Commission fines Qualcomm €997 million for abuse of dominant market position
europa.eu
europa.eu
Side-note: As a Dane, so weird seeing Margrethe Vestager so prolific in this, used to seeing her as one of the usual politicians.
"The fine represents 4.9% of Qualcomm's turnover in 2017."
"In accordance with the Commission's 2006 Guidelines on fines (see press release and MEMO) the fine has been calculated on the basis of the value of Qualcomm's direct and indirect sales of LTE baseband chipset in the European Economic Area (EEA). The duration of the infringement established in the decision is five years, six months and 23 days."
Qualcomm made 122.5 billion in the last 5 years[2]. Making them pay 1% of that for breaking the rules isn't what I would call "taking this hard stance on antitrust".
[1]: http://europa.eu/rapid/press-release_IP-18-421_en.htm [2]: https://www.statista.com/statistics/737780/revenue-of-qualco...
(Source: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELE...)
If they can apply it yearly, they can fine 2.2 billion per year, which is over a third of Qualcomm's 5.3 billion per year profit.
Sure it's a simple napkin calculation, but as long as the napkin calculation comes out to "not worth it" that's fine.
Source for numbers: http://markets.businessinsider.com/stock/QCOM/financials
I wondered what the ultimate reason was for Microsoft to bow down and apply the required changes to windows, but I imagine being labeled as a recurent law breaking business might have a lot of side effects.
At a very small scale, I knew engineers that didn’t want to apply for MS jobs because of that. I wonder if individual states or other regulation agency also would change their stance regarding a company once behavior change requested by the EU are ignored on a regular basis.
1. That's their revenue not their net income, which looks to be 20~25% of revenue.
2. Indexing the fines on revenue from the domain/division where improprieties happened seems logical.
2. It seems logical but it isn't. In you're a rich kid that starts selling drugs your fine is going to be based on all the money you have, not just the money you made selling drugs. That makes all the sense in the world given that the fine is supposed to hurt you financially in order to change your behavior.
I guess by hard stance, I more meant any stance at all, instead of simply bowing to threats by multinational corporations. It's very refreshing.
Also, you're quoting revenue it's profit that's important.
PS: If the US choses not to take their own piece of Qualcomm's illegal profit's IMO that's on them.
Shouldn’t the CEO go to jail? That might make them behave themselves, and possibly go some way towards justifying their astronomical salaries.
No. While it's always tempting to bring out the torches and pitchforks and go straight for the emotional response, please try to keep in mind that specifics in law matters because it affects the rights of the regular person far more. Criminal and Civil violations of the law are not the same thing for very good reason, and that's not a matter of white collar vs blue collar or any other color of collar. We want to discourage civil violations, but in general those are things where the situation can be made whole purely through money. There are no victims of non-reversible physical harm. Qualcomm's violation is not the same thing as dumping carcinogens into a water supply or VW's pollution or worker safety violations or cutting corners on life-safety product requirements or whatever. It's not even clearly market damaging to the level of situation's like Intel's actions vis-a-vis AMD. It's a violation and one they should have caught, but at least mildly fuzzier, and the violation is already over not ongoing. A sizable fine, investigations into more, and the threat of larger ones in the future seems a genuinely reasonable response to a situation like this absent continued patterns of bad behavior.
Seriously, we have way too much criminalization of things that should be civil violations already. There are certainly many times that people in power get away with things that should be criminal and we should be trying to bring them into line with what applies to everyone, but there are also a lot of times where people in power get away with things that shouldn't be criminal for everyone. In that case the common feeling of "bringing them down to our level" is backwards, we should instead be working to bring the standards for everyone else up. Both are equalization of advantage, but that doesn't make them an equivalent end result. Prison is not something we should ever be in the habit of reflexively resorting to.
Do you think that perhaps this has to do with the much larger pool of resources put behind criminal prosecution vs civil?
I also disagree that there are no victims. Money and the lack thereof has profound effects on people's lives. People get depressed, get divorced, commit crimes and commit suicide due to the inscrutable flow of capital into and out of their lives. There are victims, somewhere. We just don't know who they are.
I don't think you are wrong, there should be individuals held accountable.
We will nothing, and we will fix nothing by slapping these companies on the wrist and then letting them go back to what they're doing.
It does not seem right to base the fine on the total revenue or profit of the company, which may include many other product lines and businesses.
EDIT: I don't understand, how can anyone be against this? Doesn't every good person wish that all people and companies would behave according to the law? Did you vote for Trump?
It’s a weird and uniquely American thing.
One of the stranger things I’ve found after moving here from Australia (which has a very strong pro-consumer government agency called the ACCC which is non-partisan).
Maybe you didn't mean it that way, but I don't think it's healthy for a democracy to talk about politicians with such a negative undertone.
If there are too many black sheep, it's not the fault of "the politicians", it's the fault of the public for not voting for the alternative or being the alternative.
