Qualcomm Facing Fine of $853 Million by South Korea

A  regulator in South Korea said it will be fining Qualcomm close to $853 million for alleged violations of antitrust laws, the highest penalty of its kind handed to one company, as the chipmaker from the U.S. faces worldwide scrutiny over its business of patent-licensing.

After an investigation of three years, the Korea Fair Trade Commission announced Wednesday that Qualcomm had breached its antitrust law through limiting competitive chipmakers the access to its patents.

The company forced makers of mobile phones into license agreements that were unfair through refusing to supply phone chips crucial to the making of the devices to those in disagreement with Qualcomm’s terms, said the regulator.

In addition, the supplier of chips used its position in the market as a tool for leveraging its negotiations with the makers of mobile phones to force said makers into accepting conditions that were not fair, said secretary general of the commission Shin Young-son.

Qualcomm, based in San Diego, said it is planning to contest the regulator’s decision rejecting a suggestion it had hindered other suppliers of chips the ability to sell.

The chipmaker said its practices of licensing its patents have been in existence in Korea and across the globe for decades. It added that the regulator did not question them previously. The practice Qualcomm has of licensing at the mobile device level is a norm across the industry said the company’s general counsel.

Qualcomm’s business is divided into its unit that makes chips and its unit for patent licensing. The company has revenue of over $23 billion during fiscal 2016 of which more than 34% was from patent licensing.

Qualcomm charges makers of handsets as much as 5% royalty based upon device’s wholesale price. The company does not typically issue its licenses for wireless technology to other makers of chips.

Fewer than 3% of the revenue from licensing was from royalties paid by handset makers in Korea during its fiscal year of 2016 then ended September 25, said a company spokesperson.

South Korea’s LG Electronics and behemoth Samsung Electronic both use Qualcomm’s processor chips in their respective handsets.

In its decision, the regulator in South Korea said the royalty model for Qualcomm was not fair for makers of mobile handsets due to it requiring them to acquire comprehensive license for wireless technology, which includes ones they do not use.

In addition, it requires the same companies to provide their own patents to Qualcomm free.

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