NDRC Orders Qualcomm Inc. to Make Rectification and Pay a Fine of RMB 6 Billion for Monopoly
Source: NDRC

Recently, the National Development and Reform Commission (NDRC) has dealt with Qualcomm's abuse of market dominance to eliminate and limit competition in accordance to relevant laws, ordered Qualcomm to stop illegal acts, and imposed a fine of RMB 6.088 billion ($975 million, accounting for 8% of Qualcomm's sales revenue in China in 2013) on the company.

In November 2013, the NDRC started anti-monopoly probes into Qualcomm based on tip-offs. During the probe, the NDRC conducted in-depth investigations into dozens of mobile phone manufacturers and baseband chip manufacturers in and out of China, obtained evidence about Qualcomm's price monopoly, listened closely to Qualcomm's representations and pleadings, and undertook research on Qualcomm's behaviors that constitute the abuse of market dominance prohibited by the Chinese Anti-Monopoly Law.

After investigations and analysis, the NDRC found that Qualcomm dominated the CDMA, WCDMA, and LTE wireless communication standard essential patent (SEP) licensing market and the baseband chip market and committed the following breaches that constitute the abuse of market dominance:

1. Charge unfair and excessively high patent royalties. Qualcomm refused to provide a patent list for its customers in China, and out-of-date patents were included in the licensing package and charged. Moreover, Qualcomm asked for free licenses from Chinese licensees' patents and refused to deduct the patent value from the royalties that it charged the licensees or provide other equivalent fees. In addition, Qualcomm charged its Chinese licensees (who were forced to accept unessential patent package licensing) royalties at the net wholesale price of the mobile devices and a fairly high royalty rate. The combination of these factors led to excessively high royalties.

2. Bundle non-wireless-communication-SEP licenses with wireless communication SEP licenses without any justifiable causes. Qualcomm did not separate wireless communication SEPs and non-wireless-communication-SEPs or license these patents to customers in different way. Instead, it used its dominant position in the wireless communication SEP licensing market to bundle the sale of non-wireless-communication-SEP licenses. As a result, some Chinese licensees of Qualcomm were forced to buy non-wireless-communication-SEP licenses from Qualcomm.

3. Add unreasonable conditions in the sale of baseband chips. Qualcomm added "signing a license agreement and not challenging unreasonable terms in its license agreement" as conditions for supplying Qualcomm baseband chips to Chinese licensees. If potential licensees did not sign the patent licensing agreement containing the aforesaid unreasonable terms or a dispute arose from the patent licensing agreement and licensees filed a lawsuit, Qualcomm refused to supply baseband chips to the licensees. Because Qualcomm dominated in the baseband chip market and Chinese licensees depended greatly on its baseband chips, Chinese licensees had to accept the unfair and unreasonable patent licensing conditions that Qualcomm added in the sale of baseband chips.

Qualcomm's preceding actions have eliminated and limited market competition, prevented and suppressed technological innovation and development, damaged consumers' interests, and violated Article 17 of the Chinese Anti-Monopoly Law, which stipulates that business operators with a dominant market position are prohibited from selling products at unfairly high prices, implementing tie-in sales or imposing other unreasonable trading conditions at the time of trading without any justifiable causes.

During the anti-monopoly probe, Qualcomm cooperated in the investigation and actively put forward a package of rectification measures. These rectification measures are taken for certain wireless SEP licenses, including: (1) for licenses of Qualcomm's patents for mobile phones sold for use in China, Qualcomm will charge royalties at a rate of 65% of the net wholesale price of the mobile phones; (2) Qualcomm will provide a patent list and will not charge royalties for out-of-date patents when licensing patents to Chinese licensees; (3) Qualcomm will not ask for free licenses from Chinese licensees' patents; (4) Qualcomm will not bundle non-wireless-communication-SEP licenses with wireless communication SEP licenses without any justifiable causes; (5) Qualcomm will not condition the sale of base band chips on the chip customer signing a license agreement with terms that the NDRC found to be unreasonable or on the chip customer not challenging unreasonable terms in its license agreement. The package of rectification measures submitted by Qualcomm almost met the NDRC's decision and rectification requirements. Qualcomm also expressed its willingness to continuously increase its investment in China to achieve better development. The NDRC welcomed Qualcomm's continuous investment in China and allowed Qualcomm to charge reasonable royalties for the use of its patented technologies.

As Qualcomm's monopoly was serious, brought about dramatic effects, and last for a long time, the NDRC ordered it to stop violations and imposed a penalty of 8% of its 2013 sales revenue in China in accordance with the Chinese Anti-Monopoly Law. This anti-monopoly action has stopped Qualcomm's monopoly, maintained the fairness of the market competition, and protected consumers' benefits.