Summary
Qualcomm Inc. has settled a 14-month antitrust investigation by the Chinese Government by agreeing to pay a record fine of US$ 975 million and reduce its patent royalty rates in China. This decision is expected to benefit local handset manufacturers such as Xiaomi and Huawei. Similar antitrust proceedings are ongoing against Qualcomm in the US, Europe, and South Korea, but the company maintains that these cases may not reach the same conclusions. The Chinese judgment, while significant, is financially manageable for Qualcomm, allowing it to retain most of its patent licenses. The resolution may also simplify Qualcomm’s royalty collection practices under new Chinese patent rules.
Overview
US chipmaker Qualcomm Inc. has concluded a 14-month antitrust investigation by the Chinese Government by agreeing to pay a record fine of US$ 975 Mn. In addition to the financial penalty, Qualcomm has been required to lower its royalty rates on patents used in China, a measure intended to benefit domestic handset manufacturers such as Xiaomi and Huawei.
Scope and Financial Impact
Qualcomm Inc. faces similar antitrust scrutiny in the United States and Europe. South Korea has also commenced an investigation into comparable monopolistic practices by the company. The Chinese penalty, though the largest of its kind, represents approximately 8 per cent of Qualcomm’s annual sales in China, a sum the company can absorb while retaining the majority of its patent licences. Following the announcement, Qualcomm Inc. shares rose 1.6 per cent to US$ 68.12.
Qualcomm has elected not to contest the National Development and Reform Commission (NDRC)’s finding that it infringed upon Chinese antitrust law. The company has reduced its 2015 share-price forecast by US$ 0.58 per share in light of these patent-related liabilities.
Industry and Regulatory Context
Commenting on whether the Chinese outcome would influence proceedings in the United States and Europe, Derek Aberle, President of Qualcomm Inc., said: “We fully respect their authority, but we don’t believe it’s likely that other agencies will necessarily meet similar conclusions.”
China represents a significant commercial opportunity for Qualcomm, given the rapid growth of 4G networks and demand for advanced smartphones. Some industry analysts suggest that the revised Chinese patent rules may simplify the process by which Qualcomm collects royalties on device patents and enters into new vendor contracts. The outcome of parallel proceedings in the United States, Europe, and South Korea, and their broader impact on Qualcomm’s global operations, remain to be observed.
Disclaimer
This article is for general information and does not constitute legal advice. Readers should consult a qualified attorney before acting on any matter discussed here.