S. Korean court rules in favor of FTC antitrust penalty against Qualcomm

Qualcomm’s US headquarters and the Korea Fair Trade Commission. (graphic by Lee Jung-yoon)

US company facing suits around the world for abusing market dominance

Qualcomm’s US headquarters and the Korea Fair Trade Commission. (graphic by Lee Jung-yoon)

A South Korean court produced a first-ever ruling concluding that the Fair Trade Commission (FTC) was justified in imposing antitrust penalties of over 1 trillion won (US$839.21 million) against the US company Qualcomm, which dominates the global communications chip market, for “bullying" tactics that included forcing mobile phone makers such as Samsung Electronics and LG Electronics to sign its own patent contract before they could receive component supplies. Courts have repeatedly sided with the FTC in its more than nine-year effort since 2009 to combat Qualcomm’s abuse of its dominant market position.

Ruling in a case filed by Qualcomm Incorporated against the FTC to demand an order for corrective action and withdrawal of the penalties, the seventh administrative division of Seoul High Court under judge Noh Tae-ak ruled against the plaintiffs on the major points of the suit, concluding that the FTC’s action had acted within the law. Samsung Electronics and LG Electronics took part in the case as supplementary participants for the FTC alongside American companies Apple and Intel and Chinese company Huawei, although Samsung Electronics and Apple later withdrew their participation during the case.

In December 2016, the FTC imposed 1.03 trillion won (US$864.45 million) in penalties and issued a corrective action order against Qualcomm, accusing it of unfair actions including forcing Samsung Electronics and others to sign a patent license contract when establishing actual contracts for the sale of mobile communication modem chipsets after previously having its monopoly status for mobile communications standard-essential patents (SEPs) recognized with a promise to the International Organization for Standardization (ISO) that it would provide them in a “fair, reasonable, and non-discriminatory” (FRAND) manner. It was the FTC’s largest-ever penalty for a single case. In February of the following year, Qualcomm filed suit to dispute the judgment and requested the suspension of the correction order; both the Seoul High Court and the Supreme Court rejected its request.

After a legal battle lasting for three years, Seoul High Court concluded on Dec. 4 that the FTC’s judgment had been lawful.

“Qualcomm has abused its market-dominating position in ways including refusing to actually provide licenses despite promising to provide competing modem chipset manufacturers and others with patent licenses in a rational and non-discriminatory manner,” the court said. It also concluded that Qualcomm had “created a situation of structural disadvantage for competing modem chipset manufacturers while strengthening its own influence through its refusal to supply to or requests for bans on mobile telephone manufacturers receiving modem chipset supplies from competitors.”

Qualcomm executives enter a meeting with the South Korean Fair Trade Commission in 2017. (Yonhap News)

FTC-Qualcomm battle stretches back over 10 years

The battle between South Korea’s FTC and Qualcomm dates back 10 years. In December 2009, the FTC issued an order for corrective action and imposed 273.1 billion won (US$229.28 million) in penalties after concluding that Qualcomm had acted unfairly during the sale of CDMA modem chips to Samsung Electronics and LG Electronics, among others, by making rebates conditional on the purchasing of the majority of demand from Qualcomm itself. Qualcomm immediately initiated procedures to appeal the decision. In January of this year, the Supreme Court sided for the most part with the FTC, remanding the case to Seoul High Court with orders to review some of the points of contention. After 10 years, the ruling was ultimately finalized in May when Qualcomm dropped its case. A hearing on FTC sanctions imposed in 2016 resulted in a first-ever court ruling on Dec. 4.

The South Korean court’s ruling concerning over 1 trillion won in penalties has drawn international attention, with the global business Qualcomm facing corrective action order and antitrust penalties for similar actions in other countries besides South Korea, including the US, China, Japan, and Taiwan. In May, the US District Court for the Northern District of California sited with competition authorities, ruling that the US FTC had acted lawfully in deeming Qualcomm’s actions to be “unfair.”

Commenting on the ruling that day, the FTC said it was “significant in that the court reaffirmed the obligation of SEP holders like Qualcomm to honor their FRAND promises and recognized the unfairness of Qualcomm’s patent license business model.” It also said it planned to “reflect the spirit of the ruling by conducting a thorough examination of compliance with the corrective action order.”

The ruling was also welcomed by South Korean mobile phone manufacturers.

“If this ruling is finalized, it will work in the mobile phone manufacturers’ favor for unit price calculations in negotiations with Qualcomm,” an industry observer said. But companies were also uniformly wary about stating their position in a situation where Qualcomm is still a key component supplier.

Qualcomm immediately announced its plans to appeal. The same day, Reuters quoted a statement by Qualcomm Executive Vice President Don Rosenberg stating, “We disagree with the court’s decision [. . .] and will immediately seek to appeal those provisions to the Korea Supreme Court.”

By Song Gyung-hwa and Jang Ye-ji, staff reporters

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