You say you don't think it's healthy to talk that way, but that's backwards. People talk this way because the democracy isn't healthy.
You're not reading the right colour books.
I did, although Vestager is not as bad as the majority of the parties—I very much hate populistic politics, which politics usually are, except, luckily, for some outliers.
> If there are too many black sheep, it's not the fault of "the politicians", it's the fault of the public for not voting for the alternative or being the alternative.
Well, it is also the fault of the politician themselves for being a so called black sheep. They don't get an out just because they were elected in.
Furthermore, I put my vote where my mouth is, but democracy is not really a suited type of governance when the majority of the population are not qualified to decide on a large majority of the decisions made. People vote with their feelings, as we've seen in the US. Sadly, it's the best we've got still, or I can at least not come up with anything better.
https://www.wsj.com/articles/the-antitrust-case-against-face...
The main takeaway I got was that they have different views on what is a monopoly and how/when it is bad. From the article:
> The different outcomes hinge in part on different approaches. European regulators are more likely to see a shrinking pool of competitors as inherently bad for both competition and consumers. American regulators are more open to the possibility that it could be natural and benign.
Paying billions of dollars to Apple to include only their baseband chips to monopolize is hardly natural.
It happens all the time. Then again maybe this is changing.
Has the EU cracked down on many non-US companies?
Why would you have qualms?
EU Competition commission has fined a lot more European companies than American companies.
And there is the whole lot of small fine to other companies.
The OP was the one claiming, he has to back with numbers.
[0} Is only fines for cartels, look at the companies
[0] http://ec.europa.eu/competition/cartels/statistics/statistic...
Maybe you should rethink your judgement of "usual politicians".
Never forget that they always, and inevitably, try to balance competing (yet valid) interests: issues where the answer is obvious almost by definition don't get to be "political"[0].
Any time you read about a political debate and think "why are they so stupid? Just..." it's highly likely that your neighbor one door down is muttering the same, only with an opposing answer.
[0]: US is exempt from this rule, because about half of the citizen and politicians have long gone off the deep end.
They are an American company. Presumably all the executives live in America. Could the EU put out an arrest warrant on them and hope the US extradites them? Could the EU then refuse to allow Qualcomm to sell anything within the EU? Would this mean Apple could then not sell any iPhones in the EU?
Just curious how such a scenario could pan out..
You really don't want to do this, who knows what they will take. It could be something that is important for running the company and this could wreak a lot of havoc.
They could start by adding a daily-fine for each day they don't pay the fine; then interest on top. Then, you can imagine all smartphones with a Qualcomm chipset suddenly being banned from a 510M+ people market. All companies in Europe being barred from doing any business with Qualcomm; all Qualcomm IP nullified in Europe. Imagine having any of your officials not being able to travel inside Europe and cross-extradition countries, forever. The list goes on.
In reality, the EU is world's largest economy, with about 20% of world GDP. It is also under the "rule of law", even more than the US by some measures.
In such a society with a long history of democracy and judicial independence, it is almost by definition impossible for a company to be ruined by government action unless it commits universally-recognised crimes (fraud, corruption etc.) or its business by nature entails equally recognized negative external effect (tobacco, environmental damage,...).
Because of the undertone possibly hinting at nationalistic motives (i. e. Europe harming a foreign competitor for its own business' benefit), I'll also point out that fines by the EU have historically tracked almost perfectly with the relative size of world regions' activity in the EU. In other words: European companies make up, say, 60% of the European market, and are also hit with 60% of the total fines.
The only divergence from this correlation has actually been a slightly lower number and amount of fines against US companies, and slightly higher enforcement actions against Asian companies. I believe this is most likely caused by the US' own national enforcement (and, as a result, corporate governance) being in better shape than Asia's.
to add to this, most of the european fines don't make the news because they either consist of a "mundane" market (like a major steel fabrication plant in italy) or are simply for smaller companies which won't make international news anyways.
IANAL but I would expect EU antitrust law is a civil matter, not penal, so no, jail would be off the table. The EU has no police corps and no real "law" - it emanates resolutions that countries then turn into laws, and provides a location where treaties can be signed. Some of these laws and treaties define certain specific roles for certain EU authorities.
This is why the EU Commission will only ever emit "fines" and "sanction infractions", rather than prosecuting this or that person.
This said, the usual procedure is to perpetuate and escalate fines: they will fine you the first time, and if you keep misbehaving they will fine you pretty much every year, plus compounded interest of course. If you don't pay, they can ask specific countries to act and freeze or requisite your assets, or worse - depending on the laws of the specific country. Countries can (and occasionally do) choose to ignore these demands, but it would result in sanctions against the country, which are directly taken out of payments from the EU budget (for infrastructural work, education etc etc). This is, incidentally, why Ireland is forced to abide by the tax ruling on Apple: if they don't, EU funds will dry up until the whole sum is repaid.
