[THE INVESTOR] Tech giants Samsung Electronics and LG Electronics are expected to save about 1 trillion won (US$850 million) annual royalty fees they have been paying Qualcomm for patents after the huge penalty slapped by Korea’s antitrust agency.
The Korea Fair Trade Commission on Dec. 28 slapped the San Diego-based Qualcomm with a record 1.03 trillion won fine for breaching the nation’s competition laws by coercing smartphone and chipmakers to accept unfair patent licensing deals.
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According to the regulator, Qualcomm arm-twisted smartphone makers, including Samsung and LG, to purchase a bunch of processor and network connection license, including some they don’t need, and charged them 3-5 percent of smartphone prices, not the chipset prices worth less than 10 percent of the device prices, as royalty fees.
The chip company was also found to have shared less of its standard essential patents, which should be offered under non-discriminatory terms to any counterpart, while offering them to a selective few that agreed to unfair contract conditions.
Qualcomm, taking advantage of its dominant position in the global communications chip market, has earned an annual 1.5 trillion won in royalty fees in Korea alone. The total revenue through unfair business practices have reached 38 trillion won over the past seven years.
“Very few companies can afford to pay 3-5 percent of smartphone sales as royalties, the equivalent of their annual operating income,” an industry source said on condition of anonymity.
“But it is hard to say no when Qualcomm provides the key processor for our devices.”
The FTC said it faced difficulties proving Qualcomm’s decades-old business practices in its three-year probe, adding that testimonies by its key clients, not just Samsung and LG, but also US tech giants such as Apple, Intel and Nvidia, played a decisive role.
The final written ruling is expected to be issued in the coming months, during which Qualcomm said it will appeal in the local court.
About Qualcomm’s warning of trade disputes between Korea and the US, industry watchers say the possibility is low.
“It is not just Samsung and LG that are benefiting from the ruling. US tech firms and those in other countries are also expected to save huge royalty fees,” said the source.
Some critics forecast the latest ruling in Korea will affect ongoing investigations in the US and Europe. Last year, China imposed US$975 million fines on Qualcomm for similar antitrust charges.
By Lee Ji-yoon and Kim Young-won