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 - Monday, February 9, 2015 - link

    So China doesn't believe in licensing IP? Shocking...
  • willis936 - Monday, February 9, 2015 - link

    Is it possible to read a 4 paragraph article and parse the information before making a stupid comment or are you only interested in looking like an idiot?
  • Samus - Tuesday, February 10, 2015 - link

    I dare not feed the trolls. But my comment is entirely correct. Qualcomm's bundling of IP licenses is a world-wide fact, it doesn't just happen in China. But China of all countries (sic) feels they don't need to pay what everyone else does. China is the kind of place that would sue Ford for making you get a Sunroof if you want leather seats, Comcast for making you get ESPN if you want Disney, and EVGA for giving you a free game download when you didn't want one in the first place.

    Bundling of packages isn't a new phenomenon, ESPECIALLY in the field of IP licensing. The fact is Qualcomm likely wouldn't charge any less to re-bundle the 3G/4G patents than the legacy way they are bundled now. The only reason....THE ONLY REASON they settled and paid up is because China is a market that will makes them tens of billions over the next decade. It's obvious to anybody that the Chinese government has Qualcomm in a position for strongarm entrapment.

    Damn, I fed the trolls. Well, with that said, you are a fucking idiot willis936.
  • DCide - Tuesday, February 10, 2015 - link

    I think it's true - that Qualcomm only agreed because the NDRC would make things worse for them if they didn't. Like bartering with a salesman who RAISES the price every time you dare to make him an offer!
  • garbagedisposal - Tuesday, February 10, 2015 - link

    And this differs from negotiations in other countries how?... right, it doesn't. way to show your ignorance and add no new ideas!
  • Yojimbo - Tuesday, February 10, 2015 - link

    Why isn't the bundling of non-essential IP with essential IP an anti-trust violation just like Microsoft's bundling of software into their operating system? In at least one sense, it seems more clear-cut against Qualcomm, because from the sound of this article, it seems there is absolutely no choice but to license this IP from Qualcomm, whereas there were other operating systems that people could opt for, they just had an extraordinarily low market penetration and were therefore disadvantageous.
  • Sushisamurai - Tuesday, February 10, 2015 - link

    Well, I think it's not anti-trust because competing companies with 3G+4G patents and Companies with SoCs are still "competitive" in that Android will still run and offer its services on said devices. regardless of 3G/4G/SoC. The differencse would be companies that offer an integrated SoC with modem and those that are separate and performance/cost (re:Intel/AMD)

    I can see QCOMM having an issue here due to China's own 4G LTE, since they didn't want to usurp LTE control/revenue over to foreign companies to expand their 4G; hence TDD vs FCC. Case and point would be regional devices don't support FCC LTE, eg: the Chinese Sony Z3 doesn't support FCC bands, even though it's on the same snapdragon 800 processor meaning a consumer wouldn't be able to use 4G on the device in the US, even though the SoC+Modem should support it. Implications would be Qualcomm would have to develop a new modem for TDD standards and pay the Chinese government for licensing fees, or Sony would have to buy a TDD modem and pay the Chinese government. The legal issue would be Chinese companies paying for a "bundle" who want to use the snapdragon SoC (because chinese SoCs don't sell on high end devices) and not "pay" for FCC support. Problem with this argument would be qualcomm could effectively bundle the SoC and modem for the same price as "webdoctors" highlighted below
  • Notmyusualid - Tuesday, February 10, 2015 - link

    Well said.
  • garbagedisposal - Tuesday, February 10, 2015 - link

    You're ridiculous. Whatever qcomm does in the rest of the world is irrelevant because they broke Chinese laws. NDRC wouldn't fine ford/espn/comcast for the reasons you stated because those are shitty reasons and the Chinese aren't as dumb as you think they are. How anyone can take you seriously is beyond me. Grow up.
  • Sushisamurai - Tuesday, February 10, 2015 - link

    For someone who's lived there extensively, I'd like to think I know fairly well about the corruption from first, second, and third hand experiences. The NDRC, or ANY chinese agency, would only fine another entity due to gross misconduct or for a power grab to shift it to chinese companies and away from foreign companies. Chinese Laws are broken all the time, even by the own municipal government and elected officials. Everyone's in on it - and it's been the norm for a while now.

    With that said, there doesn't seem to be gross misconduct on Qualcomm's part (aside from "pricing issues" aka currency conversion), so this seems really fishy. As for the "legal" system, you can't challenge a totalitarian state and expect to win.

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