Korean Government Hits Qualcomm with 1 Trillion Won Fine

South Korea's antitrust regulator has slapped its largest-ever fine on Qualcomm Inc. for allegedly abusing their dominant position in the chip set and patent licensing markets to commit unfair business practices in the country. However, domestic smartphone manufacturers will not be able to benefit from the decision in the short term.  

In fact, Qualcomm took legal action against the Korea Fair Trade Commission (KFTC) for the decision to fine about 1 trillion won (US$824.74 million) but the domestic industry expect that the court will give the first verdict on the suit in 2020 at the earliest. An official from the industry said, “When the court case proceeds, even the first argument will take place in June or July next year and long legal proceedings are waiting after that. It is too early to talk about South Korea’s gains and losses at the moment when we are not sure Qualcomm will win or lose the case.”

To be sure, when Qualcomm lose the case, it can lighten the burden of excessive royalties on domestic smartphone makers. Qualcomm has been charging 5 percent of the selling price of a complete device, or mobile phone, for royalties. Industry sources say that the charge calculation method can be improved depending on the result of the lawsuit.

However, the prevailing opinion is that it will not lead to the decrease in smartphone prices. Considering complex smartphone production cost structure and distribution structure, actual wholesale and retail prices will not be lowered even when some costs are reduced.

Another official from the industry said, “Products, which are sold around the world such as Samsung Electronics’ Galaxy smartphones and LG Electronics’ G Series, should consider the selling prices in not only the domestic market but also the global market. So, it is hard to expect that the price of smartphones will fall due to the decision of the court.” However, mobile phone makers will be able to see their operating profits increase when royalties decline so it will be a boon for dividends to shareholders.