In the worst-case scenario, the EU Commission could emit a directive banning all products from Qualcomm in the EU market, and let fines spiral into the trillions, but somehow I don't expect this will actually happen.
Who fights by the sword, dies by the sword, I guess.
I have a limited understanding of how these agreements, but isn't that just completely illegal?
How do you structure an agreement to be even a tiny bit plausible?
According to Qualcomm's countersuit, Qualcomm did not demand that exclusivity first. It was Apple who proposed "discount" or "rebates" in exchange for the exclusivity and Qualcomm acquiesced to Apple's demand. Apple then turned around started telling regulators all around the world that Apple was FORCED to sign the exclusivity. Qualcomm was not allowed to directly counter Apple's claims, unlike US lawsuits, and Qualcomm's only recourse was to withhold the $1B rebate in breach of their business agreement -- their agreement forbids Apple from giving false testimony about their contract to regulators. I'm fairly sure that EU's findings are similar to those of China, Taiwan and Korea.
Qualcomm's anti-competitive baseband licensing was well known before and I think Qualcomm got dinged for the right reason. But Apple's claims are directly countered by Qualcomm and, given Apple's past problem with GTA and other suppliers and unless there are other victims of Qualcomm's "exclusivity" agreement -- I'm inclined to believe Qualcomm was tricked by Apple's clever lawyers.
Apple in this case is not a victim of Qualcomm's anti-trust/competition violation, but a colluder and should have been punished accordingly. I'm fairly sure however that, like the previous investigation in Korea and Taiwan, Qualcomm was not allowed to defend and counter Apple's claims, but I speculate it was in part their investigation centered around Qualcomm's baseband OEM licensing (or lack thereof) in violation of FRAND, of which Qualcomm was clearly guilty.
Apple has been losing legal battles against wireless patent holders for as long as the iPhones have been around. In their quest to squeeze their wireless suppliers (Nokia, Ericsson, Qualcomm, etc...), Apple has challenged their licensing practices -- ie, royalty rates and basis -- every time their licensing contract was up for renewal, claiming that their licensing practices are in breach of FRAND. Of course, Apple never had any evidence of such violation and lost or settled every lawsuit.
Now that it's evident that they can't win in courts, they are trying to convince policy makers/regulators to do it for them. It helps Apple's cause mightily when their largest patent holder is found in violation of anti-trust/competition laws and, contrast to their past policy of letting the market work things out, now Apple's friends in DC and FTC have to implement draconian licensing policies in favor of Apple to better control abuses in wireless patent licensing.
They don't have to. They do whatever the hell they want and know they'll have to pay some tiny amount of their exorbitant profits to the EU for it. And even that they try to drag out as long as possible. (The article also mentioned Intel dragging out paying a fine for 9 years now)
I'm pretty sure these sorts of fines are already factored into their business plan.
Qualcomm reported a revenue of $6.2 billion in 2017 [0].
Taking a fine worth 1/6th of your annual revenue is not insignificant.
[0] https://9to5mac.com/2017/11/01/qualcomm-earnings-slump-on-ap...
But if anyone thinks the Board of a company is figuring $1.2B is just the cost of doing business / worth the risk of making the payments to Apple I think they are talking out their ass.
Even a trillion dollar company is going to care deeply about a $1.2B fine. Companies care about fractions of a percent of operating margin. What do you think a $1.2 billion dollar expense line item, which also probably isn’t deductible, does to their margin? This is a highly material fine.
- Fiscal year 2017 revenue was $23.2 billion
- Fiscal year 2017 pre-tax profit was $7.5 billion
1/6 of a single year's profits for a practice that cemented their dominant market position for 6-7 years is not punitive.
Qualcomm has to tread very carefully now.
Well they are being given a hefty fine for it... so yes.
Imagine Qualcomm made “shooting competitors in the face point blank” a standard operating procedure, and put it black and white in auditable contracts. After the smoke settles, you’d have to wonder: “How did they ever even think that would work?”
But they’re not stupid. The more obvious explanation is that we are missing something. If we’re confused, it’s probably us who misunderstand.
Writing things off as stupidity is a dangerous game when the stakes are high. Contract negotiation and legalese is their bread and butter, I would definitely ask and ask again to see what’s really going on.
Not saying it’s impossible, but wow. If they honestly did not see this coming, that would be some industrial-grade, top-of-the-line stupidity DeLuxe. I’m suspicious.
But yes, it's difficult to define a hard line. I think the fact that this was a real deal and not just loyalty plays a part.
Qualcomm never had opportunity to counter Apple's claim before -- and I'm fairly sure Qualcomm was not allow to directly counter Apple's claim here either.
