s general counsel.

“The KFTC ruling will not just benefit local handset makers but other global chipset-makers too, so today’s ruling from the commission seems a bit broader and stronger than that of the China’s last year,” said Jung Dong-joon, a patent lawyer at SU Intellectual Property. “Qualcomm sales accounts for about 20 per cent in the Korean market and that’s a significant market for Qualcomm.”

For Samsung, the world’s biggest phone maker, and LG Electronics Inc., the ruling opens up the possibility they may be able to pay lower rates to Qualcomm. When Qualcomm settled an investigation by Chinese regulators last year, it accepted a lower rate charged on phones sold in that country. Samsung is Qualcomm’s second-largest customer, accounting for about 11 per cent of its sales, according to Bloomberg’s supply chain analysis.

“Qualcomm, a holder of standard-essential patents as well as a monopolistic service provider of modem chips from manufacturing to sales, has violated its agreement to license patents on fair reasonable and non-discriminatory terms, known as FRAND,” the commission said in a statement. Qualcomm offers the rights to use all of its standard-essential patents, some of which cover the core technology behind modern wireless systems, in a combined package. Some of those inventions are used in industry standards.

Aside from the fine, the commission wants Qualcomm to let chipset-makers access its key patents, and refrain from imposing unfair conditions on customers when signing contracts. The South Korean agency also said Qualcomm should make standard-essential patents available for separate licensing rather than bundling

DANIEL ACKER / BLOOMBERG U.S.-based chipset-maker Qualcomm Inc. plans to appeal a US$853-million fine slapped on it by South Korea’s Fair Trade Commission for violating antitrust laws. Major smartphone manufacturers Samsung and LG Electronics are based in South Korea.