European Commission Doubles Down On Antitrust Investigations Against Giant U.S. Chipmaker Qualcomm

A View from Constantine Cannon’s London Office

By Richard Pike and Yulia Tosheva

The European Commission (“EC”) announced yesterday it has opened two antitrust investigations into possible abusive behavior by the U.S. technology company Qualcomm, the world’s largest supplier of baseband chipsets.

Investigation into rebates

The first investigation will examine whether Qualcomm abused its dominant market position by offering rebates and other financial incentives to customers on condition that they buy baseband chipsets exclusively from Qualcomm.

In June 2014, the General Court of the European Union (“EU”) upheld a record fine of 1.06 billion euros against Intel, one of Qualcomm’s major competitors, for granting secret rebates to computer makers provided they buy processors exclusively from Intel.  These rebates allegedly prevented Intel’s closest rival, Advanced Micro Devices, from gaining customers.  A further appeal by Intel to the Court of Justice remains pending.

Rebates are a problematic area of law involving complex economic issues.  The EC and the EU Courts have traditionally had a broad margin of discretion in assessing such cases, and this discretion seems to have become even broader.  On May 21, 2015, Advocate General Kokott delivered an opinion in the Post Danmark case concerning rebates the Danish postal operator Post Danmark allegedly used to push its competitors out of the market.  The Advocate General took a (worryingly) conservative stance as to the criteria for assessing the anti-competitive effects of rebate schemes, stating that an economic analysis is not necessarily required and an overall assessment of all relevant circumstances must be conducted.

The reaction of the Court of Justice to the opinion of the Advocate General remains to be seen in the coming months.  In any event, the choice of the Advocate General to promote a traditional legal analysis, not necessarily based on objective economic criteria, will no doubt be a concern for Qualcomm in the latest investigation.

Investigation into predatory pricing

The second investigation is looking into whether Qualcomm engaged in “predatory pricing” by selling chipsets at prices below costs in an effort to force competitors out of the market.  The existing EU case law on predation is limited and lacks clarity as to the exact criteria that should be used in the analysis.

The last time the EC penalized predatory pricing was in 2003 when it fined France Telecom’s broadband business Wanadoo Interactive.  We can only hope that the investigation into Qualcomm will give more guidance as to the EC approach in assessing predation cases.

Previous investigations into Qualcomm

In the last decade, Qualcomm has been subject to increased antitrust scrutiny by authorities around the world.  Most recently, on February 9, 2015, the Chinese competition regulator reached a long-awaited settlement with Qualcomm following a 14-month antitrust investigation into the company’s patent licensing practices.  Qualcomm agreed to pay a record fine of $975 million, the highest penalty ever imposed in Chinese antitrust enforcement history.

Qualcomm’s patent licensing business is also subject to an ongoing investigation by the U.S. Federal Trade Commission.  In 2007, the European Commission initiated proceedings against Qualcomm in relation to its patent licensing practices.  Although the European regulator closed the investigation in 2009, it stated that the case “has raised important issues about the pricing of technology after its adoption as part of an industry standard.”  In 2009, the South Korean antitrust agency fined Qualcomm $208 million for abuse of a dominant position involving discriminatory royalties and exclusionary rebates.  Again in 2009, the Japanese competition authority ordered Qualcomm to modify its patent licensing practices.

The EC antitrust investigations against Qualcomm are the latest in a series of EU inquiries against U.S. technology companies, including Google and Amazon. So far, in addition to the fine of 1.06 billion euros on Intel, Microsoft has also been fined more than 2.2 billion euros for antitrust violations in Europe.

The EU Commissioner for Competition Margrethe Vestager stated: “We are launching these investigations because we want to be sure that high tech suppliers can compete on the merits of their products.  Many customers use electronic devices such as a mobile phone or a tablet and we want to ensure that they ultimately get value for money.  Effective competition is the best way to stimulate innovation.”

Qualcomm expressed its disappointment in a statement:  “We have been cooperating and will continue to cooperate with the Commission, and we continue to believe that any concerns are without merit.”

– Edited by Gary J. Malone

Tagged in: Antitrust Enforcement, Antitrust Litigation, International Competition Issues,