Insufficient Compensation
On June 13, the Korea Fair Trade Commission (KFTC) rejected a voluntary consent resolution plan proposed by Broadcom, a U.S. telecommunications semiconductor company, after being accused of abusing Samsung Electronics. This is because the KFTC judged that the amount of compensation for the damage was far from enough. Broadcom has been under probe by the KFTC since June 2020 for allegedly forcing Samsung Electronics to sign a long-term purchase agreement.
The consent resolution system closes a case without imposing legal sanctions if a company subject to punishment voluntarily provides a remedy for damage. This is the first time since the system was introduced in 2011 that the KFTC has decided to dismiss a case while proceeding with a consent resolution process.
Earlier, the KFTC was looking into the allegation that four Broadcom affiliates that supply key smartphone components had forced Samsung Electronics to sign a long-term contract to supply parts for three years since January 2021. The Korean market watchdog also considered unfair the terms of the contract that required Samsung to purchase more than US$760 million worth of smart device parts from Broadcom each year and pay the difference if the purchase amount fell short. Samsung Electronics reportedly accepted the terms because if the supply of parts was cut off it would have severely disrupted production.
The KFTC concluded its investigation in January 2022 and filed its investigation report, but it began a consent resolution process at Broadcom’s request in August 2022. The consent resolution included the creation of a 20 billion won (US$15.7 million) fund to support small and medium-sized businesses in the semiconductor and IT sectors, and the provision of quality assurance and technical support for parts purchased by Samsung Electronics for three years. However, the KFTC rejected the final consent resolution plan, stating that it fell short of showing Broadcom’s commitment to improve and compensate as evaluated at the time of the initial decision. “We regret the KFTC’s decision to reject our funding proposal, which can significantly benefit the Korean semiconductor industry,” Broadcom said.
The KFTC will now re-examine Broadcom’s unfair practices and determine the level of its penalties on the U.S. chipmaker. It will make a decision late this year at the earliest. Some observers believe that depending on the level of the punishment and the size of the fine, Samsung may file a lawsuit against Broadcom for hundreds of billions of won in damages.