South Korean regulators plan to fine Qualcomm Inc. $865 million for alleged anticompetitive behavior, the San Diego wireless technology specialist said in a statement issued Dec. 27.
Qualcomm (Nasdaq: QCOM) said it plans to dispute the decision from the Korea Fair Trade Commission and ultimately take the matter to the Seoul High Court.
“This is an unprecedented and insupportable decision relating to licensing practices that have been in existence in Korea and worldwide for decades,” Qualcomm said in its statement, adding that the South Korean commission reviewed but did not question the practices during a previous investigation.
Qualcomm owns a lot of wireless technology. It holds a big portfolio of patents related to wireless communications, which it licenses to foreign and domestic companies. License revenue was $7.7 billion in fiscal 2016.
Qualcomm said it expects a written decision and order from the South Korean regulators in four to six months. Once the commission issues its decision, Qualcomm will have 60 days to pay the fine. The company said the fine could ultimately be adjusted or refunded.
The commission made its decision Dec. 21 and the fine is the largest in the South Korean commission’s history, the commission said in a press release. An English translation of the document was supplied by Qualcomm. Though some English language material was available on the government agency’s website Dec. 28, a recent statement about Qualcomm was unavailable.
The regulator alleged that Qualcomm is not following the principle of FRAND — that is, licensing its patents in a fair, reasonable and nondiscriminatory manner.
In some circumstances, Qualcomm refused to license standard essential patents to Samsung, Intel and VIA, government regulators said. They also said that Qualcomm offered restricted licenses to MediaTek while asking for sensitive business information.
Qualcomm said it believes the regulators’ decision is “inconsistent with the facts and the law, reflects a flawed process and represents a violation of due process rights owed American companies under the Korea-U.S. Free Trade Agreement.”
Specifically, Qualcomm said, the decision “lacks a coherent theory of competition law violations.” Qualcomm added that the proposed fine is “insupportable and not reasonably related to the size of the Korean market.” In addition, Qualcomm said that “basic due process rights such as access to the case files and the right to cross examine witnesses were denied.”
Qualcomm has taken a financial hit in response to alleged anticompetitive behavior in Asia before.
Chinese regulators fined Qualcomm in February 2015 after 14 months of investigation into whether the San Diego company violated Chinese anti-monopoly laws. Qualcomm negotiated with regulators to decrease the amount of the fine and eventually paid $975 million. It also worked with the Chinese government to set a new schedule of reduced royalty rates for Chinese telecom companies.
Qualcomm’s other option would have been to exit the China market, but it in the end, China was too important to ignore, UC San Diego professor Peter Cowhey said in 2015.
The South Korea action has been a long time in coming. According to a timeline provided by the government, regulators began an investigation in late 2014, reached a conclusion in November 2015 and conducted seven hearings since July. Apple, Huawei, Intel, NVDIA, LG, MediaTek and Samsung all offered direct or indirect testimony in the case. Samsung and LG are South Korean companies.
Qualcomm reportedly asked to settle the case on Nov. 18, midway through the hearing process. The request was reportedly rejected.
Meanwhile, South Korea’s Supreme Court is considering a second case from 2009, concerning alleged abuse of market dominance by Qualcomm, which carried a fine in the hundreds of millions of dollars.
Despite the turbulence in South Korea, the country holds a central place in Qualcomm’s efforts to define its future. Qualcomm plans to participate in field trials for an advanced fifth-generation wireless network with SK Wireless, a telecom carrier in South Korea, in 2017. The network will be capable of exchanging data much faster than current 4G technology and have lower latency, allowing seemingly uninterrupted data service.
Qualcomm’s major growth push is also international. It will spend 2017 working to finish its acquisition of Netherlands-based NXP Semiconductors N.V. in a deal worth $47 billion. Qualcomm plans to pay $37.9 billion for NXP shares and take on NXP’s debt. Qualcomm plans to borrow to finance its acquisition, but it also has about $32 billion of cash to spend.
