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25 November, 2017
After two years and eight months of ex officio investigation, the FTC made a resolution on October 11, 2017, finding that Qualcomm had a monopolistic position in the CDMA, WCDMA and LTE mobile communications standard baseband chip market, and used the following unfair competition conducts to prevent competition and stabilized its commercial transaction model: (1) refusing to license its Standard Essential Patents (“SEPs”) to other chipmakers and further requesting them to sign an agreement with unfair provisions, (2) adopting a “no license, no chips” policy for cell phone manufacturers, and (3) signing an exclusive rebate with specific businesses. The aforesaid conducts jeopardized the fair competition order of the baseband chip market and violated Subparagraph 1 of Article 9 of the Fair Trade Act. Accordingly, the FTC imposed a fine of NT$23.4 billion on Qualcomm.
In order to eliminate unfair competition in the market and promote decent competition in the domestic mobile communications industry, the FTC also demanded Qualcomm to: (1) cease applicability of the anti-competion provisions in the already signed contracts with competitors in chipmakers, cell phone manufacturers, and relevant businesses, (2) notify rival chipmakers and cell phone manufacturers within a time period that they could negotiate relevant patent license agreements in accordance with the principles of good faith and reciprocity, and (3) report to the FTC the status of aforementioned negotiations.
Qualcomm’s long-running global patent licensing model is not only in violation of Taiwan’s Fair Trade Act as determined by the FTC, but also in violation of China Anti-Monopoly Law as determined by China’s National Development and Reform Commission (“NDRC”) in February of 2015. The NDRC found that the following conducts of Qualcomm constituted abuse of its monopolistic position in the CDMA, WCDMA and LTE mobile communications SEPs market and the baseband chip market: collecting unfairly high licensing fees, tying non-SEPs in wireless communications without justification, and forcing manufacturers to accept its “no license, no chips” policy. Accordingly, the NDRC imposed a fine of RMB$6.088 billion (about NT$30.5 billion) on Qualcomm. Furthermore, in December of 2016, the Korea Fair Trade Commission (“KFTC”) also found that Qualcomm violated its Fair, Reasonable and Non-discriminatory (“FRAND”) obligations by refusing to license SEPs to its rival chipmakers, forcing cell phone manufacturers to sign unfair license agreements as a condition of supplying chips, only providing whole-package patent licensing, forcing cell phone manufacturers to accept unilaterally authorized license agreements, and demanding for free cross-license. The aforesaid conducts of Qualcomm was determined to have abused its market position and constituted unfair competition conducts, and violated Korea Monopoly Regulation and Fair Trade Act. The KFTC imposed a fine of US$850 million (about NT$27.8 billion) on Qualcomm. In addition to the fine, the KFTC also demanded Qualcomm to negotiate in good faith with rival chipmakers and cell phone manufacturers to enter into FRAND license agreements, and to regularly report to the KFTC the status of negotiations.
In view of the above, Qualcomm’s global patent licensing model in the field of mobile communications has been found to be illegal after being investigated by multinational competition law authorities. We can see that the goal of the FTC’s decision is to demand Qualcomm to renegotiate relevant patent license agreements with rival chipmakers and cell phone manufacturers to fundamentally stop Qualcomm’s unfair competition conducts through amendment to the license agreements, so as to promote fair competition in relevant industries.
Therefore, the FTC’s decision indeed has a significant impact on domestic relevant industries such as cell phone chip suppliers, cell phone brands and cell phone manufacturers. This case is the first decision made by the FTC regarding SEPs license. The decision conforms to the law enforcement trend of international competition authorities, and provides relief for other domestic manufacturers suffering a similar unfair treatment.
For further information, please contact:
Matt Liu, Partner, Tsar & Tsai Law Firm
MattLiu@TsarTsai.com.tw
