China Fines Qualcomm $975 Million for Anti-trust Violations
by Ryan Smith on February 9, 2015 8:15 PM EST- Posted in
- Smartphones
- Qualcomm
- Mobile
- Legal
Word comes out of China this evening that an ongoing anti-trust investigation into Qualcomm has come to an end. Ruling against Qualcomm, China’s National Development and Reform Commission has found Qualcomm guilty of violating Chinese anti-trust laws, and has fined the company $975 million alongside imposing new licensing rules on the company.
At the crux of the matter has been Qualcomm’s patent licensing program in China, portions of which the NDRC has asserted violate Chinese law. As Qualcomm owns a number of standards-essential 3G and 4G patents, Chinese firms must in turn license these patents for their phones and cellular-enabled tablets. To that end, Qualcomm’s bundling of various patents has been under extreme scrutiny, particularly the bundling of other patents with the standards-essential 3G and 4G patents, a process that would force Chinese manufacturers into paying more to license additional patents they did not need.
As a result of the NDRC’s ruling, Qualcomm is being fined 6.088 billion yuan ($975 Million) and is having new royalty rules imposed. Resolving the immediate problems that lead to the ruling, Qualcomm will now be required to offer the standards-essential 3G and 4G patents separately, putting an end to the bundling practice. Meanwhile new royalty rates and procedures are also being set; Qualcomm’s rates in China will be similar to the rest of the world, and the rates will be calculated against 65% of the total value of the device.
Overall the $975 million fine is the largest in Chinese history, and while it will put a dent into the company’s pockets in the short-run, it is still less than half of the company’s $1.97B net income for their most recent quarter. More significant is the ongoing revenue impact from the reduced licensing revenue, which has already caused the company to reduce their 2015 earnings forecasts by $0.58 per share. More than half of Qualcomm’s net income comes from royalties from patent licensing, so anything that impacts their patent licensing business has a significant impact on their bottom line.
Finally, Qualcomm will not be appealing this fine, having entered into it as part of an agreement with the NDRC to end the anti-trust investigation.
Source: Bloomberg
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Samus - Tuesday, February 10, 2015 - link
You are all disillusion if you think fining Qualcomm a BILLION dollars for bundling IP licensing isn't in any way a form of corruption and strongarming within the Chinese government.And fine, need some non-consumer "vendor-vendor" examples?
Cell phone manufactures subsidizing devices to vendors for exclusivity. Isn't this "anti-competitive"? It happens all over the world. Even in China, the iPhone is exclusive to one carrier.
Getrag licensing to Quaff and EMCO gears for 3rd party differential and final drive products, I know they had to license the Getrag IP "portfolio" because I worked for EMCO gears.
And that's the problem, a lot of IP licensing is closed-door/non-public, but assume, always, that licensing is bundled and not specific patent by patent. It simplifies the entire process and is unrealistic to license ONE patent in a mult-billion dollar, constantly evolving, high tech industry. And it is a complete assumption that licensing patent by patent would save the licensee money because it would result in a lot more legal work by the licencor, and legal departments don't work for free.
I apologize I didn't put more than 5 seconds of thought into my examples. They were analogies, not perfect apples-to-apples comparisons. I'm sure a quick google search would net you a wealth of bundled IP licensees. (yep, just did it, nVidia and AMD cross license bundled IP, AMD and Intel license bundled IP, etc. )
China is the most corrupt place I've ever been.The only place I've been told by a government employee to bribe another government employee, was in Beijing. They make a few African and South American countries I've visited a walk in the park when it comes to getting tickets to an event or exiting the country with what "they" claim is forbidden for export, especially electronics. I've even been forced to leave a PDA behind that I brought with me FROM the USA because they claimed I couldn't bring it back and I didn't properly disclose it on my customs form. They said I could keep it for apx $400 USD. The bribe was triple what the Sony Clie was worth. It's only gotten worse.
