European Union Fines Qualcomm $1.23 Billion for Anti-Competitive Apple Deal
by Ryan Smith on January 24, 2018 7:00 AM EST
This morning the European Union’s European Commission became the latest regulatory body to fine Qualcomm over anti-competitive actions undertaken by the company. The investigation, which we’ve been expecting the results of for some time now, found Qualcomm guilty of abusing its dominant market position in LTE modems, with Qualcomm paying Apple to exclusively use its modems. As a result the Commission has levied the largest fine to date against Qualcomm, totaling over €997 million ($1.23 billion).
Qualcomm has been under scrutiny by regulators in one form or another for over a decade at this point. The company has previously been fined by China, South Korea, Taiwan, and there is still an ongoing investigation in the United States. While the precise infraction has varied some from fine to fine, in all cases regulators have cited Qualcomm for abusing its position in the cellular modem market in order to freeze out any competition. This has included their position to forcibly bundle unrelated patents and refusing to license out standards essential patents to customers who didn’t buy Qualcomm chips.
The European Commission’s case, by contrast, is perhaps the most interesting of the cases as it’s the most contemporary, dealing with Qualcomm’s actions from 2011 to 2016. The Commission’s case is solely focused on LTE shenanigans – other cases have tended to focus on CDMA or a mix of CDMA and LTE – with the regulatory body finding sufficient evidence of an anti-competitive Apple deal to charge the company under antitrust laws.
The Apple deal, which we first found out about in a US FTC investigation last year, had Qualcomm paying Apple royalty rebates in order to ensure Apple’s exclusive use of Qualcomm’s LTE modems. And while royalty rebates alone are not inherently illegal, the fact that Qualcomm was doing it in order to prevent other competitors from gaining a foothold in the LTE modem market – primarily Intel – is what makes it illegal. And while it’s just one of many handset vendors in the EU, Apple ships a large enough percentage of all handsets that landing an Apple deal can (and did) make or break an LTE modem vendor; so stopping Apple from looking outside Qualcomm would go a long way towards ensuring no other competition for Qualcomm cropped up.
Meanwhile, Apple’s cooperation with investigators has driven a large wedge between the two companies. Apple has been suing Qualcomm for another $1 billion in royalty rebates it says are still owed, and Qualcomm has been suing Apple for what they see as an unfounded global attack against the company. Apple has since begun multi-sourcing modems – starting with Intel’s XMM 7360 for the iPhone 7 in 2016 – so the European Commission’s case is more about punishing Qualcomm for past actions than it is about correcting any present market conditions.
Finally, while the Commission’s findings are not binding in other nations, this ruling sets the stage for what’s likely to be the most interesting of Qualcomm’s ongoing cases: the United States Federal Trade Commission. The US FTC has been investigating Qualcomm since the start of 2017 over the Apple deal and other aspects of Qualcomm’s business, so the fact that the Commission found enough evidence to fine Qualcomm indicates that the FTC could rule similarly on the same evidence. Never mind any other regulatory bodies out there who haven’t already begun investigating Qualcomm over the Apple deal. As a result this is likely not the last time we’ll see Qualcomm fined for their misdeeds with Apple.
Update: Qualcomm has issued a statement saying that they disagree with the Commission's ruling, and that they will be appealing the fine to the General Court of the European Union.
“We are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers,” said Don Rosenberg, executive vice president and general counsel of Qualcomm. “We have a strong case for judicial review and we will immediately commence that process.”
Update 01/25: Qualcomm has also sent over a note reiterating that Apple broke the exclusivity agreement with the launch of the iPhone 7 in September of 2016. The agreement was set to expire 3 months later
Source: European Commission
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bug77 - Wednesday, January 24, 2018 - link
This looks very much like what Intel did back in the day to keep builders from using AMD CPUs.Still, it's funny to see Apple suing about unpaid royalty rebates, while said rebates are deemed illegal.
WinterCharm - Wednesday, January 24, 2018 - link
The article outright says the Rebates are not inherently illegal.> And while royalty rebates alone are not inherently illegal, the fact that Qualcomm was doing it on order to prevent other competitors from gaining a foothold in the LTE modem market – primarily Intel – is what makes it illegal.
bug77 - Wednesday, January 24, 2018 - link
The article (and court) says rebates in general are not illegal. But these were.bigmushroom - Wednesday, January 24, 2018 - link
The court hasn't said anything yet. In the EU, the commission can decide on fines and remedies which then have to be paid and observed immediately during the court appeal.In the US, the question would be consumer harm - it's not enough that an action is "anti-competitive". Competition always creates winners and losers and competition in the US evolved to protect consumers and not competitors per se.
It's not clear at all Qualcomm has hurt consumers. Apple presumably paid a low price for the components. In a very related case, the European court vacated a decision against Intel which offered rebates to OEMs for not using AMD chips:
https://www.nytimes.com/2017/09/06/business/intel-...
Reason of the judges: where was the consumer harm?
HStewart - Wednesday, January 24, 2018 - link
Putting Intel in this discussion is almost a joke - when other ARM makers should be suing Qualcomm for it deal with Microsoft with Windows on ARM. Qualcomm is bad guy and not Intel.rocky12345 - Wednesday, January 24, 2018 - link
I am thinking even though these royalty rebates are not deemed illegal but with the fact that the EU deemed Qualcomm's actions illegal by the way they went about doing them that it would be in Apples best interest to drop the whole thing or be dragged into the whole mess as well if they choose to move forward with their own lawsuit on this.I say this because now that Qualcomm was found to be doing it in a way that was deemed illegal and with Apple agreeing to go along with it and except the money to just use Qualcomm's modems and not even looking at other companies competing products because they were basically being paid to not use other companies products they are just as guilty and should also be looked into for their own part in all of this.
Company A breaks the law & company B turns a blind eye and excepts money means both companies are guilty.
rocky12345 - Wednesday, January 24, 2018 - link
I just wanted to add that Apple will never be brought into this for 1 reason they most likely have an agreement with the EU to give them a free pass if they agree to help with the case. Again I stress it would be in Apples best interest to drop the case against Qualcomm but they probably also have a free pass on that as well and won't get their hands slapped for any of this.id4andrei - Wednesday, January 24, 2018 - link
Perfectly said. Apple took the bribe and now sues because they cannot benefit from it anymore. When Dell(and the others) took Intel's money they at least had the courtesy not to sue Intel for unpaid rebates.DanNeely - Wednesday, January 24, 2018 - link
Intel also had the good grace not to sue Dell/etc when they started using AMD CPUs again; which might have something to do with them not suing Intel.Neither company looks good here; but assuming the EC's ruling means that like the Intel rebate program QCs was designed to penalize not buying from them 100% then QC's definitely more in the wrong.
Dunno if Apple's at any legal risk from this mess; but if Dell/etc had been smacked for participating in what they should've known was an illegal rebate program Qualcomm might not have been able to sign as many phone vendors up for their version.
melgross - Wednesday, January 24, 2018 - link
Well, the reality of it is that Qualcomm was overcharging Apple by about that amount for years. If you bothered to understand the article, you would have read that Qualcomm was charging Apple illegally for bundled patents that had nothing to do with Apple business, and refusing to license out required patents to others.The rebate was giving Apple back their overcharges, but with the proviso that Apple not use another vender. That’s really considered to be blackmail. When Microsoft was doing similar things to Dell, Hp and others, Microsoft was caught for it, but the OEMs were not charged. That’s normal.