China Fines Qualcomm And Demands Patent Re-licensing

San Diego – China’s National Development and Reform Commission (NDRC) recently led an investigation against San Diego based Qualcomm regarding an anti-trust violation concerning its patents. Qualcomm was reportedly fined $975 million for violating China’s anti-monopoly law.

Qualcomm is one of the largest producers of smartphone chips in the world. With internet accessibility being among the most important features for cellphone users, the NDRC claimed that Qualcomm was abusing its market position. Most of Qualcomm’s revenue comes from its patent licensing fees, which China claimed were too high. Producers of phones in China pay a licensing fee for use of the chips, with Qualcomm receiving royalties. As the dominant seller of the chips and related technology, Qualcomm allegedly forced licensees to overpay and agree to certain terms and conditions. The current resolution proposed by NDRC is a new set of licensing rates that protect the Chinese consumer.

The investigation lasted over a year and threatened to stand in the way of one of Qualcomm’s biggest markets. With China being the second largest economy in the world, Qualcomm has not fought the fine and has agreed to the conditions of royalties regarding phones sold in China.

It has been rumored that China’s decision to prompt an investigation was a defensive measure regarding the release of the new 4G network that China’s carriers will offer. For at least the first half year, Qualcomm will be the sole chip developer that can produce for both 3G and 4G networks. Thus, it may have been China’s plan to step ahead of the chip manufacturers before the release of the new system.

There has been some speculation that the recent Qualcomm investigation will set a precedent for other foreign companies doing business in China. Other top technology producers such as Microsoft have also been subject to investigations. Some have claimed that the investigations are merely China’s attempt to slow U.S. based companies and to help develop their own domestic companies.

China’s investigation stunted some of the royalties Qualcomm should have received, with some manufacturers not paying as much as they owed. However Qualcomm’s profits did not take a hit during the yearlong investigation.

Qualcomm was previously under investigation in the European Union, Japan, and South Korea. While the EU and Japan dropped their investigations, Qualcomm was also fined by South Korea for violating anti-monopoly laws.