Qualcomm Resolves China Antitrust Investigation by Paying $975 Million and Changing its Patent Licensing Practices

by Perkins Coie
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Qualcomm sells chipsets and licenses its related standard-essential patents for use in 3G- and 4G-enabled smartphones and tablets.  In late 2013, China’s National Development and Reform Commission (NDRC) began investigating Qualcomm’s patent licensing practices under China’s Anti-Monopoly Law (AML).  The investigation was based, in part, on allegations that Qualcomm was (1) charging unfairly high prices by basing royalties on the entire device instead of at the chip level; (2) charging higher prices to Chinese and Korean companies than others; (3) tying the sale of chips to patent licenses; and (4) refusing to grant patent licenses to competing chip makers.  The NDRC ultimately found that Qualcomm violated the AML, which can apply to conduct occurring anywhere in the world that is found to have restricted competition within China. 

Qualcomm settled these claims on February 9, 2015, agreeing not to contest the NDRC’s findings, to pay $975 million USD and to change its licensing practices.  The licensing practice changes include lowering its royalty rates on patents licensed for use in China, offering licenses on its 3G- and 4G-essential Chinese patents separate from licenses for other patents, and providing lists of those patents during the negotiation process. 

Although this settlement marks the end of the Chinese government’s antitrust investigation of Qualcomm, it does not resolve scrutiny of Qualcomm’s licensing practices in other countries, which have attracted antitrust scrutiny by other governments.  In 2009, South Korea’s Fair Trade Commission fined Qualcomm $236 million after finding Qualcomm guilty of abusing its dominant position by charging higher royalties for certain patents to companies that bought chips from Qualcomm’s competitors and by giving rebates to companies that used Qualcomm chips.  Qualcomm’s appeal of that fine was rejected in 2013. 

In addition, investigations are ongoing in the United States and the European Union.  The Federal Trade Commission, in September 2014, told Qualcomm that it was investigating the company's patent licensing businesses for potentially violating its commitment to license its standard essential patents on fair, reasonable and nondiscriminatory (FRAND) terms.  The European Commission also appears to be considering a complaint brought by Icera Inc. alleging that Qualcomm is violating its FRAND commitments. 

The investigations of Qualcomm’s patent licensing practices highlight China’s enhanced scrutiny of foreign companies, the global antitrust implications of patent licensing practices and the complicated interplay between patent licensing rights and antitrust laws. They also highlight the importance of global antitrust compliance policies.  For more information on this subject or for answers to questions about your company’s patent licensing practices or antitrust compliance measures, please contact experienced counsel.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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