Following a long investigation by the Chinese government, Qualcomm is now required to pay a striking $1 billion fine, according to Reuters. This is a huge strike for the company and is not the first issue that it's encountered so far in 2015, after various reports showing overheating issues with their latest Snapdragon 810 chipset.
So what's this about? Well, Qualcomm lowered their royalty fees by a third on the patents used in China, and this goes against the anti-competitive practices that the Chinese authorities have in place. Thus, the government accuses the company of having anti-competitive licensing practices, which is very serious. China's National Development and Reform Commission is set to make an announcement in this regard next Monday, and it will probably give us some more information.
This fine is the result of no less than 14 months of continuous investigation coming from the Chinese authorities, time in which it had frequent talks with the chipset manufacturer. It's a pretty controversial case that falls under China's 2008 anti-monopoly law which is put in place to ensure fairness to all Chinese consumers. The law promotes heavy competition among the big technology companies, and this ensures a fair price to both tech companies as well as consumers.
Besides the $1 billion fine, Qualcomm also agreed to make some big changes to its licensing practices in order to avoid any further problems, following a meeting between the Qualcomm SEO and the NDRC last Friday. It is currently unprecedented that any big company in China pays such a huge fine, and it's interesting to see that this law is actually enforced. It's worth noting that Qualcomm closed their fiscal year on the 28th of September with $26.5 billion coming from China alone. Most of this profit comes from higher-margin royalties which are earned from licensing alone.
This will be an interesting development and it sets an interesting precedent. Will it have any impact on how tech companies operate in China? We've recently seen Motorola expanding to the Asian market with the Moto 360, so it looks like all these laws are doing is ensuring a fair competition and a healthy economy for the average consumer.