Wednesday, January 24th 2018

European Commission Fines Qualcomm €997M for Abuse of Dominant Market Position

The European Commission has fined Qualcomm €997m for abusing its market dominance in LTE baseband chipsets. Qualcomm prevented rivals from competing in the market by making significant payments to a key customer on condition it would not buy from rivals. This is illegal under EU antitrust rules.

Commissioner Margrethe Vestager, in charge of competition policy, said: "Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance. Qualcomm paid billions of US Dollars to a key customer, Apple, so that it would not buy from rivals. 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.

This meant that no rival could effectively challenge Qualcomm in this market, no matter how good their products were. Qualcomm's behaviour denied consumers and other companies more choice and innovation - and this in a sector with a huge demand and potential for innovative technologies. This is illegal under EU antitrust rules and why we have taken today's decision."

Qualcomm's practices and the market for LTE baseband chipsets
Baseband chipsets enable smartphones and tablets to connect to cellular networks and are used both for voice and data transmission. LTE baseband chipsets comply with the 4G Long-Term Evolution (LTE) standard.

Qualcomm is by far the world's largest supplier of LTE baseband chipsets. But there are other chip manufacturers active in this market - Intel (the largest supplier for chipsets used in computers), in particular, has tried to challenge and compete with Qualcomm for customers.

Then as today, Apple was a key customer for LTE baseband chipsets, being an important maker of smartphones and tablets with a premium brand image worldwide. In 2011, Qualcomm signed an agreement with Apple, committing to make significant payments to Apple on condition that the company would exclusively use Qualcomm chipsets in its "iPhone" and "iPad" devices. In 2013, the term of the agreement was extended to the end of 2016.

The agreement made clear that Qualcomm would cease these payments, if Apple commercially launched a device with a chipset supplied by a rival. Furthermore, for most of the time the agreement was in place, Apple would have had to return to Qualcomm a large part of the payments it had received in the past, if it decided to switch suppliers. This meant that Qualcomm's rivals were denied the possibility to compete effectively for Apple's significant business, no matter how good their products were. They were also denied business opportunities with other customers that could have followed from securing Apple as a customer.

In fact, internal documents show that Apple gave serious consideration to switching part of its baseband chipset requirements to Intel. Qualcomm's exclusivity condition was a material factor why Apple decided against doing so, until the agreement came to an end. Then, in September 2016, when the agreement was about to expire and the cost of switching under its terms was limited, Apple started to source part of its baseband chipset requirements from Intel. But until then, Qualcomm's practices denied consumers and other companies the benefits of effective competition, namely more choice and innovation.

Breach of EU antitrust rules
Qualcomm's practices amount to an abuse of Qualcomm's dominant position in LTE baseband chipsets by preventing competition on the merits.

Market dominance is, as such, not illegal under EU antitrust rules. However, dominant companies have a special responsibility not to abuse their powerful market position by restricting competition, either in the market where they are dominant or in separate markets.

Today's decision concludes that Qualcomm held a dominant position in the global market for LTE baseband chipsets over the period investigated (i.e. between at least 2011 and 2016). This is based in particular on its very high market shares, amounting to more than 90% for the majority of the period. The market is also characterised by high barriers to entry. These include the research and development expenditure required before a supplier can launch an LTE chipset and various barriers related to Qualcomm's intellectual property rights.

Qualcomm has abused this market dominance by preventing rivals from competing in the market. It did so by making significant payments to a key customer on condition that it would exclusively use Qualcomm chipsets. The issue with such an arrangement is not that the customer receives a short-term price reduction, but that the exclusivity condition denies rivals the possibility to compete.

