The Supreme Court practically ruled in favor of the Fair Trade Commission (FTC) in a suit filed by Qualcomm Inc., the largest mobile chipmaker in the world, to revoke the penalty imposed on it by the Korean antitrust watchdog.
Previously, the FTC fined the chipmaker 273.2 billion won (US$242.74 million) for paying rebates to its Korean clients to encourage them to buy more of its modem and radio frequency (RF) chips.
The Supreme Court upheld a verdict handed down by the Seoul High Court, which was in favor of the FTC. However, the court said it could not say that the so-called “market blockade effect” occurred during a certain period when Qualcomm provided rebates to LG Electronics Inc. Therefore, it judged that the relevant fine should be canceled.
The Supreme Court announced on Feb. 11 that the penalty decision on Qualcomm by the FTC for providing rebates to its clients was not completely lawful, sending the case back to the Seoul High Court for reconsideration. The ruling came 10 years after the FTC imposed the fine on Qualcomm in 2009 for charging differential royalties and offering rebates. The case was pending at the Supreme Court for five years. Commenting on the court’s ruling, an official from the FTC said, “It is meaningful that the Supreme Court judged that providing conditional rebates is a violation of the Fair Trade Act.”
Qualcomm offered millions to tens of millions of dollars in royalty discounts and rebates to Korean smartphone makers, such as Samsung Electronics Co. and LG Electronics, every year between 1999 and 2009 on condition that they buy Qualcomm’s modem and RF chips for certain smartphone models.
The FTC fined the biggest-ever fine as of 2009 and Qualcomm resisted by filing a revocation suit. The Seoul High Court, which was the court of first instance, ruled in favor of the FTC in June 2013, saying Qualcomm's rebate offering was an act of monopoly power abuse. In particular, it pointed out that the incentives exclusively paid to LG Electronics had the effect of blocking at least 40 percent of the market, which was equivalent to LG Electronics’ market share. In other words, the chipmaker blocked its competitors from entering at least 40 percent of Korean market.
In the latest ruling, however, the Supreme Court said, “It cannot be said that Qualcomm’s provision of incentives to LG Electronics for purchasing its RF chips had the effect of blocking more than 40 percent of the domestic CDMA2000 RF chip market.” It added, “The share of LG Electronics in the CDMA2000 cellphone market between 2006 and 2008 was only 21.6 percent to 25.9 percent. Samsung Electronics used more non-Qualcomm RF chips over the period and Qualcomm’s domestic market share also showed a sharp decline from 91.4 percent in 2002 to 77.1 percent in 2004.” The Supreme Court canceled 40 billion won to 50 billion won (US$35.54 million to 44.42 million) worth of the FTC fines, which accounted for 15 percent of the total.
The Korean Supreme Court’s latest ruling is bad news for Qualcomm, which is currently engaged in several patent suits across the globe. Apple brought an action against Qualcomm in 2017 for abuse of market dominant position. Qualcomm also entered into a legal dispute with Huawei Technologies Co. over patent rights.
Above all, industry watchers are wondering whether the latest ruling by the Supreme Court will affect another legal battle underway in the Seoul High Court over 1 trillion won (US$888.49 million) worth of penalty imposed by the FTC on Qualcomm.
The FTC alleged that Qualcomm abused its standard-essential patent (SEP) in making contracts with Korean smartphone makers and fined 1.03 trillion won (US$916.13 million) in 2016. It was the largest figure ever. Qualcomm filed a suit to nullify the FTC decision immediately.