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IP Litigation, IP strategy

China Antitrust Enforcement Against Qualcomm: A Translation of the NDRC Official Release


By Lei Wang
A Translation of the NDRC Official Release

Summary

The National Development and Reform Commission (NDRC) has completed its 14 months investigation into Qualcomm’s patent licensing practices and ordered Qualcomm to pay a penalty at 8% of its sales in the Chinese market in 2013, total 6.088 billion yuan (approximately $975m or £640m) for breaching national antitrust regulations.

ARTICLE
In November 2013, NDRC launched Qualcomm’s antitrust investigation, which involved dozens of domestic mobile phone manufacturers and baseband chip manufacturers.

After investigation and analysis, the NDRC concluded that, according to the China Against Unfair Competition Law, Qualcomm has a dominant market position in CDMA, WCDMA, LTE wireless communications standards essential patents licensing markets and baseband chip market, the behavior of abuse of dominant market position includes the following:

Firstly, unfairly high patent licensing fees were charged. Qualcomm refused to provide a patent list for licensing; expired patents were included in their patent portfolio and licensing fees were charged on these expired patents. In addition, Qualcomm required that patent licensees provide a free reverse cross-license regarding their own relevant patents, but refused to provide any consideration or deduction of the cross-license value in the license fee. In addition, Chinese licensees have been forced to pay for non-standard essential patents that were included in a package license. And even though it was using a high royalty rate, Qualcomm still charged license fees based on the entire wholesale net price of the device. The combination of these factors led to exorbitant licensing fees.

Secondly, there was tying of non-standard essential patents with standard essential patents, without justification. Qualcomm did not distinguish the nature of non-standard essential patents from that of standards essential patents, nor does Qualcomm license them separately. Rather, Qualcom used a dominant position in the wireless communications market to tie non-standard essential patents with essential patents when licensing. This forced Chinese companies to pay for non-standard essential patents that they did not require.

Thirdly, there were unreasonable conditions in its baseband chip supply contracts. Qualcomm attached a covenant not to sue clause in the patent license agreement as a fundamental condition for the supply of baseband chips to Chinese licensees. If the potential Chinese licensees did not sign the agreement with this unreasonable clause, or if they choose to bring a lawsuit against Qualcomm regarding the license agreement, then the supply of baseband chips to that potential licensee would be teminated. Chinese licensees have therefore been forced to accept unfair, unreasonable patent license terms.

The NDRC therefore rule that Qualcomm’s acts have eliminated or restricted market competition, inhibited technological innovation and development, and harmed the collective interests of consumer in China. This unlawful practice is in violation of the Law of China Against Unfair Competition on the prohibition of market participants having a dominant market position to charge unfairly high prices, tying products for sale without justifiation, and adding unreasonable trading conditions in the course of transaction.

During the antitrust investigation, Qualcomm cooperated with the investigation and offered a package of rectification measures. These measures include:

  1. For use and sale of mobile phones in the territory of China, the license fee will be charged based on 65% of the wholesale net price of the device;
  2. When negotiating patent licences with Chinese companies, Qualcomm will provide a patent list and will not charge for expired patents;
  3. Qualcomm promises not to require a free patent cross-license from Chinese licensees;
  4. With regard to standard essential patents licensing, Qualcomm promises not to tie non-standard essential patents without justifiable reason;
  5. Qualcomm promises not to incorporate unreasonable conditions into its license agreement for the supply of baseband chips; specifically not to include a covenant to sue clause into the license agreement.

Qualcomm’s proposed rectification plan has been reviewed and approved by the authorities. Qualcomm also confirmed it would continue to invest in China to seek more development. The NDRC welcome Qualcomm’s continued investment, and support Qualcomm for charging reasonable royalties for the use and sale of its patent-protected technology.

End

Original source retrieved on 10 February 2015:
http://jjs.ndrc.gov.cn/gzdt/201502/t20150210_663872.html

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