Based on a variety of qualitative and quantitative evidence, the Commission found that both consumers and competition have suffered as a result of Qualcomm's conduct. This assessment took into account, among other things:
  • the extent of Qualcomm's dominant position;
  • the significant amounts paid by Qualcomm in exchange for exclusivity;
  • a broad range of contemporaneous evidence (including Apple's internal documents) that Qualcomm's payments reduced Apple's incentives to switch to rivals;
  • the importance of Apple as a customer in the market for LTE baseband chipset suppliers: Apple accounts for a significant share of LTE chipset demand (on average one third). Apple is also a leading smartphone and tablet manufacturer, which can influence other customers' and manufacturers' procurement and design choices. By making sure that rivals had no chance to compete for any of Apple's important business, Qualcomm's conduct had an effect on the LTE baseband chipset market as a whole; and
  • that Qualcomm did not demonstrate that the exclusivity condition created any efficiencies, which could have justified Qualcomm's practices.
The Commission also assessed and rejected a "price-cost" test submitted by Qualcomm. The Commission concluded that the results of this test failed to support Qualcomm's claim that its exclusivity payments were not capable of having anti-competitive effects.

On this basis, the Commission concluded that Qualcomm's illegal practice had a significant detrimental impact on competition. It excluded rivals from the market and deprived European consumers of genuine choice and innovation.

Consequences of the Decision
The fine in this case of € 997 439 000 takes account of the duration and gravity of the infringement, and is aimed at deterring market players from engaging in such anti-competitive practices in the future. The fine represents 4.9% of Qualcomm's turnover in 2017.

In accordance with the Commission's 2006 Guidelines on fines (see press release and MEMO) the fine has been calculated on the basis of the value of Qualcomm's direct and indirect sales of LTE baseband chipset in the European Economic Area (EEA). The duration of the infringement established in the decision is five years, six months and 23 days.

The Commission has also ordered Qualcomm to not engage in such practices or practices with an equivalent object or effect in the future.

Background
Article 102 of the Treaty on the Functioning of the European Union (TFEU) and Article 54 of the EEA Agreement prohibit abuse of a dominant position.

The Commission opened its investigation on 16 July 2015. On 8 December 2015, the Commission sent to Qualcomm a Statement of Objections setting out its preliminary concerns, followed by a letter sent in February 2017 setting out additional factual elements relevant to the final decision. Qualcomm's rights of defence have been fully respected in this case. In addition, in light of the evidence in the Commission's case file pointing to the harm to competition caused by Qualcomm's conduct, the Commission concluded that this case satisfied the criteria for being dealt with as a priority in line with the Commission Communication on Guidance on Enforcement Priorities to focus on those cases that are most harmful to consumers.

Separately, on 8 December 2015, the Commission also sent Qualcomm a Statement of Objections concerning potential predatory pricing. This investigation is ongoing, and its outcome cannot be prejudged at this stage.
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30 Comments on European Commission Fines Qualcomm €997M for Abuse of Dominant Market Position