So what really happened, according to Qualcomm's lawsuit in US, was that Apple first drafted their business agreement with discount "rebates" with the exclusivity. Qualcomm simply acquiesced to Apple's demand, being that Apple was a huge volume customers and in the driver's seat. Remember Apple was never in rush to implement the latest or the best tech and had used Infineon chips previously. Qualcomm probably knew that they were so far ahead that they didn't have to be so aggressive, but Apple was still a huge volume customer. So after agreeing to the terms, Apple started parading around, orchestrating regulatory actions against Qualcomm claiming that Apple was forced into that exclusivity that would handicaps Qualcomm's competitors.
I'm inclined to believe at this point, considering Apple's problem with GTA and past lawsuits with other wireless providers where they often came up with fictitious or groundless accusations, it was Apple's clever lawyering at work.
Second, QCOM has already been fined similar amounts for similar behavior in China and Korea. Any regulatory action by the USA has to keep in mind the ramifications of subsequent such action by foreign governments. That is to say, there is an economic incentive to let QCOM keep bullying manufacturers, because they are a US company in a largely international market.
Personally I think AVGO is nuts for wanting to buy this company. Without their bullying behavior in the licensing sphere, QCOM would be worth a fraction of its current price. They are majorly vulnerable here -- take a look at any regulatory filing from the past few years and you'll see that the lion's share of their profit comes from licensing.
There's some debate in this thread about Apple actually coming up with the idea for exclusivity, but I'm not sure if that's actually relevant.
Analogy: The town's only supermarket is outrageously expensive. You tell the owner "give me $100 per month for the next 10 years, and I'll never go to another shop", because you can't get to another shop anyway and need to somehow lower food prices.
Then, 10 years later, a second store opens, you've started to grow your own potatoes, and you can actually risk ruining your relationship to the shop owner by telling the authorities that they have been gauging everyone.
Because it's literally and trivially illegal?
A year ago: Apple sues Qualcomm for roughly $1 billion over royalties https://www.cnbc.com/2017/01/20/apple-sues-qualcomm-for-1-bi...
The exclusivity agreement expired in 2016. The fine is for that period. Since exclusivity ended, Apple has been trying to buy baseband chips from other suppliers without paying Qualcomm’s allegedly non-FRAND patent terms.
Not to mention Intel also hasnt yet paid AMD >$1B restitutions for directly bribing distributors and system integrators to drop its competitor from inventory.
My understanding is Qualcomm is kind of the undisputed leader with Intel trying to play catch up.
Here is an excerpt from [0].
"To get a flavor of how thoroughly the federal government managed competition throughout the economy in the 1960s, consider the case of Brown Shoe Co., Inc. v. United States, in which the Supreme Court blocked a merger that would have given a single distributor a mere 2 percent share of the national shoe market."
[0] http://washingtonmonthly.com/magazine/novdec-2015/bloom-and-...
No. See Article 102 TFEU [1]. Abuse of a dominant market position in order to distort or avoid competition can take many forms.
[1] https://en.wikipedia.org/wiki/Article_102_of_the_Treaty_on_t...
Probably not, because Windows Phones are in no way dominant so there's no abuse of a dominant market position there.
Though I don't know for sure how the EU would view it.
> Qualcomm [the market leader at the time of events] illegally shut out rivals from the market for LTE baseband chipsets for over five years [...] 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 is illegal under EU antitrust rules and why we have taken today’s decision.”
For example, Amazon Web Services can offer discounts to keep companies from switching to Azure and Google Cloud. That's legal. If Amazon Web Services offered the CEO of Snap a billion dollars (to them personally, not to the company) to use AWS instead of Google Cloud, that's illegal (both for AWS to offer it and for the CEO to accept it).
The only reason why it's illegal for Qualcomm to have taken this action is because it falls afoul of competition regulations. For example, AWS may be the largest cloud provider and it may be a key market, but they aren't so large that they can really shut off the market to competitors. Similarly, none of their customers are so large that they're a significant portion of the market for buying servers. Finally, because AWS doesn't control buying servers or data centers (and companies often do invest in that when they hit a certain scale), it's hard to argue that they're shutting out competition.
By contrast, Qualcomm specifically created a plan to make sure it wouldn't be profitable for competitors to develop high-end modems. While more Android phones are sold than iPhones, the iPhone is a very significant portion of the high-end phone (and modem) market. If Apple committed to Intel or another manufacturer, that company would have the sales necessary to create high-end modems that would challenge Qualcomm. Absent Apple committing to that, it's unlikely that any company would be willing to spend the money developing competition to Qualcomm. Plus, Qualcomm's discounts mean that a company like Intel would look at the situation and note that if they did develop a competitor, Qualcomm would simply discount their chips for a year or two and drive them out of the business. If you're Intel and you develop a competitor and no one buys your chips for a couple years, you'll exit the business.
You're allowed to offer discounts to get companies to choose your products or stay with your products. However, you're not allowed to use discounts to choke off competition.
