European regulators hit Qualcomm with $1.23 billion fine over payments to Apple

European regulators hit Qualcomm with $1.23 billion fine over payments to Apple

ben January 25, 2018 0

Qualcomm has been fined $1.23 billion by Europe’s anti-monopoly regulator for paying Apple to use Qualcomm’s cellular radios.

  • The European Commission ruled that Qualcomm’s practices prevented competitors such as Intel from supplying 4G LTE radios to Apple for five years.
  • Qualcomm said the ruling is wrong and will immediately appeal.
  • This is the fourth global regulator to fine Qualcomm in the past three years. Qualcomm and Apple remain entangled in a bitter legal fight over patent fees.

Here is the full story:

European anti-monopoly regulators on Wednesday fined Qualcomm $1.23 billion for making payments to Apple in exchange for exclusively using Qualcomm smartphone radio chips in iPhones between 2011 and 2016.

Qualcomm said it disagrees with the decision and will immediately appeal to the General Court of the European Union.

The large fine comes as Qualcomm is embroiled in a fierce legal battle with Apple and global antitrust regulators over its business practices surrounding patent licensing.

The San Diego wireless company already has been fined by regulators in China, South Korea and Taiwan, and it’s facing a lawsuit from the U.S. Federal Trade Commission.

The European Commission ruled that Qualcomm abused its market dominance in 4G LTE baseband chips – which link smartphones to cellular networks. Qualcomm’s 4G LTE chip were exclusively used in iPhone 4 through iPhone 6 models.

Before the iPhone 4 was launched in 2011, Qualcomm signed a transition agreement with Apple where it would make payments to Apple on the condition that only its chips would power cellular connections in iPhones and iPads, according to the commission.

In various lawsuits, Apple and regulators have called these payments rebates, while Qualcomm has referred to them as incentive payments.

“Qualcomm paid billions of U.S. dollars to a key customer, Apple, so that it would not buy from rivals,” said European Union Commissioner Margrethe Vestager in a statement. “These payments were not just reductions in price – they were made on the condition that Apple would exclusively use Qualcomm’s baseband chipsets in all its iPhones and iPads.”

In pending lawsuits, the company has argued that Apple demanded the incentive payments and included the exclusivity language in the agreements itself.

“We are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers,” said Don Rosenberg, Qualcomm’s general counsel. “We have a strong case for judicial review.”

The European Union said this agreement, which was renewed in 2013 and expired in 2016, effectively shut out competitors and discouraged their investment in research and development — in part because Apple is a very large buyer of cellular baseband radios.

The agreement covers a period of time when Qualcomm had a significant technology lead in 4G LTE, which replaced slower 3G networks.

The company invested heavily in 4G technology during the 2008-2009 recession. It came out with a working chip well ahead of rivals such as MediaTek and Intel, which didn’t get competing 4G LTE products to market until 2014 and 2016, respectively.

Apple began buying Intel chips in 2016 for roughly half of its iPhone 7 models. The commission said Apple’s internal documents showed it delayed making the switch until its agreement with Qualcomm was about to expire.

According to the EU, the agreement made clear that Qualcomm would cease payments if Apple commercially launched a device with chips supplied by a rival. In addition Apple would have had to return to Qualcomm a large part of the payments it had received in the past if it switched suppliers.

The fine reflected the “gravity and duration” of Qualcomm’s anti-competitive practices, according to the commission. It amounted to 5 percent of the company’s $22.3 billion in sales last year.

“I think it is very large to be honest,” said Richard Pike, a competition/regulatory partner with the Constantine Cannon law firm in London, of the fine. “This is really quite steep.”

The maximum fine the commission could have imposed is 10 percent of sales, which is rare, said Pike.

In addition to its troubles with Apple and regulators, Qualcomm is currently fending off a hostile takeover bid from Broadcom and attempting to close its $38 billion acquisition of NXP Semiconductors to diversify its business beyond smartphones.

Since 2015, global antitrust regulators have fined Qualcomm $3.9 billion. Bernstein Research Analyst Stacy Rasgon said the regulatory scrutiny is a “wedge issue” for Broadcom in its efforts to gain control of Qualcomm’s board of directors.

“While Qualcomm believes they are in a temporary, albeit perfect, storm of customer and regulatory issues, Broadcom believes that the current problems are a harbinger of further headwinds to come, and that critical changes to Qualcomm’s business model and practices – likely unpalatable to Qualcomm’s current management – will be needed,” he said in a research note.

Qualcomm’s shares dipped 36 cents to close at $67.98 Wednesday on the Nasdaq exchange.;




This article was updated with additional analysis and quotes at 1 p.m. It was originally published at 5:50 a.m.

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