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For Violating Competition Laws, South Korea Fines Qualcomm $854 Million

For Violating Competition Laws, South Korea Fines Qualcomm $854 Million
For what the South Korea's antitrust regulator called unfair business practices in patent licensing and modem chip sales, the regulator fined Qualcomm Inc 1.03 trillion won ($854 million). The U.S. chipmaker said it will challenge the decision court.
At a time when the business is facing headwinds from a cooling smartphone market, the latest antitrust setback for Qualcomm's most profitable business of licensing wireless patents to the mobile industry, and the fine is the largest ever levied in South Korea.
Qualcomm forced handset makers to pay royalties for an unnecessarily broad set of patents as part of sales of its modem chips and thus abused its dominant market position, the Korea Fair Trade Commission (KFTC) ruled on Wednesday.
Hindering sales of rivals Intel Corp, Samsung Electronics Co Ltd and MediaTek Inc and leaving their products vulnerable to lawsuits, Qualcomm also restricted competition by refusing or limiting licensing of its standard essential patents related to modem chips to rival chipmakers, the regulator said.
The regulator ordered Qualcomm to renegotiate chip supply agreements with handset makers if requested and to negotiate in good faith with rival chipmakers on patent licensing. If upheld, such measures would affect the U.S. firm's dealings with major tech companies including Apple Inc, Intel, Samsung and Huawei Technologies Co Ltd.
Following complaints from industry participants, but did not name specific companies, it began its investigations into Qualcomm's practices in 2014, the KFTC said.
KFTC Secretary General Shin Young-son told a media briefing in the country's administrative capital that foreign companies including Apple, Intel, MediaTek and Huawei expressed their views during the regulator's deliberation process.
"We investigated and decided on these actions because Qualcomm's actions limit overall competition," Shin said, adding that the ruling was not about protecting domestic companies such as Samsung and LG Electronics Inc but about improving market competition for all players.
Qualcomm said it will appeal the decision to the Seoul High Court and will file for an immediate stay of the corrective order. The firm will also appeal the amount of the fine and the method used to calculate it.
"Qualcomm strongly disagrees with the KFTC’s announced decision," it said in a statement.
A Taiwanese industry executive, declining to be named due to the sensitivity of the matter said  that in the tech supply chain who source Qualcomm chips, the decision in Seoul could mean lower costs for mobile phone makers and others.
The fine is the latest in a series of antitrust rulings and investigations faced by Qualcomm from regulators across the globe. While the European Union in December 2015 accused it of abusing its market power to thwart rivals, in February 2015, Qualcomm paid a $975 million fine in China following a 14-month probe.
KFTC's orders for Qualcomm to alter its business practices have bigger future implications for the chipmaker even as the fine itself was large, Stacy Rasgon, an analyst with AB Bernstein, said.
Rivals such as Intel has been competing hard to land its modem chips in mobile phones and a major challenge for Qualcomm would emerge if the ruling forces the company to license patents for some of its chips to rivals, he said.
"How can they force you to license to a competitor? That's what I never understood. I guarantee Qualcomm won’t want to do that," he said, adding that the dispute could take years to play out in South Korean courts.

Christopher J. Mitchell

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