The Korea Fair Trade Commission (KFTC) today announced that it has reached a decision in its investigation of Qualcomm Incorporated (Nasdaq: QCOM), finding that certain of the Company’s business practices are in violation of Korean competition law. The KFTC announced that it intends to issue a corrective order relating to the specific practices at issue and impose an administrative fine of approximately 1.03 trillion South Korean Won (approximately $865 million at current exchange rates). This is an unprecedented and insupportable decision relating to licensing practices that have been in existence in Korea and worldwide for decades and that the KFTC reviewed but did not question in a previous investigation of Qualcomm.
Additional details regarding this decision will not be available until the KFTC issues a written decision and order, which in prior cases has typically taken four to six months. The KFTC’s decision will not become effective until the written decision and order is issued. Following receipt of the KFTC’s written order, Qualcomm will file for an immediate stay of the corrective order and appeal the KFTC’s decision to the Seoul High Court. In addition, Qualcomm will also appeal the amount of the fine and the method used to calculate it. However, Qualcomm will be required to pay the fine within 60 days of the issuance of the written order, subject to possible adjustment or refund as part of the appeal process.
Qualcomm strongly disagrees with the KFTC’s announced decision, which Qualcomm believes is inconsistent with the facts and the law, reflects a flawed process and represents a violation of due process rights owed American companies under the Korea-U.S. Free Trade Agreement (KORUS). As reflected in the KFTC’s press release, the decision:
Lacks a coherent theory of competition law violations
Lacks any evidence of harm to competition, which is robust among chip and handset suppliers in part because Qualcomm’s business model promotes competition;
Results from a denial of procedural safeguards guaranteed to American companies under KORUS, including the right to have complete access to evidence and the right to cross examination at the hearing;
Seeks to disrupt established licensing practices that have been accepted by the wireless industry and used by major patent holders for decades, including Korean companies and government institutions like ETRI, Samsung and LG;
Undermines incentives to invest in fundamental technology and share it with the industry; and
Imposes a fine that is insupportable and not reasonably related to the size of the Korean market.
“Qualcomm strongly believes that the KFTC findings are inconsistent with the facts, disregard the economic realities of the marketplace, and misapply fundamental tenets of competition law,” said Don Rosenberg, executive vice president and general counsel, Qualcomm Incorporated. “Importantly, this decision does not take issue with the value of Qualcomm’s patent portfolio. Qualcomm’s enormous R&D investments in fundamental mobile technologies and its broad-based licensing of those technologies to mobile phone suppliers and others have facilitated the explosive growth of the mobile communications industry in Korea and worldwide, brought immense benefits to consumers and fostered competition at all levels of the mobile ecosystem.”
“For decades, Qualcomm has worked hand in hand with Korean companies to foster the growth of the wireless Internet. Qualcomm’s technology and its business model have helped those companies grow into global leaders in the wireless industry. This decision ignores that win-win relationship.”
“Qualcomm’s repeated requests during the KFTC’s investigation for basic due process rights such as access to the case files and the right to cross examine witnesses were denied. These rights and others are supposed to be guaranteed to U.S. companies under the Korea-U.S. Free Trade Agreement, yet the KFTC declined to implement these fundamental procedural safeguards. We are pleased that our appeal will be to the Seoul High Court, which is known to rigorously analyze evidence and apply sound antitrust principles,” Rosenberg said.
The royalties received by Qualcomm for sales of handsets into Korea accounted for less than three percent of total Qualcomm licensing revenue during Qualcomm’s fiscal 2016. To the extent that the KFTC’s written decision attempts to regulate intellectual property rights granted by other countries or activities outside of Korea it would be in direct conflict with accepted rules of international law. Qualcomm will vigorously oppose any such attempt and expects to be supported by other countries and companies.
Qualcomm’s technologies powered the smartphone revolution and connected billions of people. We pioneered 3G and 4G – and now, we are leading the way to 5G and a new era of intelligent, connected devices. Our products are revolutionizing industries including automotive, computing, IoT and healthcare, and are allowing millions of devices to connect with each other in ways never before imagined. Qualcomm Incorporated includes our licensing business, QTL, and the vast majority of our patent portfolio. Qualcomm Technologies, Inc., a subsidiary of Qualcomm Incorporated, operates, along with its subsidiaries, all of our engineering, research and development functions, and all of our products and services businesses, including our semiconductor business, QCT, and our mobile, automotive, computing, IOT and healthcare businesses.