(By You Yunting) As from October 2013, the National Development and Reform Commission (the “NDRC”) starts the anti-monopoly probe into the world’s biggest cellphone chip maker, Qualcomm (NASDAQ: QCOM) , and makes in-depth investigations and discussion with tens of cellphone manufacturers and baseband chip manufacturers at home and abroad. Recently, the NDRC determined that Qualcomm holds a dominant position in the markets of standard essential patents (“SEPs”) licensing in relation to CDMA, WCDMA and LTE wireless communication and the baseband chip market, and that Qualcomm be fined 6.088 billion yuan in the violation of the Anti-Monopoly Law. Today we will introduce the punishment decision and make comments.
Introduction to the Case:
Respondent: Qualcomm Incorporated
Reference: 发改办价监处罚[2015] 1号
I. Why does Qualcomm hold a dominant position?
1. Qualcomm holds a dominant position in the markets of SEPs licensing
The NDRC found that under the following facts and reasons, Qualcomm holds a dominant position:
a Qualcomm occupies 100% shares in the market of SEPs licensing, without any competition. Pursuant to Item 1, Paragraph 1, Article 19 of the Anti-Monopoly Law, Qualcomm may be assumed to hold a dominant market position in the markets of SEPs licensing.
b Qualcomm holds the control in the market of SEPs. On the grounds and evidences that Qualcomm holds the SEPs licensing in relation to CDMA, WCDMA and LTE wireless communication which is the key factor in entering into the SEPs, Qualcomm can control charged royalty fees, permitted conditions, and can obstruct or affect other operators’ capability to enter into the market of SEPs licensing, to some extent.
c TP. Terminal Provider relies on high levels of SEPs licensing owned by Qualcomm. The manufacturing and sales of products in relation to CDMA, WCDMA and LTE wireless communication must use the combination of SEPs licensing. Therefore, on the reasoning that TP. Terminal Provider relies on high levels of SEPs licensing, Qualcomm shall have a dominant position.
d It is difficult for other operators entering into the market of SEPs licensing. Where wireless communication standards are a technical one to realize compatibility and intercommunication, when a patent becomes a necessary technique in relation to CDMA, WCDMA and LTE wireless communication, other competitive technology must be excluded in the technology standards. Therefore, it is hard for other operators to enter into a relevant market.
2. Qualcomm holds a dominant position the baseband chip market
The NDRC found under the following facts and reasons, Qualcomm holds a dominant position in the baseband chip markets of CDMA, WCDMA and LTE:
a Qualcomm has 50% or higher market share in the relevant market. According to records, the sales of Qualcomm in the baseband chip markets of CDMA, WCDMA and LTE respectively occupies 93.1%, 53.9% and 96%, all more than 50%. Pursuant to Item 1, Paragraph 1, Article 19 of the Anti-Monopoly Law, Qualcomm may be assumed to hold a dominant market position in the above baseband chip markets.
b Qualcomm holds the control in the baseband chip markets. According to records, Qualcomm always keeps the leading position in the baseband markets. From 2007 to 2013, Qualcomm ranks the first position in the worldwide sale of baseband chips for the six consecutive years, significantly higher than that of other competitors. Therefore, in the baseband chip market, Qualcomm has to some extent the power to control the market.
c Wireless Communication Terminal Provider relies on high levels of Qualcomm’s baseband chip. On a global scale, Qualcomm host the largest market shares in the baseband chips markets of CDMA, WCDMA and LTE, and Wireless Communication Terminal Provider’s option are constrained because of fewer baseband chip manufacturers, a high dependency on Qualcomm.
d The baseband chip markets have high barriers and difficulties to entry. The development and productions of baseband chips requires high technologies, a technology-intensive industry, so that potential operators find hard to enter into the above market. Therefore, it is difficult for other operators to enter into and efficient participate in the market.
II. How does the NDRC determine Qualcomm the abuse of dominant market position?
1. Qualcomm charges unfairly excessively high royalties
Qualcomm violates Item 1, Paragraph 1, Article 17 of the Anti-Monopoly Law, engaging in selling commodities at unfairly high prices, with the following facts and reasons:
a Charging royalties fees for expired wireless communication standards
The NDRC found that some wireless communication standards patents, including certain number of key patents, have expired by the January 1 2014.
b Demanding the licensee reverse license
The NDRC found, in some necessary wireless patents, Qualcomm forces some licensees to do free for their non-standard wireless patents, demands some licenses reverse license, and requires some licensees who hold certain patents to claim rights or file lawsuits against Qualcomm and its clients. Qualcomm takes non-substantial consideration and evaluation on some licensee’s value in negotiation, and refuses to pay reasonable fees for reverse license patents.
Qualcomm should not completely deny the patent values of the licensees, for purpose of protecting Qualcomm’s business and baseband chips from patent infringement. Qualcomm uses its dominant market position in the markets of SEPs licenses and in the baseband chip markets to demand the licensees providing their own patents for Qualcomm and its clients for free, and to restrain their rights in claiming and filing lawsuits.
2. Qualcomm conduces tie-in sales of non-wireless communication standards patents without justified reasons
The NDRC found that, non-wireless communication standards patents are different and independent from wireless communication standards patents, not-affecting their applications and values in separate sales. And it is a common practice in defining the scope of wireless communication standards patent in the license contracts
Therefore, what Qualcomm behaviors are in violation the Intem 5, Paragraph 1, Article 17 of the Anti-Monopoly Law, conducing tie-in sales without justified reasons.
3. Adding unjustified conditions in selling baseband chips
Terminal Provider shall pay fair and reasonable royalties fees in the use of Qualcomm’s patents. However, Qualcomm forces some licensees to do free for their non-standard wireless patents, demands some licenses reverse license, and requires some licensees who hold certain patents to claim rights or file lawsuits against Qualcomm and its clients. Qualcomm takes non-substantial consideration and evaluation on some licensee’s value in negotiation, and refuses to pay reasonable fees for reverse license patents. The above-behaviors are unreasonable. The licensee are entitled to claim rights and file lawsuits but Qualcomm just abused its dominant market position to restrain their rights and interest without justified reasons.
Based on the above reasoning, Qualcomm’s behaviors violates the Item 5, Paragraph 1, Article 19 of the Anti-Monopoly Law, engaging in adding other unreasonable conditions to the trading for the operator holds a dominant market position.
To be updated
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