On 24 January 2018, the European Commission ("Commission") announced that it had fined Qualcomm €997 million for abusing its dominant position in the market for LTE baseband chipsets, by making significant payments to its key customer, Apple, on condition that it would not buy from rivals. Whilst the final decision is yet to be published, the Commission has indicated that it considers that Qualcomm's conduct prevented rivals from competing in the market and denied customers and consumers more choice and innovation in this sector.
Qualcomm is the world's largest supplier of LTE baseband chipsets, which are a key component for the manufacture of smartphones and tablets as they enable devices to connect to cellular networks. In 2011, Qualcomm signed an agreement with Apple, a key customer for LTE baseband chipsets, under which it committed to make "significant payments" to Apple on condition that Apple would exclusively use Qualcomm chipsets in its iPhones and iPads. The agreement was entered into until 2016. The agreement also provided that Qualcomm's payments would cease if Apple launched a device incorporating a chipset supplied by a rival.
The Commission's Findings
The Commission found, based on its assessment of qualitative and quantitative evidence, that this conduct amounted to an abuse of a dominant position, which has harmed consumers and competition by denying rivals such as Intel the opportunity to compete effectively for Apple's business. In making this finding, the Commission relied on the following factors:
- the extent of Qualcomm's dominant position – it was found to have a 90% market share in the market, where the Commission also found high barriers to entry;
- the significant amounts paid by Qualcomm in exchange for exclusivity;
- the fact that, if it switched suppliers, Apple would have needed to return a large part of the payments it already received, as well as forfeiting future payments;
- the broad range of contemporaneous documents – in particular, an internal Apple document indicated that Apple had given serious thought to switching suppliers, but that the exclusivity agreement was a key factor against doing so;
- the importance of Apple as a customer – with a worldwide global brand, Apple accounted for a third of global LTE chipset demand; and
an assessment of Qualcomm's "price-cost test", which the Commission concluded failed to support Qualcomm's claim that its exclusivity payments were not capable of having anti-competitive effects.
Penalty
The Commission press release notes that the fine of €997,439,000 takes accounts of the duration (c. 5½ years) and gravity of the infringement, and is aimed at deterring market players from engaging in future anti-competitive conduct. The fine represents 4.9% of Qualcomm's turnover in 2017.
Comment
Qualcomm's fine mirrors similar substantial fines imposed on US tech companies by the Commission for abuse of a dominant position, including fines on Google, Microsoft, IBM and Intel.
Like Intel and Google, the Commission will face further litigation in relation to its decision as Qualcomm has said that it will appeal the decision and stated that "we are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers".
Qualcomm is also facing a second EU investigation into alleged predatory pricing, where the European Commission is investigating whether Qualcomm squeezed its rival Icera out of the market for dongles.
With thanks to Antonia Bussey of Ashurst for her contribution.
