SEOUL: South Korea’s Fair Trade Commission (FTC) has internally deemed Qualcomm’s patent licensing practices for smartphone-making clients and chip competitors to be an abuse of standard essential patents (SEP), an abuse of its dominant position, and against fair, reasonable, and non-discriminatory (FRAND) terms, people with knowledge of the matter told ZDNet Korea. SEP refers to patents that are needed for companies to do business in a certain industry, with the holder required to license them to the licensee under FRAND terms.
The FTC launched the investigation on April 28, 2014, and sent out a request for information (RFI) to Qualcomm sometime in August last year, sources said. The regulator then sent out RFIs to handset manufacturers and chipset makers, clients, and competitors of Qualcomm that are either based in or have regional offices in South Korea on March 5 this year, and received replies from all of them by March 13.
South Korea is home to smartphone giants Samsung Electronics, LG Electronics, and Pantech — with all three being Qualcomm clients. Rival chipset makers Intel and AMD also have offices in Seoul.
The FTC concluded its analysis on how Qualcomm’s business model is economically anti-competitive in April, and plans to issue an evaluation report sometime in June. A final decision, after reviewing the report, will be made public within the year. It is expected that the FTC will likely fine the chip giant.
Qualcomm currently collects royalty payments from clients that are calculated based on the price of the handset, not the price of the chip. The company reportedly collects around 5 percent of the sales price of smartphones that use its chips.
However, it is yet uncertain whether the FTC can force Qualcomm to change the way it measures the amount it levies from its clients, or whether it will fine the chip giant. A decision to punish Qualcomm may negatively affect US-South Korea trade relations.
In a recently issued statement to the South Korean media, the FTC confirmed that an investigation is ongoing, but said nothing has been finalised on what penalty or fine it plans to enforce on Qualcomm. It also did not name which handset makers and chipmakers made the initial complaint, or what companies it sent RFIs to. An FTC spokesperson said he had nothing to add to the statement.
Qualcomm has been facing pressure globally to change is patent licensing practices.
In February, the Institute of Electrical and Electronics Engineers (IEEE), an international standards body for communications electronics, made public its decision to change its suggested licensing policy for members. It asked members to license their patents reasonably and to the “smallest saleable implementation” from now on. In other words, for Qualcomm, it means royalties should be calculated based on the price of the chipset, not the entire handset.
In the same month, Qualcomm agreed to pay $975 million to Chinese authorities to end a 14-month antitrust investigation into its patent licensing practices. The fine was the largest in China’s corporate history, and will require the firm to lower royalty rates on patents used in China’s mobile phone market.
Qualcomm has faced investigations in South Korea before. In 2009, after a lengthy investigation that lasted three-and-a-half years, the regulator fined the chip giant for collecting “discriminating” royalties for its Code Division Multiple Access (CDMA) patents, which it considered to be standard essential patents (SEP). Qualcomm filed a suit against the decision. The case has been in the Supreme Court since 2013, and is yet to end.
