NDRC fined Qualcomm 6.1 billion yuan and required Qualcomm to make five rectifications

NDRC fined Qualcomm 6.1 billion yuan and required Qualcomm to make five rectifications

Fine of 6.1 billion yuan

In the early morning of February 10th, Beijing time, China's National Development and Reform Commission (hereinafter referred to as "NDRC") announced a fine of RMB 6.088 billion on Qualcomm and set rates for smartphone manufacturers to license its technology, thus ending the investigation that threatened Qualcomm's growth in the Chinese market.

Qualcomm said in a statement on Monday that the NDRC had ruled that the company had violated China's antitrust law and that it had not challenged the ruling. The statement said Qualcomm was fined 6.088 billion yuan (about $975 million). In addition, the NDRC also set terms for royalties for Chinese mobile phone manufacturers to use Qualcomm's chip designs.

The deal settles a more than year-long investigation that had hurt Qualcomm’s ability to collect royalties in China, with some phone makers delaying or underpaying them. Qualcomm makes most of its profits by licensing basic technologies critical to mobile phone systems to phone makers.

Qualcomm said it would offer 3G and 4G basic technology patents for licenses as a concession to Chinese authorities and no longer require that the use of those patents be tied to the company's other patents. Qualcomm will charge Chinese mobile phone manufacturers for patent licensing at rates similar to those in other parts of the world, alleviating market concerns that the company might be forced to offer discounts to settle investigations. While the royalty rates are similar in percentage terms, the value of the phone, which is the basis for billing, will be assessed at 65% of the total price of the device.

"This rate is consistent with what we charge globally," said Qualcomm President Derek Aberle.

Qualcomm shares rose in after-hours trading in New York following the news.

As of the end of the last fiscal quarter, Qualcomm held a total of $31.6 billion in cash and marketable securities. In this fiscal quarter, 74% of the company's revenue came from chip sales, but 58% of its operating profit came from licensing revenue. In the past five years, Qualcomm's total royalty income has reached more than $30 billion.

Qualcomm said it now expects revenue of $26.3 billion to $28 billion in its current fiscal year ending in September, compared with its January 28 forecast of a minimum full-year revenue of $26 billion. Excluding certain one-time items, full-year earnings per share are expected to be $4.85 to $5.05, higher than the previous forecast of $4.75 to $5.05.

In addition to Qualcomm, Microsoft and Symantec are also targets of Chinese government investigations, which has increased market concerns about whether China is using such investigations to support its own companies.

The National Development and Reform Commission requires Qualcomm to make five rectifications

According to the administrative penalty decision, Qualcomm has a 100% market share in its CDMA WCDMA and LTE wireless communication standard essential patent portfolio; the market share of CDMA WCDMA and LTE wireless communication terminal baseband chips also exceeds 50%, which means it has an absolute market dominance. CDMA and WCDMA refer to the 3G standards used by China Unicom and China Telecom, while LTE is the 4G standard used by China Unicom, China Telecom and China Mobile.

Qualcomm seized the advantage of its strong market dominance and began to abuse its market dominance. This is mainly manifested in:

1. Charging unfairly high patent licensing fees.

2. Bundling non-wireless standard essential patent licenses.

3. Imposing unreasonable conditions on the sale of baseband chips.

In accordance with Article 47 and Article 49 of the Anti-Monopoly Law of the People's Republic of China, Qualcomm was ordered to stop abusing its dominant market position and was fined 8% of its sales revenue of RMB 76.102 billion in my country in 2013, totaling RMB 6.088 billion.

Lu Yanchun, deputy director of the Price Supervision and Anti-monopoly Bureau of the National Development and Reform Commission, said in an interview with CCTV Finance: According to the law, Qualcomm must pay the fine to the central government within 15 days from the date of our formal punishment. Fines are a necessary way and means to correct illegal behavior, but it is not a fundamental purpose. The investigation and handling of this case shows that our country attaches great importance to intellectual property protection and firmly opposes any abuse of intellectual property rights to exclude or restrict competition.

In addition, the rectification contents mainly include:

1. For mobile phones sold in my country, the patent fee will be changed from the price of the whole device to a patent license fee of 65% of the price of the whole device;

2. Provide patent lists to Chinese companies that purchase Qualcomm patent products and no longer charge licensing fees for expired patents;

3. No longer require Chinese mobile phone manufacturers to conduct free reverse licensing of their patents;

4. When licensing patents, non-wireless communication standard essential patents will no longer be bundled;

5. No unreasonable agreements are required when selling baseband chips.

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