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FTC Gives Qualcomm Correction Order that Does Not Sit Well with Reality
Correction Order to Qualcomm
FTC Gives Qualcomm Correction Order that Does Not Sit Well with Reality
  • By Michael Herh
  • October 19, 2017, 10:30
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It was found that Korea’s Fair Trade Commission (FTC)’s order to amend Qualcomm’s unfair contracts with Korean handset makers was virtually invalid.

According to data from Jeon Hae-cheol, a lawmaker of the ruling Minjoo Party who belongs to the National Assembly's National Policy Committee, Qualcomm has not submitted an implementation plan to verify whether or not the order was followed to the FTC for more than 10 months. It is said that an implementation plan submitted earlier this year contained only an intent which says, "Please consider our situation where we fight a legal battle with the Fair Trade Commission" without the deadline or details of completing the implementation of the correction order. Therefore, the FTC has demanded the submission of a plan for the implementation of the correction order by the end of October. However, Qualcomm only stated, "The FTC's correction order goes against the principles of international law."

Qualcomm received an order for corrective actions from the FTC at the end of last year because the company was suspected of violating the competition law. Qualcomm, which monopolizes the mobile communications chip market from the 2nd generation (2G) to the 4th generation (4G) long-term evolution (LTE), signed contracts that would not use communications chips made by companies other than Qualcomm with Korean handset makers. In addition, Qualcomm took an attitude that the company will not supply communication chips developed by Qualcomm unless Korean handset makers accept conditions proposed by Qualcomm including patent fees and use methods. The FTC thinks that Qualcomm's contractual behaviors are an unfair contract that abuses the company’s market dominance.

"We have little choice but to accept unfair contracts because Qualcomm’s standard LTE communication chips are vital to production of LTE mobile phones," said a representative of a handset maker who asked for anonymity.

Korean handset makers expected that such contracting practices will be corrected after the Fair Trade Commission’s correction order. This is because the Fair Trade Commission said in a press release released late last year, "The commission banned Qualcomm from forcing patent licensing contracts while holding the supply of telecom chips hostage and prohibited unfair contract terms advantageous to Qualcomm."

However, observing the contents of the actual corrective order, there are provisions such as “When a mobile phone maker expresses an intention to amend its contract” and “When a mobile phone maker does not want.” The contents have a structure that a correction can be made only when a mobile handset maker directly demands Qualcomm in a superior position that Qualcomm make the correction. Moreover, the Fair Trade Commission has to report a company that does not abide by a correction order to the prosecution. However, there is a limit to the Korean prosecution’s investigations into foreign companies.

With reference to this, "When we ordered Qualcomm to collectively revise contracts without checking the opinions of mobile phone makers, there was a possibility that Qualcomm would refute the order, saying that the commission’s order went too far, citing cases that some handset makers did not want to revise contracts," said Yoo Young-wook, a director of the Fair Trade Commission.

This made handset makers throw a tantrum, saying, “This explanation is like telling slaves to directly demand masters that masters liberated their salves. "Qualcomm did not accept the FTC decision and has filed an objection against the decision to the High Court. Therefore, it is necessary to demand the modification of contracts at the end of the lawsuit," Samsung Electronics and LG Electronics said

"The Fair Trade Commission's corrective measures will be ineffective, waiting for a court ruling that takes years in the period of the fourth industrial revolution in which market situations change rapidly," lawmaker Jeon Seon-cheol said. "We have to devise measures that can correct contracts immediately without a request from a company in a lower position if the Fair Trade Commission finds the contracts unlawful."