From what I understand of the situation Qualcomm is accused of: 1) Qualcomm has patents on LTE and other wireless technology that they committed to licensing under FRAND (fair, reasonable, and non-discriminatory) terms. 2) If you want Qualcomm chips, you need to agree to a license for those patents on Qualcomm's terms and not challenge the terms as violating FRAND. 3) Because Qualcomm got you to agree to very high licensing rates for their patents, they could then discount their chips a lot to keep competitors from getting a foothold.
Let's say you're Apple. You need Qualcomm's modems because they're the only high-end modem supplier in the world. So you agree to their non-fair license rates. Intel looks like they might enter the market and create a second seller of high-end modems. Qualcomm offers a steep discount on chips so that you won't buy Intel's and so Intel doesn't have enough sales to continue in the market. You have to pay Qualcomm's very high non-fair license rates even if you use Intel chips because you still need Qualcomm chips for some of your phones. Qualcomm's discount on their modems came with the caveat that you only use Qualcomm modems. So, Apple could buy some modems from a competitor, but they'd still have to pay Qualcomm's very high license rates and more for the Qualcomm chips they needed -or- they could take the discount on Qualcomm chips.
Over the past two generations of iPhone, Apple has been trying very hard to break Qualcomm's monopoly. They're propping up Intel's modem business with the hopes that they can switch 100% off Qualcomm in the future and get rid of what they see as Qualcomm violating their FRAND licensing requirements. But they couldn't do that without a competitor for modems. Because Qualcomm operated "no license, no chips" and Apple couldn't shut down iPhone production for years until a competing high-end modem came around, they had to play ball. At this point, they only really need Qualcomm for Sprint and maybe some other small carriers. In a pinch, Verizon does have non-CDMA, VoLTE-only (voice over LTE) phones.
It is illegal to accept bribes, but this isn't a bribe. A bribe would have been to offer a reward to some Apple execs to tip the scale in Qualcomm's favor against Apple's interests. "If your town chooses us for your broadband, you might find a new Porsche in you driveway," is a bribe. "If your town chooses us for your broadband, we'll charge residents 20% less than Comcast," isn't a bribe. "...we'll also upgrade the town's electrical system...we'll sponsor after-school coding classes for students in town...we'll throw a dance party for everyone in town," aren't bribes because the benefit isn't a personal one for the person making the decision. Qualcomm isn't accused of offering a bribe to key execs at Apple. If Qualcomm's actions hadn't been anti-competition, there's nothing wrong with discount payments. Almost all companies offer discounts off list prices if they're dealing with enterprises. The issue is that it's anti-competition and that's why Qualcomm is the only one in hot water. Apple wants the competition and has been doing more to stimulate it than anyone else seems to have been.
Qualcomm did not specifically created a "plan" to discourage potential customers from choosing competitors. It was Apple who proposed the rebate deal with exclusivity and Qualcomm acquiesced to Apple's demand. Then Apple started parading around telling regulators that they were FORCED into that agreement. In hindsight, it was Qualcomm's contract lawyers' oversight to have let that big one slip. Qualcomm has been under regulators' radar for decades, but they might have felt it was ok to let that one in since it was their own customer Apple, not Qualcomm, demanding that exclusivity.
Your understanding of the situation is a bit skewed: (1) yes, Qualcomm is a leading wireless inventors and owns the largest wireless patent portfolio (2) even if you don't use Qualcomm chips, you have to pay Qualcomm licensing fees. You are allowed to challenge their FRAND licensing practices and, for almost a full decade, Apple has done this every time their contract is up for renewal with Nokia, Ericsson, Samsung and pretty much every wireless patent holders WITHOUT any evidence that there is a breach of FRAND. (3) Qualcomm's rate is higher because the share and importance of their IPs and, again, because Apple is a huge volume customer. Apple was never in rush to get the latest and greatest tech.
https://web.archive.org/web/20170419042209/https://www.ftc.g...
In the FTC complaint against Qualcomm, they say that Qualcomm, "Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors."
They also say that Qualcomm, "Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks."
So, the situation alleged seems to be that 1) phone makers can't forgo access to Qualcomm's chips because they need them for high-end phones; 2) Qualcomm won't sell you chips unless you agree to their preferred license terms rather than FRAND terms; 3) Qualcomm's control of the only high-end modems means that they can charge a much higher royalty on their patents (since companies will pay the higher royalty because they need Qualcomm's chips) and they can accept lower margins on the chips to make sure that competitors can't get into the market (and competing chips get subject to Qualcomm's anticompetitive tax if the manufacturer wants access to Qualcomm chips for any of its devices).
Qualcomm also refuses to license their patents to competitors like Intel or MediaTek because they want a percentage of the handset cost rather than a fixed fee. The FTC has alleged that this alone is a violation of FRAND.
According to one study cited by the FTC, Qualcomm's share of "highly novel" LTE patents was 13% compared to 19% for Nokia and 12% for Ericsson and Samsung, but Qualcomm gets paid far more than they do in licensing fees.
