The Fair Trade Commission decided at the 1353rd Commissioner’s Meeting on Oct.11 this year (2017) to impose a fine of NT$23.4 billion on the US company, Qualcomm Incorporated(hereinafter referred as Qualcomm) for its violation of Subparagraph 1 of Article 9 of the Fair Trade Act for abusing its monopolistic status in the market of baseband chips that comply with CDMA, WCDMA and LTE mobile communications standards. Qualcomm blocked competition by refusing to license its standard-essential patents to other chipmakers and further requesting to sign an agreement with unfair provisions. In addition, Qualcomm blocked competition by adopting a “no licence, no chip” policy and offering an exclusive rebate to some cell phone company. The above mentioned overall business practices unfair conduct to directly or indirectly bar other enterprises from competing and obstruct competition in the baseband chip market. In addition to the fine, the FTC also demanded that Qualcomm cease (1) applying stipulations in already signed contracts to require competitors to provide sensitive information with regard to chip prices, customers, sales volumes and product model numbers; (2) applying stipulations in already signed component supply contracts to stop supplying chips to cell phone makers obtaining chips from suppliers without authorization to use the company’s patents; and (3) applying stipulations in already signed contracts to offer discounts to businesses accepting exclusive dealing terms.
The FTC also demanded that Qualcomm notify rival chipmakers and cell phone manufacturers in writing within 30 days after receiving the disposition that they could within 60 days after receiving the notification present an amended version of the patent-licensing contract or a new contract and Qualcomm would negotiate in accordance with the principles of good faith and reciprocity. The range of negotiation would be covering but not limited to contract provisions considered unfair as stated in the disposition and Qualcomm could not restrict the other parties from resorting to litigation or arbitration by an independent third party to solve discrepancies. Furthermore, Qualcomm should to report to the FTC the results of negotiations every six months after receiving the disposition as well as present the amended patent-licensing contracts or new contracts within 30 days after they were completed.
The FTC initiated an ex officio investigation in mid-February 2015. As Taiwan is a major cell phone manufacturing country with a complete supply chain from chip production, cell phone OEM to sales of cell phones from different makers, the aspects involved were extensive. The investigation covered cell phone producers, chip suppliers and communications equipment businesses in and outside the country (including companies with established brand names and OEM businesses), more than 20 in total. At the same time, the FTC also solicited opinions from the competent authority of the industry and related research institutes as well as exchanged ideas with the competition authorities of other countries.
With mobile communications being a type of wireless communications, end devices (cell phones) and key built-in components complying with standard communication protocols were needed to achieve the purpose of voice and data transmission. A baseband chip was one of the key components allowing mobile communications. When 3G mobile communications services were launched in 2005 in Taiwan, the mainstream standards included CDMA and WCDMA. Then, when the 4G era began in 2014, the mainstream standard was LTE. The communications standards of different generations were not substitutable but had the function of downward compatibility. However, the licensing of different technical standards was still required to produce various mobile communications baseband chip products. In this case, the production and sales of mobile communications baseband chips were closely associated with the patents on CDMA, WCDMA and LTE mobile communications standards.
Qualcomm was in possession of a considerable number of standard essential patents on CDMA, WCDMA and LTE mobile communications standards. The company was also a monopolistic business in the CDMA, WCDMA and LTE mobile communications standard baseband chip market. With its dominating status in the mobile communications standard market, the company refused to license its standard essential patents to rival chipmakers out of the intention to bar competition and the cost of management for cell phone makers and rival chip makers increased as a result of the licensing fees imposed by the company. Cell phone makers could not acquire baseband chips without signing patent-licensing contracts and thus had no choice but to accept Qualcomm’s licensing terms. In the meantime, Qualcomm also offered licensing fee discounts to its main trading counterparts on the condition that they accept exclusive dealing terms. This made competitors who were unable to obtain licensing lose or have less opportunities to make transactions and become unable to engage in price competition. Competitors of Qualcomm in need of the standard essential patents of Qualcomm but unable to obtain licensing had no choice but to sign with Qualcomm contracts that required them to provide sensitive business information regarding their chip prices, customers and sales volumes. In other words, by refusing to license its patents to competitors unless restrictive stipulations were established, refusing to supply baseband chips unless licensing contracts were signed, and offering licensing fee discounts to specific businesses provided that they accepted the company’s exclusive dealing terms, Qualcomm achieved the purpose of pushing up the prices of baseband chips supplied by its competitors and reducing the interest of trading counterparts in purchasing from such competitors. As a consequence, the company blocked its rival businesses from competition and further solidified its dominance in the relevant market. Evidently, Qualcomm’s overall business practices weakened competition in the baseband chip market and had a serious impact on trading order in the country.
The violation lasted at least seven years. During the period, the licensing fees that Qualcomm collected from businesses in the country totaled around NT$400 billion and the baseband chips that domestic enterprises purchased from the company amounted to US$30 billion. As the sales exceeded NT$100 million, the violation had to be considered serious. Meanwhile, after assessing the motive and purpose behind the unlawful conduct, the illegitimate profit expected, the impact of the conduct on the CDMA, WCDMA and LTE standard baseband chip market, the duration in which trading order was jeopardized, the profit actually obtained from the unlawful act, the business scale, sales and market status of the company, past violations as well as the company’s level of remorse and cooperativeness throughout the investigation, the FTC imposed the aforementioned fine on the company according to the “Regulations for Calculation of Administrative Fines for Serious Violations of Articles 9 and 15 of the Fair Trade Act”. The fine is the largest amount the FTC has ever imposed since it was established. The FTC hopes that the sanction can deter further attempts by businesses to engage in unfair competition and promote decent competition in the mobile communications industry.