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Europe hurls two antitrust allegations at Qualcomm

European Commission issues statements of objections, accusing US firm of pricing Icera out of the market, and of illegal exclusivity contract

It won’t be a happy holiday for Qualcomm, as the antitrust accusations mount up. The European Commission has sent two Statements of Objections to the US mobile chip giant, accusing it of paying a major customer to use its chipsets exclusively, and of selling its products below cost. Both would be in violation of European competition law and in the latter case, the tactic is said to have been aimed at putting UK-based start-up Icera out of business.

Icera, an innovator in the area of software-defined modems, attracted high levels of funding but failed to secure significant market share from Qualcomm. It was acquired by Nvidia in 2011 for $367m, a part of the larger firm’s bid to create a smartphone system-on-chip. Nvidia, in turn, failed to do much damage to Qualcomm and other modem giants and decided to wind down the product line, and the Icera activities, earlier this year.

The EC announced that it had informed Qualcomm of its “preliminary conclusions that the company illegally paid a major customer for exclusively using Qualcomm chipsets and sold chipsets below cost with the aim of forcing its competitor Icera out of the market”. “I am concerned that Qualcomm’s actions may have pushed out competitors or prevented them from competing,” commented Margrethe Vestagar, the EC commissioner in charge of competition policy.

The US firm says any agreements were disclosed and that it will prove the allegations false.

Qualcomm has spent most of its career staying on the right side of antitrust authorities, despite high levels of criticism of its licensing models. Ironically, the formal investigations are happening at a time when the firm’s stranglehold on core wireless technologies is loosening. Although it retains significant patent positions in LTE and Wi-Fi, it does not have the level of control it enjoyed in 3G, which was based on the mobile CDMA technologies Qualcomm invented.

The improved ability for device makers to source modem chips from other vendors has weakened Qualcomm’s market position, though it remains a clear market leader, and may have made it more vulnerable to antitrust attacks. A string of these has been launched over the past few years. This year, Qualcomm settled the most significant for its business prospects, agreeing with Chinese authorities to accept a $975m fine and lower levels of royalties. But last month, South Korea made a fresh round of allegations, claiming Qualcomm’s practices in seeking royalties from handset makers violated competition laws. There are also pending probes by the US Federal Trade Commission, also focused on patent licensing, and this week, Taiwanese authorities asked Qualcomm for information about licensing, a possible first step towards an investigation.

The European Commission’s interest is more centered on chip sales and pricing. The Statements of Objections are the first formal step in an EC investigation and follow the commencement of the probes in July. They effectively indicate that the Commission’s competition authority has come to a preliminary conclusion that Qualcomm may be guilty of these violations. The US company says it will prove the allegations false, and it has three months to respond on the exclusivity issue and four months on the pricing. If it fails to convince the Commission, further proceedings may be taken, with the potential for fines to be imposed, worth up to 10% of Qualcomm’s annual sales for each offence. In many cases, the amount of the fines can be mitigated if a company agrees to change its business practices.

The first statement of objections alleges that Qualcomm has, since 2011, paid significant amounts to a major smartphone and tablet maker on condition that the OEM uses Qualcomm baseband chipsets only. The vendor is not named, but the EC statement says the exclusivity contract is still in force. The second relates to allegedly pricing Icera out of the market. Both have emerged from a broader investigation of possible “abuses” in 3G and 4G technology licensing, announced in 2015.

“Qualcomm has been cooperating with the Commission since the outset of these matters, and now that we’ve received the Statements of Objections, we welcome the chance to formally respond,” said Qualcomm general counsel Don Rosenberg. “We look forward to demonstrating that competition in the sale of wireless chips has been and remains strong and dynamic, and that Qualcomm’s sales practices have always complied with European competition law.”

Separately, Qualcomm said that the Taiwan Fair Trade Commission has requested information and initiated an investigation into whether its patent licensing arrangements violate the country’s fair trade law. “This matter is in its early stages,” stated the US firm, while insisting that it “believes it complies” with Taiwanese law and that it will cooperate with the authorities. The Taiwanese FTC started looking into Qualcomm in February.

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