Qualcomm hit with $1.23bn fine by European Commission for Apple payments

The EC says Qualcomm paid billions of dollars to Apple not to buy LTE chips from rivals; Qualcomm says it will appeal.

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The European Commission (EC) has fined Qualcomm €997m ($1.23bn) for abusing its dominance in LTE baseband chipsets market.

The EC said that Qualcomm had prevented rivals from competing in the market by making significant payments to Apple on the condition that it would not buy from rivals, which is illegal under EU antitrust rules. Qualcomm said it "strongly disagrees" with the decision and will appeal.

Margrethe Vestager, the Commissioner in charge of competition policy, said: "Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance. Qualcomm paid billions of US dollars to a key customer, Apple, so that it would not buy from rivals. These payments were not just reductions in price -- they were made on the condition that Apple would exclusively use Qualcomm's baseband chipsets in all its iPhones and iPads."

Vestager said this meant that no rival could challenge Qualcomm in the market: "Qualcomm's behaviour denied consumers and other companies more choice and innovation -- and this in a sector with a huge demand and potential for innovative technologies. This is illegal under EU antitrust rules and why we have taken today's decision."

Baseband chipsets allow smartphones and tablets to connect to cellular networks, and Qualcomm is by far the world's largest supplier. But Intel, in particular, has tried to challenge and compete with Qualcomm for customers.

Apple's iPhones and iPads make it a key customer for LTE baseband chipsets, and the EC said that in 2011 Qualcomm signed an agreement with Apple committing it to make significant payments to Apple on the condition that the company would exclusively use Qualcomm chipsets in its iPhones and iPads. In 2013, the term of the agreement was extended to the end of 2016.

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The EC said the agreement made it clear that Qualcomm would cease these payments if Apple launched a device with a chipset supplied by a rival -- and that, for most of the time the agreement was in place, Apple would have had to return to Qualcomm a large part of the payments it had received in the past if it decided to switch suppliers.

The EC said: "This meant that Qualcomm's rivals were denied the possibility to compete effectively for Apple's significant business, no matter how good their products were. They were also denied business opportunities with other customers that could have followed from securing Apple as a customer."

According to internal documents, Apple did give serious consideration to switching part of its baseband chipset requirements to Intel, but Qualcomm's exclusivity condition was a "material factor" that influenced why Apple decided against doing it until the agreement came to an end, the EC said.

Then, in September 2016, when the agreement was about to expire and the cost of switching under its terms was limited, Apple started to source part of its baseband chipset requirements from Intel.

Abuse of dominant position

The Commission said Qualcomm's practices amount to an abuse of its dominant position in LTE baseband chipsets by preventing competition on merit. While market dominance is, as such, not illegal under EU antitrust rules, dominant companies have a special responsibility not to abuse their powerful market position by restricting competition, either in the market where they are dominant or in separate markets.

The EC said it had concluded that Qualcomm held a dominant position in the global market for LTE baseband chipsets over the period investigated (2011 and 2016) and that Qualcomm has abused this market dominance by preventing rivals from competing in the market, by making significant payments to a key customer on condition that it would exclusively use Qualcomm chipsets.

The issue with such an arrangement is not that the customer receives a short-term price reduction, but that the exclusivity condition denies rivals the possibility to compete. The EC said that Qualcomm did not demonstrate that the exclusivity condition created any efficiencies, which could have justified its practices.

The EC said the fine in this case of €997.4m takes account of the duration and gravity of the infringement: the fine represents 4.9 percent of Qualcomm's turnover in 2017.

In a statement, Qualcomm said it "strongly disagrees" with the decision and will immediately appeal it to the General Court of the European Union. The EC decision does not relate to Qualcomm's licensing business and has no impact on ongoing operations, the company said.

"We are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers," said Don Rosenberg, executive vice president and general counsel at Qualcomm. "We have a strong case for judicial review and we will immediately commence that process."

Apple had not responded to a request for comment at the time of publication.

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