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European Commission fines US chipmaker Qualcomm for illegally shutting out rivals from the market

  • United Kingdom
  • Technology, Media and Telecoms

02-02-2018

On 24 January 2018, the European Commission (“Commission”) fined Qualcomm €997 million for abusing its dominant position in breach of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”). The Commission found that Qualcomm paid Apple to use Qualcomm’s chips exclusively in the “iPhone” and “iPad”. The fine represents approximately 4.9% of Qualcomm’s turnover in 2017, reminding businesses of the gravity of the consequences of engaging in anti-competitive practices.

European Competition Commissioner Margrethe Vestager said that “Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance” and its behaviour “denied consumers and other companies more choice and innovation”.

Qualcomm’s agreement with Apple

US company Qualcomm supplies and manufacturers LTE baseband chipsets, which enable smartphones and tablets to connect to cellular networks. They are used both for voice and data transmission, part of a sector which Margrethe Vestager notes as having a “huge demand and potential for innovative technologies”.

In 2011, Qualcomm and Apple entered into an agreement in which Qualcomm committed to make significant payments to Apple on the condition that the company would exclusively use Qualcomm chipsets in its “iPhone” and “iPad” devices. This agreement was extended until 2016, and the Commission found the duration of the infringement established in the decision was around five and a half years.

As a leader in the manufacturer of smartphones and tablets, Apple was a key customer of Qualcomm and the Commission took into account the influence Apple may have had over other customers’ and manufacturers’ procurement and design choices. The agreement with Qualcomm meant that if Apple decided to switch suppliers, it would have had to repay a large part of the payments that it had received in the past to Qualcomm. Internal documents showed that Apple considered switching its supplier of baseband chipsets to Intel, but the exclusivity obligation in its agreement with Qualcomm was a material factor which influenced Apple’s decision against doing so, until the agreement came to an end.

The Commission’s decision, therefore, concluded that Qualcomm held a dominant position in the global market for LTE baseband chipsets (amounting to more than 90% over the majority of the period investigated) and Qualcomm had abused this market dominance by preventing rivals from competing in the market.

Qualcomm remains confident that it did not violate any European competition rules and its general counsel, Don Rosenberg, has indicated that the company will immediately commence the process for appealing the Commission’s decision.

Comments

This is not the first time that Qualcomm has been investigated for antitrust activities. In 2015, the Chinese authorities imposed a record fine on Qualcomm, with Taiwan and South Korea later also imposing heavy fines for violations of antitrust rules.

The latest fine in a string of investigations by competition authorities does not yet represent the end of the scrutiny into Qualcomm’s practices. The Commission’s investigation into Qualcomm’s pricing practices with regard to certain chipsets, in particular, whether Qualcomm engaged in predatory pricing by selling these chipsets at prices below costs, remains ongoing. Separately, in a long-running dispute in which Qualcomm accused Apple of infringing its patents, Apple has accused Qualcomm of patent infringement in a countersuit filed in the US.

The Commission examined the allegation regarding Qualcomm’s exclusivity agreement with Apple as a matter of priority and the fine imposed, representing nearly 5% of Qualcomm’s turnover in 2017, indicates that the Commission regarded the infringement as being particularly serious. A statement by the Competition Commissioner, Margrethe Vestager, noted that Qualcomm’s conduct meant that Qualcomm avoided competing on the merits, shutting rivals out of the market and denying customers the benefits of choice and innovation. The level of the fine was also intended to send a clear deterrence message to other market players and is a further demonstration of the Commission’s focus on practices that may impede the potential for innovative technologies to deliver customer benefits.

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