Qualcomm Could Face A $878 Million Fine In South Korea

According to a recent report from South Korea citing the Fair Trade Commission (FTC), Qualcomm might soon be penalized with a 1 trillion Korean Won fine (~$878 million) on account of breaching fair trade rules. The company has been investigated by the FTC for the past 17 months, and the agency intends to close the case by the end of 2016. If the decision stands, this would represent the largest fine to ever be issued by South Korea’s Fair Trade Commission.

An FTC official cited by The Korea Times has revealed that the investigation regarding Qualcomm’s business practices has been launched in February 2015, following complaints against the company. Reportedly, Qualcomm has apparently collected excessively high royalties from South Korean business partners against the principles of fair, non-discriminatory guidelines. The main problem lies in the fact that Qualcomm has been collecting royalty fees from mobile manufacturers using Qualcomm’s standard essential patents (SEPs), and has set royalty fees based on the suggested retail prices of mobile devices, as opposed to collecting fees based on the value of their chipsets and patents. Normally, a patent holder calculates royalties in accordance with the patent itself and its value, and not based on the value of the whole, finished product. In the situation at hand, Qualcomm should have calculated royalties based on the value of its chipsets and technologies, and not based on the market value of the smartphones utilizing the company’s patents and silicon. According to the report, Qualcomm is collecting roughly $1.27 billion every year from South Korean mobile manufacturers including LG and Samsung. On the other hand, Qualcomm said that its products and technologies have helped South Korean smartphone makers to become the most influential companies in the world of mobile.

South Korea is a fairly important market for Qualcomm, as it has accounted for 16% of the company’s sales in 2015. Assuming that the FTC will close the case and give Qualcomm a 1 trillion Korean Won fine, it may change the playing field for the chipmaker in 2017, at least in South Korea. However, this wouldn’t be the first antitrust fine Qualcomm has been faced with. Last year in February, around the time the FTC was starting its investigation, Chinese authorities issued a $975 million fine to the California-based chipmaker on account of anticompetitive business practices.

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