On 10 February 2015, it was reported that Qualcomm, a US NASDAQ listed manufacturer of mobile phone microchips, paid a $975m fine to the Chinese National Development and Reform Commission (“NDRC”) to settle allegations of anti-competitive behaviour. The fine is equivalent to around 8% of Qualcomm’s 2013 Chinese turnover. The fine was reduced from 10% due to Qualcomm’s eventual co-operation in settlement (though they did initially challenge the NDRC’s case).
Despite the fine being the largest in Chinese corporate history, it was reported that Qualcomm’s share price rose as analysts believed the company had negotiated a fair settlement for itself and stabilised its Asian market. The details of the case offer insight into the continued development of Chinese competition law.
The case relates to accusations the NDRC made in 2013 against Qualcomm. Qualcomm were charged on several grounds. These grounds were that Qualcomm held a dominant position in certain mobile phone technologies and abused that position in the following ways:
- Qualcomm imposed ‘no challenge’ clauses on patentees, refusing to supply to those who challenged their IP. This was seen as a breach of Article 329 of the 2004 Contract Law.
- That Qualcomm licensed expired patents.
- That Qualcomm enforced terms where licensees would be forced to provide Qualcomm with any improved technology based on Qualcomm’s patents. This was an alleged breach of Article 329 of the 2004 contract law.
- That Qualcomm combined foreign and domestic patents in licenses, in violation of section 17(5) of the 2008 Anti-monopoly Law.
- That non-standard and standard essential patents were grouped together and that Qualcomm charged the higher (non-standard) fee in breach again of Article 17(5) of the 2008 Anti-monopoly law.
In light of these alleged breaches and in order to settle the case alongside the payment of the fine, Qualcomm agreed to undertakings to reverse the above alleged infringements, including agreement as to the percentage of royalties Qualcomm would charge for certain mobile phone technologies.
The conclusion of the case represents the end of China’s first abuse of dominance case that has been through the investigatory process before regulators. Whilst the case offers vision in what commitments will be acceptable to the NDRC in future cases and knowledge of how the NDRC will calculate fines, the case does not strictly define how market dominance is defined in China, often the crucial and thorny issue. There is also the issue of the repercussions that the high level of the fine could have in deterring foreign investment into China. Further insight is advised for any companies who operate in China and enjoy a significant market share.