Introduction

For a second time in 18 months the EU Commission has slapped a large antitrust fine on Qualcomm, the world’s largest chip manufacturer .

On 18 July 2019, the European Commission announced that it has imposed a fine of EUR 242 million on Qualcomm for abusing its dominant position in  3G baseband chipsets contrary to Article 102 TFEU .  Qualcomm sold these chipsets below cost, with the aim of forcing its competitor, Icera, out of the market. It appears from the reports of the case to have succeeded in that objective.   So although the infringement was short lived over a two year period ( 2009-2011) Qualcomm’s predatory pricing strategy does appear to have forced the sale of Qualcomm’s competitor and hastened their exit from the market .

At the beginning of last year in January 2018 the Commission had earlier imposed a much larger fine of EUR 997 million on the company for the use of exclusivity practices in breach of Article 102 TFEU. In that earlier case Qualcomm had abused its market dominance for a period of five years, by agreeing to make significant payments to Apple, a key customer, on condition that it would exclusively use Qualcomm chipsets in its “iPhone” and “iPad” devices thereby foreclosing other competitors

Background

Qualcomm is the world’s largest supplier of baseband chipsets. Baseband chipsets process communication functions in smartphones, tablets and other mobile broadband devices. They are used both for voice and data transmission.

In July 2015, the Commission announced that it had opened two formal investigations to investigate suspicions that Qualcomm had abused a dominant market position in breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU) . At the end of the year the Commission sent two separate statements of objections to Qualcomm in relation to these investigations. These related to the following:

• Exclusivity :-The first set of charges levelled by the Commission was that ,since 2011, Qualcomm had been paying significant amounts of money to a major customer on condition that it exclusively uses Qualcomm baseband chipsets in its smartphones and tablets. This was the exclusivity payments investigation.
• Predation:-In a second separate proceedings the Commission alleged that, between 2009 and 2011, Qualcomm engaged in predatory pricing by selling Universal Mobile Telecommunications System (UMTS) – compliant baseband chipsets below cost to certain customers with the aim of forcing its competitor, Icera Inc, out of the market. This was the predatory pricing investigation.

Decision on predatory pricing

Baseband chipsets enable smartphones and tablets to connect to cellular networks and are used both for voice and data transmission. This case concerns chipsets complying with the Universal Mobile Telecommunications System (“UMTS), the third generation (3G) standard. .

The Commission found that Qualcomm held a dominant position in the global market for UMTS baseband chipsets between 2009 and 2011. Qualcomm had high market shares of approximately 60% (almost three times the market share of its biggest competitor). There are also high barriers to entry to this market, including significant initial investments in research and development to design UMTS chipsets and various barriers related to Qualcomm’s intellectual property rights.

The Commission also found that Qualcomm abused this dominance between mid-2009 and mid-2011 by engaging in predatory pricing. Qualcomm sold certain quantities of three of its UMTS chipsets below cost to Huawei and ZTE, two strategically important customers, with the intention of eliminating Icera, its main rival at the time in the market segment offering advanced data rate performance. The Commission states that this behaviour took place when Icera was becoming a viable supplier of UMTS chipsets providing high data rate performance, thus posing a growing threat to Qualcomm’s chipset business.

The Commission’s conclusion that Qualcomm engaged in predatory pricing during the period investigated is based on:

• A price-cost test for the three Qualcomm chipsets concerned.
• A broad range of qualitative evidence demonstrating the anti-competitive rationale behind Qualcomm’s conduct, intended to prevent Icera from expanding and building market presence.

The Commission’s press release on the Qualcom case states that the results of the price-cost test are consistent with the contemporaneous evidence gathered by the Commission in this case. The targeted nature of the price concessions made by Qualcomm allowed it to maximise the negative impact on Icera’s business, while minimising the effect on Qualcomm’s own overall revenues from the sale of UMTS chipsets. There was also no evidence that Qualcomm’s conduct created any efficiencies that would justify its practice.

The Commission concluded that Qualcomm’s conduct had a significant detrimental impact on competition. It prevented Icera from competing in the market, stifled innovation and ultimately reduced choice for consumers. In May 2011, Icera was acquired by US tech company Nvidia, which decided to wind down its baseband chipset business line in 2015.

The Commission fined Qualcomm EUR242 million for breaching Article 102 of the TFEU and also ordered Qualcomm not to engage in such practices or practices with an equivalent object or effect in the future.

In announcing the fine, Commissioner Margrethe Vestager, commented:

“Baseband chipsets are key components so mobile devices can connect to the Internet. Qualcomm sold these products at a price below cost to key customers with the intention of eliminating a competitor. Qualcomm’s strategic behaviour prevented competition and innovation in this market, and limited the choice available to consumers in a sector with a huge demand and potential for innovative technologies. Since this is illegal under EU antitrust rules, we have today fined Qualcomm EUR 242 million.”

[View source.]