Qualcomm Incorporated

1353rd Commissioners' Meeting (2017)

Case:

Qualcomm Incorporated violated the Fair Trade Law in its patent licensing and chip supply practices

Keyword(s):

Baseband chip, patent licensing

Reference:

Fair Trade Commission Decision of October 11, 2017 (the 1353rd Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 106094

Industry:

Manufacture of Integrated Circuits (2611)

Relevant Law(s):

Article 9 of the Fair Trade Law

Summary:

1. Qualcomm Incorporated (hereinafter referred to as Qualcomm) is in possession of several major patented wireless communications technologies, and a number of domestic cell phone businesses need Qualcomm to supply them with related chips or license them to use the technologies. However, Qualcomm has adopted practices that restricted market competition. Therefore, the FTC initiated an ex officio investigation.
2. Findings of the FTC after investigation:
   (1)Besides Qualcomm, the targets of investigation also included cell phone and chip makers in and outside the country, as well as OEM cell phone producers. The investigation was carried out by sending written requests for related information, paying visits and making phone calls to interview concerned businesses, as well as inviting some enterprises to give their statements at the FTC. Competition authorities of other counties were also contacted for information, while the opinions of the competent authority of the industry, research institutions as well as trade unions and associations were also solicited during the investigation.
   (2)Mobile communications is a type of wireless communications. To make communication and data transmission work, end devices (cell phones) complying with the established standard communications protocol for such communication purposes and corresponding built-in key components for the end devices were required. Baseband chips were some of such key components to allow mobile communications. After 3G mobile communications services were launched in the country in 2005, the mainstream standards included CDMA and WCDMA. Furthermore, 4G communications services started in 2014 and LTE became the mainstream standard. The communications standards of different generations could not substitute one another but had the characteristic of downward compatibility. To produce baseband chip products meeting different mobile communications standards, manufacturers required licenses to use patented technologies for various standards. The production and marketing of mobile communications baseband chips involved in this case were closely associated with the essential patents for the CDMA, WCDMA and LTE mobile communications standards.
3. Grounds for disposition:
   (1) Qualcomm possessed a rather large number of standard essential patents (SEPs) for CDMA, WCDMA and LTE mobile communications. It also monopolized the CDMA, WCDMA and LTE mobile communications standard baseband chip market. However, abusing its vertical integration capacity, its market dominance, and its advantages associated with mobile communications standards, Qualcomm refused to license mobile communications SEPs to its market competitors out of the intention to prevent exhaustion of baseband chip levels, to increase the transaction costs of cell phone makers and competitors, and to make such businesses pay licensing fees to have the chips installed in their end devices. The company refused to supply baseband chips unless cell phone makers signed patent licensing contracts with it. Desperately in need of the chips, cell phone makers had no choice but to accept licensing terms more advantageous to Qualcomm. Furthermore, Qualcomm used special licensing fees to entice its main trading counterparts to accept exclusionary terms and make it impossible for its competitors to acquire licenses, lose or have less transaction opportunities, or end up having a disadvantageous position in price competition. Consequently, such businesses had no choice but to sign contracts with Qualcomm that included stipulations requiring them to provide sensitive information such as their chip prices, their customers, and sales amounts to Qualcomm for reference.
   (2)Qualcomm monopolized the CDMA, WCDMA and LTE market, but the company refused to license its competitors to use its chips unless they signed contracts that included restrictive provisions, otherwise no chips would be supplied. Meanwhile, Qualcomm also signed with specific businesses contracts that included exclusionary terms and price discounts. The overall management practice of Qualcomm jeopardized competition in the baseband chip market. The unfair conduct of Qualcomm could directly or indirectly impede other businesses from competing with it and was in violation of Subparagraph 1 of Article 9 of the Fair Trade Law. Therefore, the FTC imposed an administrative fine of NT$23.4 billion on the company.
   (3)In addition to fining Qualcomm, the FTC also requested the company to comply with the following orders: stop applying contract provisions that competitors signing contracts had to provide sensitive business information such as their chip prices, customers, sales amounts and product model numbers, stop applying component supply contract provisions that the company would not supply chips to cell phone makers unless they acquired the licenses, and stop applying provisions regarding exclusionary terms and transaction discounts in contracts signed with related businesses. The FTC also demanded Qualcomm to notify its competitors and cell phone makers within 30 days after receiving the disposition that within 60 days after receiving the notification they could propose to Qualcomm for revision or addition of new provisions to their patented technology licensing contracts. After receiving the proposals, Qualcomm had to consult with such businesses under the principles of good faith and integrity, and the range of consultation had to include but should not be limited to the contract provisions that the its consultation parties considered unfair according to this disposition, and the content of consultation could not include any restrictions that prevent its consultation parties from resorting to the court or an independent third party for arbitration to solve disputes. At the same time, after receiving the disposition, Qualcomm had to report to the FTC every six month the progress of its consultation with the above parties, and report the consultation results to the FTC 30 days after the revised or new contracts were signed.