#1
Chaitanya
funny to see Apple suing about unpaid royalty rebates, also would be interesting to see what happens with thievery lawsuit against Intel and apple filed by Qualcomm.
Posted on Reply
#2
Katanai
I'm an European but I'm really starting to doubt these EU decisions. A billion from Microsoft, one from Intel, one from Apple, now from Qualcomm. A billion here, a billion there, more and more this starts to look like extortion fees for companies being able to sell in the EU...
Posted on Reply
#3
the54thvoid
Super Intoxicated Moderator
KatanaiI'm an European but I'm really starting to doubt these EU decisions. A billion from Microsoft, one from Intel, one from Apple, now from Qualcomm. A billion here, a billion there, more and more this starts to look like extortion fees for companies being able to sell in the EU...
No, they're huge fines for huge corporations. Don't confuse extortion and a very 'not free' market.
Posted on Reply
#4
FreedomEclipse
~Technological Technocrat~
KatanaiI'm an European but I'm really starting to doubt these EU decisions. A billion from Microsoft, one from Intel, one from Apple, now from Qualcomm. A billion here, a billion there, more and more this starts to look like extortion fees for companies being able to sell in the EU...
Some organisations just cant sleep at night unless all of their board members have swimming pools that are filled with money chilling in their back gardens at night.
Posted on Reply
#5
Katanai
the54thvoidNo, they're huge fines for huge corporations. Don't confuse extortion and a very 'not free' market.
Well the thing is that Qualcomm and Apple are American companies that fabricate their products in China. What does the EU have to do with any deal between these companies as long as they only sell their products here and not produce them? What does the EU have to do with Apple an American company and what suppliers it chooses to operate with in China and why it does so? I don't know but a billion euros sounds nice, right?
Posted on Reply
#6
bug
KatanaiI'm an European but I'm really starting to doubt these EU decisions. A billion from Microsoft, one from Intel, one from Apple, now from Qualcomm. A billion here, a billion there, more and more this starts to look like extortion fees for companies being able to sell in the EU...
Well, in this case it seems Qualcomm has done exactly what Intel did years ago to keep builders from using AMD: they applied rebates on sold products/licenses. EU was just being consistent.
But it's funny how Apple can sue for unpaid illegal licensing rebates.
Posted on Reply
#7
dir_d
So where does the money go from these fines? Mainly to the lawyers?
Posted on Reply
#8
Katanai
bugWell, in this case it seems Qualcomm has done exactly what Intel did years ago to keep builders from using AMD: they applied rebates on sold products/licenses. EU was just being consistent.
But it's funny how Apple can sue for unpaid illegal licensing rebates.
Yeah but the thing is that Intel has a manufacturing plant in Ireland, hence Intel is a European manufacturer. Those rebates were probably also directed at some European builders. Apple has no such thing, as far as I know, they only have data centers and other businesses in Ireland, no Apple products are made on European soil. Qualcomm also as far as I know is manufacturing its products in China and Taiwan. So what jurisdiction does the EU have over these things happening on the American and Asian continents? What's going to happen next? The European Commission is going to fine Mitsubishi because it had a deal with Yamaha in Osaka, Japan over opening a new manufacturing plant in Mogadishu, Africa?
Posted on Reply
#9
btarunr
Editor & Senior Moderator
dir_dSo where does the money go from these fines? Mainly to the lawyers?
Spa treatments and overpriced croissants of eurocrats.
Posted on Reply
#10
MagnuTron
I think a lot of you guys are missing the point here. The EC is built as a safeguard for those companies that wish to sell to the EU. As soon as you step into the EU market, you have to play by our rules, regardless of where you are "from". Just because Apple and Microsoft have offices in Ireland for tax reasons - doesn't make them Irish, don't be daft.
Posted on Reply
#11
Katanai
MadsMagnusI think a lot of you guys are missing the point here. The EC is built as a safeguard for those companies that wish to sell to the EU. As soon as you step into the EU market, you have to play by our rules, regardless of where you are "from". Just because Apple and Microsoft have offices in Ireland for tax reasons - doesn't make them Irish, don't be daft.