You've said that Apple could challenge the licensing fees, but what's alleged is that Qualcomm would stop selling you their modems if you challenged their preferred licensing fees. Yes, Apple would still have to pay some fee, but it might be much lower than Qualcomm's preferred fees. The problem is that they'd lose access to Qualcomm's chips.
~~
Before the iPhone's Intel use, if you were a phone maker and you wanted to ship a flagship phone, you had to use Qualcomm's chips. There was no alternative modem you could use. Qualcomm had agreed to FRAND terms for their IP. But they saw that phone manufacturers couldn't force them to sell their chips. So, if a phone manufacturer wanted their chips, they'd say, "here are the royalties we prefer for our IP. If you don't agree to these rates, you could challenge them, but then we won't sell you any chips. Without our chips, you can't sell the high-end phones that are your entire margin. So, agree to the rates even if you think they're a bit higher than FRAND."
~~
Yes, Apple would still have to pay Qualcomm a royalty. However, if they didn't tie Qualcomm's preferred licensing to their chips, that royalty might be lower. If Qualcomm licensed their IP to competitors (as the FTC says is required under FRAND commitments), Apple's royalty would be a lot lower.
"When Apple sought relief from Qualcomm’s excessive royalty burden, Qualcomm conditioned partial relief on Apple’s exclusive use of Qualcomm baseband processors from 2011 to 2016. Qualcomm’s exclusive supply arrangement with Apple denied other baseband processor suppliers the benefits of working with a particularly important cell phone manufacturer and hampered their development into effective competitors."
Can you cite things that show Apple having originated the exclusivity? I mean, that's from an official court filing (https://www.ftc.gov/system/files/documents/cases/170117qualc...).
Apple wanted lower royalties. Maybe Qualcomm worried they'd get another company to create a flagship modem and then challenge Qualcomm's royalties. If I were Qualcomm, I would have. So, by requiring exclusivity, I could choke off competition to my modems and make sure that phone manufacturers had to continue paying me high royalties.
If Qualcomm legitimately thought that their IP was worth as much as they were getting paid for it, then they wouldn't have to tie the rates to access to their chips.
~~
1) According to the FTC, Qualcomm doesn't have the largest portfolio for LTE technologies. Nokia has 46% more "highly novel" standards essential patents for LTE than Qualcomm.
2) The complaint is that you couldn't challenge Qualcomm's preferred rates because they'd deny you access to their modems and without their modems, you'd be dead in the water.
3) The FTC complaint alleges the opposite. a) Qualcomm's IP is less important; b) Apple wasn't in the driver's seat and it was Qualcomm's plan to require exclusivity when they asked for relief from royalties they believed were too high.
2) No, Qualcomm's FRAND licensing rate is published to the public time to time, so they don't look like they are ripping off anybody (or unfair). It's around 3%-5% range per device -- and it is not cheaper than whatever their agreed "preferential" rate is. Apple and FTC fanangled some nebulous calculus to come up with that absurd figure and claim that Qualcomm overcharged Apple. Ask them, not me -- and I bet you'd be surprised how far and silly they are willing to go to make their case against Qualcomm.
3) Apple's view on patent licensing is that while Apple's own frivolous design/utility patents are worth $7-$8 per end-user device (see Apple vs Samsung), everyone else's should be $0.00000X per smallest component that embodies them (see Apple vs Samsung, Nokia, Ericsson, Moto, etc). So Apple's problem here is that wireless companies like Qualcomm have for decades collected 3%-5% per end-user device and Apple doesn't want to pay that much, or anything close to that amount. Apple has little negotiating power since they have so few wireless patents to cross-license, but they are a huge volume customer. With Qualcomm, Apple managed to negotiate some discount, or "rebates" in exchange for exclusivity -- which btw was purposed by Apple, not forced upon by Qualcomm. But Apple still thinks it's too much. Instead of direct legal challenge which had not worked for Apple for years, Apple cleverly persuaded regulators to go after Qualcomm for anti-trust/anti-competition violations, which apparently looks like Apple had planned all long with the exclusivity deal.
It's not difficult to understand where Apple stands on these licensing issues if you've followed their lawsuits past several years. I don't want to sound like a tin-foil hat, but at this point, especially after seeing Qualcomm's countersuit, it's not difficult to see how Apple might have plotted all this years ahead.
> 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.
Chances are good it says that any disputes are to be governed by the laws of, say, the State of California. Since California doesn't adopt EU law as its own public policy, it would be likely to enforce the contract (unless it violated California law in some way).
Plus, if you're say a politician, and everyone throws money at you to bribe you, because they have no risk in doing that (only you do), you may eventually take that risk and cave in (especially since you'd be in a position of power, and you'd think nothing bad could happen to you, even if you do get discovered).
