Aug. 10, 2018

The Taiwan Fair Trade Commission ("TFTC") and Qualcomm Incorporated ("Qualcomm") has, under the direction of the joint panel of the Intellectual Property Court ("IP Court") to seek settlement, reached a litigation settlement with respect to the TFTC Decision Kung Ch'u Tzu No. 106094 dated October 20, 2017 regarding the dispute of exercising patent rights ("TFTC Decision").

In accordance with the settlement terms, Qualcomm agrees to make behavioral commitments to domestic handset manufacturers and chip suppliers, and has a reporting obligation to the TFTC with respect to the implementation status; Qualcomm agrees not to contest the fine amount of NTD 2.73 billion that has already been paid and commits to undertake commercial initiatives over a five-year period in Taiwan. More information is provided below.

I. According to the TFTC, Qualcomm agrees to abide by and implement the behavioral commitments relating to licensing cellular standard essential patents ("Cellular SEPs") to the Taiwanese handset manufacturers and other behavioral commitments should it choose to license Cellular SEPs to Taiwanese chip suppliers; thus, such has addressed the antitrust concern on Qualcomm's SEP licensing practices as stated in the TFTC Decision.

1. Renegotiation of the license terms in good faith: Qualcomm commits to engage in good faith renegotiations over terms in the patent license agreement between a licensed Taiwanese handset manufacturer and Qualcomm if that the manufacturer alleges terms were coerced and unreasonable. The licensed Taiwanese handset manufacturer and Qualcomm may also agree to other neutral dispute resolution procedures such as court or arbitration to resolve such renegotiated terms.
2. No termination of chip supply during the negotiation: If the licensed Taiwanese handset manufacturer continues to perform its obligations under its supply and licensing agreements and acts in good faith in the renegotiations, Qualcomm agrees that it will not terminate or threaten to terminate the supply of cellular modem chips to the manufacturer during the renegotiation or dispute resolution process.
3. Non-discriminatory treatment with respect to the licensing of Cellular SEPs: Qualcomm commits to treat Taiwanese handset manufacturers in a non-discriminatory manner as compared to similarly situated non-Taiwanese handset manufacturers with respect to its Cellular SEPs licensing program.
4. Treatment of Taiwanese chip suppliers: Qualcomm agrees that, upon the request of a Taiwanese chip supplier, it will offer an agreement. The agreement provides that Qualcomm will not assert any Cellular SEP claim against the chip supplier without first offering it a license to such claim on fair, reasonable and non-discriminatory (FRAND) terms and conditions.
5. No Agreements on the terms of rebates for exclusive dealings: In its chip supply agreements with chip customers, Qualcomm commits that it will not enter any agreements that provide for it to rebate royalties in exchange for the customer agreeing to use Qualcomm's cellular modem chips exclusively, and will not condition any contractual license discount or royalty rebate based on such chip customer buying a specific ratio of its total chip purchases from Qualcomm.
6. Periodical reports to the TFTC concerning the implementation status: Qualcomm also commits that, every 6 months for a period of 5 years, it will report to the TFTC concerning the implementation status on the behavioral commitments; in addition, Qualcomm will report to the TFTC concerning the completed amendments or new agreements with Taiwanese handset manufacturers or Taiwanese chip suppliers within 30 days after those agreements are signed.

The TFTC indicates that, the TFTC Decision required Qualcomm to commence, after the decision is issued, negotiation with competing chip companies and handset manufacturers in good faith and based on the principle of reciprocity and cease conducts having antitrust concerns. The TFTC believes that the behavioral commitments proposed by Qualcomm in this litigation settlement are sufficient to achieve the regulatory purpose of the TFTC Decision - maintaining free and fair competition.

II. The TFTC states that, with respect to the NTD 23.4 billion fine imposed by the TFTC Decision, Qualcomm agrees not to contest the fine installment amounts already paid, totaling NTD 2.73 billion, and commits to undertake commercial initiatives for investments in and collaborations with Taiwan over a five-year period. The investments include 5G collaborations, new market expansion, start-up and university collaborations, and the development of a Taiwanese center for operations and manufacturing engineering. Qualcomm will work closely with the TFTC, the MOEA, the MOST and other sister agencies in Taiwan to implement these initiatives and investments. The TFTC believes that the commercial initiatives and Qualcomm's commitments of the investments will be beneficial to enhance the overall economic interests and public welfare in the aspects of the semiconductor, cellular communication and 5G technology development in Taiwan.

In sum, after comprehensive consideration, the TFTC has resolved and passed this case by its Commissioners' Meeting dated August 8, 2018 and reach the first litigation settlement based on public welfare in the TFTC's history with Qualcomm before the IP Court on August 9, 2018. Accordingly, the TFTC Decision is replaced with the settlement. The TFTC expects this case would not only effectively form a healthy competition environment for the cellular communication industry but also bring a positive impact on the semiconductor, cellular communication and 5G technology development in Taiwan.