Yeah, exactly that's why I was saying this is an extortion tax to be able to sell in the EU. Don't get me wrong, I am not really defending Qualcomm here. I quote from Engadget: "In 2015 Qualcomm was hit with a $975 million anti-monopoly fine in China, in 2016, the Korea Fair Trade Commission slapped it with a $854 million fine for unfair patent licensing practices, and in October 2017, Taiwan's Fair Trade Commission fined the company the equivalent of $774 million for abusing market dominance." As you can see they received similar fines in China and Taiwan because they have manufacturing plants there, under their jurisdiction. They received a fine in Korea for patent licensing, something unrelated to this but which probably was related to a blue, giant, Korean manufacturer. This shows that Qualcomm's business practices are a bit shady, to say the least. What I don't understand is how the European Commission can fine two American companies over a deal that probably took place on the American continent, on U.S. soil, regarding manufacturing being done on the Asian continent, in China. If the U.S. or China fined them over this I would have nothing against that but they are being fined by someone who has no jurisdiction over these matters. And Qualcomm knows all this and it will still pay the fine, although it's not truly legal, because Qualcomm still wants to sell its products in Europe. So if the only reason for the fine being paid, is that Qualcomm wants to sell in Europe, I think that me defining this as: an extortion tax to be able to sell in Europe, is correct...
Posted on Reply
#12
bug
KatanaiYeah but the thing is that Intel has a manufacturing plant in Ireland, hence Intel is a European manufacturer. Those rebates were probably also directed at some European builders. Apple has no such thing, as far as I know, they only have data centers and other businesses in Ireland, no Apple products are made on European soil. Qualcomm also as far as I know is manufacturing its products in China and Taiwan. So what jurisdiction does the EU have over these things happening on the American and Asian continents? What's going to happen next? The European Commission is going to fine Mitsubishi because it had a deal with Yamaha in Osaka, Japan over opening a new manufacturing plant in Mogadishu, Africa?
Well, since this is a battle about patents and licensing, maybe a factory of physical goods isn't needed?
Posted on Reply
#13
Katanai
bugWell, since this is a battle about patents and licensing, maybe a factory of physical goods isn't needed?
Read the article again, this has nothing to do with patents and licensing. I quote from the article above: "Qualcomm paid billions of US Dollars to a key customer, Apple, so that it would not buy from rivals. 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." So Qualcomm met with Apple, presumably in the U.S. where they are located and spoke about how iPhones will be produced in China. Something that might be illegal in the U.S. and/or in China. But my question is: wtf does the E.U. have to do with this?
Posted on Reply
#14
bug
KatanaiRead the article again, this has nothing to do with patents and licensing. I quote from the article above: "Qualcomm paid billions of US Dollars to a key customer, Apple, so that it would not buy from rivals. 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."
Those payments were rebates on royalties Apple owed Qualcomm.
KatanaiSo Qualcomm met with Apple, presumably in the U.S. where they are located and spoke about how iPhones will be produced in China. Something that might be illegal in the U.S. and/or in China. But my question is: wtf does the E.U. have to do with this?
Gee, what does EU have to do with companies doing business within the EU? That's a tough one, I never thought about it.
Posted on Reply
#15
Katanai
bugGee, what does EU have to do with companies doing business within the EU? That's a tough one, I never thought about it.
None of this business was being done in the EU but on other continents. Nothing these two did was related to selling of products, it was strictly related to manufacturing. Those royalties were probably related to US patents filed at the US patent office and spoken of between two US companies, on US soil and if anything illegal happened there it is a matter of the Federal Bureau of Investigation or other US agencies to investigate and prosecute. I see people are really thick headed on this forum, I just remembered why I used to barely post here...
Posted on Reply
#16
Recus
KatanaiNone of this business was being done in the EU but on other continents. Nothing these two did was related to selling of products, it was strictly related to manufacturing. Those royalties were probably related to US patents filed at the US patent office and spoken of between two US companies, on US soil and if anything illegal happened there it is a matter of the Federal Bureau of Investigation or other US agencies to investigate and prosecute. I see people are really thick headed on this forum, I just remembered why I used to barely post here...
“Qualcomm paid billions of US dollars to a key customer, Apple, so that it would not buy from rivals. 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.”
Crime doesn't have borders... But why I bother to respond to post Soviet country citizen?
Posted on Reply
#17
TheinsanegamerN
KatanaiNone of this business was being done in the EU but on other continents. Nothing these two did was related to selling of products, it was strictly related to manufacturing. Those royalties were probably related to US patents filed at the US patent office and spoken of between two US companies, on US soil and if anything illegal happened there it is a matter of the Federal Bureau of Investigation or other US agencies to investigate and prosecute. I see people are really thick headed on this forum, I just remembered why I used to barely post here...
Hey, newsflash here...did you know that both qualcomm chipsets and iphones are ....*GASP....SOLD IN EUROPE?!? MIND BLOWN!!!