Further, I have a client who wanted to open a factory in China for rope, and a utility was bribed by a competitor to not supply him power. The utility wanted 25 million dollars to "turn the lights on." He dropped the plans and abandoned the construction, later opening the factory in another city.
Sushisamurai - Wednesday, February 11, 2015 - link
Amen. Man, if u saw the gov. corruption that was for the billions of RMB investment for the development of the 2014 World Asia games (total of 5 buildings if I recall) behind closed doors u'd be so shocked. I sure was.willis936 - Tuesday, February 10, 2015 - link
Every example you listed is a vender-consumer scenario. Not vendor-vendor IP licensing. You wouldn't hold a company accountable for failing to comply with anti-trust laws for how they bundled their consumer products.name99 - Friday, February 13, 2015 - link
Aren't the Chinese entitled to make their own laws?The issue is not what QC wants the world to look like, or what it does in the rest of the world. The issue is: "WHAT DOES CHINESE LAW SAY?"
QC has the choices:
- don't sell in China OR
- sell in China following Chinese law.
There isn't some special "follow the law as we wish it were" third option.
I don't see any QC defenders here DENYING the central point, that QC willingly refused to follow Chinese law. THAT is the point. Whether or not you like the law is not the point.
Most of us don't like plenty about US patent law, but we aren't arguing that a company can just decide to ignore that patent law if it feels like it.
Sushisamurai - Saturday, February 14, 2015 - link
That's very true. If I were QC, i would boycott China - sure I would lose the "potential" market share and profits (or what's left of them after this), but it'd also throw their domestic mobile manufacturer's to the dark ages - something that QC doesn't seem to realize. China needs QC more than QC needs China.webdoctors - Tuesday, February 10, 2015 - link
QCOM has been doing this for 5+ years. That's how they cornered the cellphone and to some extent tablet market for North America. They'd sell the modem for $40 or the integrated modem+AP SoC for $40. It was a no-brainer to get the SoC from QCOM since otherwise you'd be paying double the cost going with any other vendor. This only changed recently with Samsung using their Exynos processor, and Apple being the exception who were willing to pay the extra cost for just the modem.We've seen this with Samsung, LG, Xioami using Qualcomm SoCs when they needed the QCOM modem, and other SoCs when they didn't. The monopolistic prices forced the design choices.
IANAL so I don't know if this is legal in Europe/N. America/Asia, but I assume it was, otherwise it would've been stopped long ago. I guess someone forgot to bribe someone in China....as this HW bundling has been going on long before QCOM did it...its called the combo pricing
Klug4Pres - Tuesday, February 10, 2015 - link
Two disturbing trends are, firstly, the poor behaviour of corporations, and secondly the rampant bleeding of corporations by powerful nation states or trading blocs.We need a revolution in corporate and governmental transparency, and to develop a strong ethical culture in both spheres. Unfortunately, there is no sign of this happening.
Rather, since everybody who can cheat or take a shortcut seems only too happy to do so, we all want to get in on the act.
TT Masterzz - Tuesday, February 10, 2015 - link
One part I was not able to understand was that even though the percentage of patent fees has remained unchanged,only 65% of total value of the smartphone will be used for calculating patent fees. So in reality there has been a reduction in patent fees. Chinese manufacturers are already able to compete very fiercely with really thin margins. Reduction in patent fees will help the compete better I believe.ABR - Wednesday, February 11, 2015 - link
While the news byte is interesting, this is the second mostly content-free article I've read about this event and it's getting a little old. Is the content of the dispute that much a secret that it can't be summarized for a report? I see vague stuff about 3/4G bundling and device value calculations. How are the terms they are offering to Chinese companies different from elsewhere? Why is this a matter for legal intervention instead of a case of business negotiating position? How is it different from the style of tactics that Intel applies basically everywhere? (If the latter's behavior with Bay Trail et al. doesn't qualify as dumping I don't know what does.)