But if you were to punish companies for giving bribes to politicians, I think that would be a more effective way of stopping the whole thing.
Or think if you wanted to bribe a government clerk to do some papers for you faster. You'd know there is a risk for being punished over it, so you may not even try. Even if the clerk would tell you to pay them money to quicken the process, you may think it could be a trap, since he'd be working for the government.
But if the punishment wouldn't affect you, then "it wouldn't hurt to ask" if the clerk accepts bribes to quicken processing your papers. The clerk would be taking the risk, and you wouldn't care if she gets caught. And you'd be willing to pay to get those papers faster.
Making the penalties for accepting bribes be more significant (more than the benefit gained by accepting the bribe) would significantly deter people from taking bribes regardless of how many people or how often.
I think we both have good points, so maybe the solution would be offering and accepting bribes should be illegal and penalized, and both parties should be penalized more than the benefits gained by offering/accepting the bribes. In this case, Qualcomm should be fined a much more significant amount of 4.9%, and apple too should be fined more than the price reductions + payouts they received from Qualcomm
Quote: “Volgens Vestager treft Apple in dit dossier geen blaam; er zou geen bewijs zijn dat Apple de Europese mededingingsregels heeft overtreden.“
Translation: “According to Vestager Apple is not blamed in this case; there seems to be no evidence Apple violated the European antitrust rules”
Apple in particular always tries to have multiple sources for any parts they don't develop themselves. And even for the stuff they develop, they try to have multiple manufacturers. This is a very good idea to do at their scale. Them legally preventing from doing this by forbidding it in a contract is way different than "preventing" them from doing this by just offering them chips at super-cheap prices and hoping for them to take up your offering and to ignore all the other competing offers.
Most likely they didn't yet plan to source the LTE chips from a second supplier at the time they signed the contract, so that limit didn't affect them. Nowadays they do have multiple sources, which is probably why they did not prolong the contract any further after 2016 - because having multiple sources was worth more to them than having this discount.
What does FRAND mean?
Rights holders generally have to agree to license their patents on FRAND terms to get their technology included in wireless standards, in this case CDMA and LTE.
Qualcomm’s license pricing is, unusually in the industry, a percentage of the final retail price of the final device.
Apple’s argument is that this is not, in fact, a reasonable and non-discriminatory price for a license to use Qualcomm’s patents.
It can be. What if Qualcomm gives discount only if Apple buy as many as it need which is fairly predictable. Then Apple would have enough supply and wont need to look for another supplier.
Whether this makes economic sense depends on whether savings_due_to_discount - (price_of_chips_from_second_supplier + lost_value_of_surplus_chips) works out for Apple. That may be a negative number, which means that Apple has these costs for getting the majority of chips from Qualcomm at the super-cheap discount while still having a second supplier actively used in production. But these costs may still be worth the risk mitigation that occurs when having a second supplier in the chain. Especially for Apple, for which lost revenue due to supply constraints can quickly eat up any marginal savings on one component in the supply chain.
The point is: it is an economic decision, which is exactly what it should be, and the decision can be made and re-evaluated at any time. If you exclude second suppliers by contract, it's only an economic decision when the contract is signed, after that the economic decision becomes a non-decision, even if the economic rationale changes (for example because a competitor became better). And that is exactly why this contract clause is anti-competitive and was deemed illegal.
If supplier only needed few % sales from Apple, then Apple could have just given them money for other reasons (funding etc). Thus no loss of choice for consumers. This case is simply money grab.
If those % of sales are not enough, then supplier dies. Loss of choice but now due to legal means.
Apple doesn’t want to buy Qualcomm chips at any price, if it can get replacements from anywhere else. It wants reliable partners, and if possible, to contract manufacture its own baseband chip designs, without paying more to Qualcomm in ostensibly FRAND fees for chips it designs itself than just buying the chips from Qualcomm.
You can offer a -50% discount to customers (as long as you aren't selling below cost, which would also be illegal in the EU), and then you'd have to assume that the customer will stick with you as long as you offer that discount, or develop a good relationship, and so on.
But you can't enforce that the customer can't also buy the product at 100% of the price or whatever it is from a competitor at the same time it's buying it at -50% from you. If the customer does that, it should be their choice. You can't ban the transactions with your competitors in the deal.
> In June 4, 2008, Korea Fair Trade Commission fined Intel US$25.4 million for giving Samsung rebates to not use AMD processors. Some of the manufacturers involved in the case were Dell, HP, Gateway, Acer, Fujitsu, Sony, Toshiba, and Hitachi.
> In May 2009, the European Commissioner for Competition, Neelie Kroes, fined Intel a record $1.45 billion and ordered it to end its customer rebate program.
> In November 2009, Intel agreed to pay AMD $1.25 billion as part of a deal to settle all outstanding legal disputes between the two companies.
The big differences in how things happen lately are not really into how the law is made, but in how (and if) they are applied.