Do you just assume that, because it references qualcomm paying apple in dollars instead of euros that this had NOTHING to do with european markets? The EU cant fine these companies for their behavior outside of the EU, but surprise surprise, these companies are trying to pull the same BS in the EU that they do in other countries, and since qualcomm attempting conteol of the radio market affects europe, the EU is within their jurisdiction to fine qualcomm. Qualcomm pushing other LTE radio manufacturers affects european handsets just like american ones, these companies being american doesnt make them immune to european anti-competition laws.

Qualcomm was using illegal rebate tactics to control which radios went into iphones and ipads, which are sold in europe. Thus, the EU can fine them for illegally cornering the market on LTE radios for iphones sold in europe. Not that hard to figure out.

Perhaps try reading the article next time? Really helps you to not look like a buffoon.
Posted on Reply
#18
Readlight
KatanaiI'm an European but I'm really starting to doubt these EU decisions. A billion from Microsoft, one from Intel, one from Apple, now from Qualcomm. A billion here, a billion there, more and more this starts to look like extortion fees for companies being able to sell in the EU...
And all that money will go for farming and education, science.
Posted on Reply
#19
ZeDestructor
KatanaiRead the article again, this has nothing to do with patents and licensing. I quote from the article above: "Qualcomm paid billions of US Dollars to a key customer, Apple, so that it would not buy from rivals. 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." So Qualcomm met with Apple, presumably in the U.S. where they are located and spoke about how iPhones will be produced in China. Something that might be illegal in the U.S. and/or in China. But my question is: wtf does the E.U. have to do with this?
It matters because they sell to EU customers, who may or may not be being ripped off by the anti-competitive actions of (debate-ably, since a hilariously large number of those are registered in UK BIOTs, Ireland or Belgium, nevermind their offices in the EU) non-EU companies.

In addition to that, these sorts of anti-competitive behaviours make it really, really hard for new players (like European-based companies, Jolla Oy, for example) to enter the market.
Posted on Reply
#20
Totally
Something doesn't seem right about this, why wasn't Apple fined? Reading the proceedings they are at least guilty of collusion, and also what is not to say that they suggested the non compete clause in order to secure lower prices? The fact that they are proving wrongdoing with ONE company, also happens to be Apple to boot, makes me raise an eyebrow. It funny how the article tries to absolve Apple of guilt by citing the desire to switch suppliers and subsequent decision against in 2016 but that just makes me more certain that it was a condition put forth by Apple because why uphold an agreement that is illegal unless they're the ones who put it forth. Pretty sure Qualcomm is taking the fall for Apple here.
Posted on Reply
#21
Vya Domus
If anyone would have read the damn thing they would have realized that Qualcomm deserves this fine without doubt.
Posted on Reply
#22
ppn
So how did they prove it wasn't cost reduction or something. Qualcomm should be free to pay apple to use their products if so desire. I mean I don't mind the movie actors paying me to watch their performance, works for me. But that never happens. The government and other parasite structures for collecting money should be abolished.
Posted on Reply
#23
Thefumigator
It's a shame, despite the fine, the damage is already done. It will take some time for the market to stabilize.
When intel had to pay AMD for all the trickery to put them out of the road, it was also too late. Sometimes money isn't the solution. I mean, money helps. But you can't recover lost market with money alone.
Posted on Reply
#24
Katanai
RecusBut why I bother to respond to post Soviet country citizen?
I don't know why you would say that. Maybe your favorite sport is throwing random "insults" to random people, you know nothing about, hoping that it would stick...
Posted on Reply
#25
evernessince
KatanaiI'm an European but I'm really starting to doubt these EU decisions. A billion from Microsoft, one from Intel, one from Apple, now from Qualcomm. A billion here, a billion there, more and more this starts to look like extortion fees for companies being able to sell in the EU...
Those were all legitimate decisions. Microsoft was undoubly guilty of using it's position in the market to push Microsoft Software like Internet explorer over competitors. The Intel fine should have been even more. AMD lost allot more money than Intel gained or was fined for. You have to make the fines large enough to discourage corperations from engaging in the behavior in the future. You should be thankful they do this, because in America out 10 million dollar fines or less haven't done anything. Don't forget about the EU lawsuite of the Computer Monitor manufacturers, which were proven to have colluded to fix monitor prices at the time. Hopefully the EU also does the same to memory manufacturers.
Posted on Reply
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