Qualcomm Fined Nearly $1B For Violating China’s Anti Monopoly Law
Until now, it appeared that Qualcomm’s biggest problem was losing Samsung as a customer because of its Snapdragon 810 chip issues. But it has got a bigger fish to fry: Qualcomm has been fined record $975 million in China for violating the country’s Anti-Monopoly Law (AML). The company announced that it has reached a resolution with China’s National Development and Reform Commission (NDRC) about the investigation of Qualcomm which was being carried out for past couple of months.
After being fined by NDRC, Qualcomm altered some of its business practices to let them operate in China. The company, however unhappy about the result of probe, is pleased that NDRC has approved its rectification plan. Here are some of the key points from the rectification plan:
Qualcomm will offer licenses to its current 3G and 4G essential Chinese patents separately from licenses to its other patents and it will provide patent lists during the negotiation process.
For licenses of Qualcomm’s 3G and 4G essential Chinese patents for branded devices sold for use in China, Qualcomm will charge royalties of 5% for 3G devices (including multimode 3G/4G devices) and 3.5% for 4G devices (including 3-mode LTE-TDD devices) that do not implement CDMA or WCDMA, in each case using a royalty base of 65% of the net selling price of the device.
Qualcomm will give its existing licensees an opportunity to elect to take the new terms for sales of branded devices for use in China as of January 1, 2015.
Qualcomm will not condition the sale of baseband chips on the chip customer signing a license agreement with terms that the NDRC found to be unreasonable or on the chip customer not challenging unreasonable terms in its license agreement.
In addition to changing licensing practices, Qualcomm is now obliged to do much more if they wish to operate in China. The company will help the country’s network operators in setting up 4G infrastructure. Qualcomm is also working with five other companies to create a China-specific, $150 million fund to advance mobile and processor research and development.
Furthermore, Qualcomm will be working with Chinese smartphone manufacturers to boost them to the level of Samsung and LG.
Why has Qualcomm agreed to all of these terms? Well, because it has earned half of its global revenue of $26.5 billion from China. A major part of this revenue came from higher-margin royalties earned from the company’s licensing body.