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Wednesday, January 24, 2018
European Commission Fines Qualcomm $1.23 Billion for Paying Apple to Use Its Chips


EU antitrust regulators hit Qualcomm with a 997 million euro ($1.23 Billion) fine on Wednesday for paying Apple to only use Qualcomm chips, rather than those made by rivals such as Intel.

The EC found that Qualcomm prevented rivals from competing in the market by making significant payments to Apple on condition it would not buy from rivals.

Commissioner Margrethe Vestager, 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.

This meant that no rival could effectively challenge Qualcomm in this market, no matter how good their products were. 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."

In 2011, Qualcomm signed an agreement with Apple, committing to make significant payments to Apple on condition that the company would exclusively use Qualcomm chipsets in its "iPhone" and "iPad" devices. In 2013, the term of the agreement was extended to the end of 2016.

The agreement made clear that Qualcomm would cease these payments, if Apple commercially launched a device with a chipset supplied by a rival. Furthermore, 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. 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.

In fact, internal documents show that Apple gave serious consideration to switching part of its baseband chipset requirements to Intel. Qualcomm's exclusivity condition was a material factor why Apple decided against doing so, until the agreement came to an end. 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. But until then, Qualcomm's practices denied consumers and other companies the benefits of effective competition, namely more choice and innovation.

The fine in this case of €997,439 represents 4.9% of Qualcomm's turnover in 2017.

Qualcomm "strongly disagrees with the decision and will immediately appeal it to the General Court of the European Union."

"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 of Qualcomm. "We have a strong case for judicial review and we will immediately commence that process."

The Commission has also ordered Qualcomm to not engage in such practices or practices with an equivalent object or effect in the future.

EU antitrust regulators have come under pressure after European judges sent a case against U.S. chipmaker Intel back to an EU court for an appeal. Intel was fined 1 billion euros in 2009 for paying computer makers to buy most of their chips from them.

Google has also appealed against a record 2.4 billion euro fine for giving prominent placements in searches to its shopping service and demoting rival offerings.

Apple and Qualcomm are meanwhile locked in a legal battle over Qualcomm's business practices, which started a year ago, with Apple suing Qualcomm for nearly $1 billion in patent royalty rebates that the chipmaker allegedly withheld from the phone maker.

Other regulators, including the U.S. Federal Trade Commission, are also investigating Qualcomm's dealings with Apple.


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