April 29, 2024

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Fair Trade Commission Chairman Han Ki-jeong speaks during a briefing held at the Government Sejong Complex in Sejong, Thursday. (Yonhap)

South Korea’s antitrust regulator said Thursday it is imposing a fine of 19.1 billion won ($14.2 million) on US chipmaker Broadcom, along with a corrective order, for its unfair business activities against Samsung Electronics.

The move came as the US chipmaker forced Samsung to sign a long-term contract to use its telecommunications components in 2020 by abusing its market dominance and using unlawful tactics, including cutting off its supply and technical support, the Fair Trade Commission said.

“It was confirmed that Broadcom used a series of unfair means to pressure Samsung Electronics into signing an unfavorable long-term agreement, including suspension of parts purchase order approval, suspension of shipment and suspension of technical support,” Fair Trade Commission Chairman Han Ki-jeong said in a press briefing earlier in the day.

Under the deal, Samsung had to purchase Broadcom’s radio frequency front end (RFFE), an essential component in wireless communication systems, and other components related to WiFi and Bluetooth, worth more than $760 million, annually from 2021 to 2023. The Korean tech giant was also required to compensate for any shortfall if the purchasing amount fell below the amount.

Until the deal ended in August 2021, Samsung had no choice but to comply with Broadcom’s unilateral requests to prevent production disruptions for its smartphone devices, including the Galaxy S20 series, since the US chipmaker was the world’s No. 1 operator in the RFFE market.

Samsung, which was limited in having options for parts, had to purchase more parts than necessary and incurred additional costs of at least $160 million due to the inability to use cheaper parts from other competitors such as Qualcomm and Kobo for its smartphones.

Broadcom argued during the deliberation process that the contract was signed voluntarily by Samsung and that it was mutually beneficial. However, the antitrust regulator rejected the US company’s argument. The American chipmaker also claimed that it had to sign the contract to maintain a strategic partnership with Samsung, as the Korean firm broke verbal promises several times regarding its component purchases.

The FTC said it has calculated the fine by considering the entire amount of $800 million in parts purchased by Samsung to implement the agreement as related sales by August 2021 and applied the upper levy rate of 2 percent.

“This measure is significant in that it establishes a fair trading order and creates competitive conditions in the semiconductor market, which is a key industry for technological innovation and has a large ripple effect on related markets,” the antitrust regulator chief said.

Since Samsung previously claimed that it suffered damages worth $326.3 million, some industry sources criticized the ruling, saying that the FTC should not have accepted Broadcom’s consent resolution application in the first place.

In August last year, the FTC accepted Broadcom’s request to submit voluntary corrective measures. These measures included a fund of 20 billion won to support the domestic chip industry amid the antitrust probe in January.

The Korean tech giant had also reportedly sought to file a lawsuit against Broadcom, but decided to resolve the case with the regulator for better efficiency. But as it opposed the 20 billion won worth of corrective measures, the antitrust regulator resumed its review to put sanctions on Broadcom.

Sources forecast that a legal battle between Samsung and Broadcom will likely continue.

Broadcom will likely file an administrative lawsuit to request a cancellation of the FTC’s sanctions, as the regulator’s decision has the same effect as a first trial ruling here. If necessary, a final decree will be confirmed through Seoul High Court and Supreme Court rulings.

Samsung is also expected to file a civil suit against Broadcom for damages, it said.

"Samsung had provided enough explanations regarding its position and situations to the FTC, but the company may consider the sanction too weak (considering the amount of its damages," an industry source familiar with the matter told The Korea Herald on condition of anonymity. "It is questionable whether Samsung's opinion was sufficiently reflected in the regulator's decision."

By Jie Ye-eun (yeeun@heraldcorp.com)