My personnal point of view:
It took a lot of time for the EU to get out of its shell in that area, but now it's doing a very good job comparatively to the rest of the world, and the fact that we are an agreement or still very different countries ends up being a big advantage here: laws are applied without too much protectionnism or preferentiel treatement.
The FTC, on the other hand, seems to me very much more inclined to make sure the USA goes out ahead that to ensure fair market competiton. This is a shoddy deal between two american companies, and what happens is also theoretically not legal by US laws, so why is the EUC dealing with it while the FTC looks away ?
Posner has literally written the book on the US' Antitrust law, and he is one of the rare writers I enjoy reading even when I vehemently disagree (as I do with his proposal for a largely unregulated market in babies).
Apple's exclusivity with AT&T didn't create a situation where AT&T could crush competitors. That's ultimately the crux. Qualcomm's dealings had been working to eliminate competition in the LTE modem space until Apple started working with Intel. You couldn't get an iPhone on Verizon, but Verizon was still signing up millions of customers without it. It certainly helped AT&T, but it didn't create a market where competition was eliminated or endangered. As Android phones came along, they were a drop-in substitute that other carriers could use. Sure, you might want an iPhone on Verizon rather than Android phone on Verizon, but that falls into the "I want my perfect deal" rather than something really endangering competition. It's clear Verizon would continue to be a successful company offering competition even without the iPhone.
Qualcomm was the only company offering high end modems. Companies might buy modems from Intel or others if they made high-end modems, but Intel isn't going to make a high-end modem if no one is going to buy it. By requiring exclusivity, Qualcomm made it so that there weren't enough customers to support an alternative high-end modem.
To come up with a hypothetical iPhone scenario, let's say that Apple launched the iPhone in 2007 on all networks and required AT&T, Verizon, Sprint, and T-Mobile to commit that they would only sell iPhones and no competing smartphones. Google might invest in Android, but there'd be no one to buy the devices. Sure, a few people would buy them outside of the carriers, but there wouldn't be enough demand to be profitable, Google would invest less and less (maybe even shut it down) while Apple poured money into iPhone R&D. A few years later, Android would be gone.
Apple's exclusivity with AT&T actually helped competition. Verizon wouldn't have promoted Android heavily if they had access to the iPhone. People would have bought iPhones 2007-2008. Instead, they often bought Android devices because they were on Verizon or Sprint or T-Mobile and that's all that was available. Apple's exclusivity helped Android gain a foothold. It wasn't until 2011 that the iPhone launched on Verizon and that 3.5 year period gave Android the time it needed to flourish.
Sure, Apple's move wasn't consumer-friendly. However, if anything, it helped competition. Regulators aren't about making sure that everything is the most consumer-friendly. They're about making sure that you aren't stifling competition. Apple's exclusivity didn't harm wireless competition: Verizon was still doing well over that 3.5 year period. Apple's exclusivity, if anything, helped competition in the smartphone OS/device market. As such, there wasn't a problem that needed correcting.
If Apple had launched on all the carriers and required them to exclude Android devices from their lineups, that would have driven out competition. Qualcomm is accused of seeking exclusivity to prevent companies like Intel from producing high-end modems. If all the customers have an exclusivity agreement with Qualcomm, no one would buy Intel's modems. If all the networks had exclusivity agreements with Apple, there'd be no one to buy Android phones.
Apple's exclusivity is more like the exclusivity of Orange is the New Black on Netflix. Maybe I don't want to pay for Netflix to get one show. Maybe I don't want to join AT&T just to get an iPhone. But as long as there's lots of competition and you can replace Orange is the New Black with The Handmaid's Tale on Hulu, there's robust competition, no one's getting driven out of business, etc. Netflix is gaining customers and Comcast might be losing customers, but that's "fair" - or at least fair enough for regulators to ignore it. Comcast can make better exclusive content on NBC, USA Network, Syfy, and Bravo or license it to regain customers. Verizon did push hard for Android devices like the original Motorola Droid to overcome their lack of iPhone.
Again, exclusivity deals might not be great, but anti-trust law concerns itself with companies that are using a dominant, monopolistic position to eliminate competition.
Given the amount of iPhones in circulation, I'm pretty sure Apple needed a significant amount of LTE chips.
"Buy five thousand and I'll give you 10% off"
"Buy five thousand and don't buy from my rivals and I'll give you 10% off"
"Buy five thousand and I'll give you 10% off"
"Buy five thousand for the next few years, and only from us, and I'll give you 20% off, because now we know we'll have cashflow for years"
I’m not being coy; I don’t understand. Isn’t “we will take less money from you if you don’t work with our competitors” one of the cornerstones of a competitive market? I’d understand if the payment went to a corporate officer to act at odds with the interests of his employer, but I guess I don’t see how this is distinct from any other contract to be a sole distributor, sole provider, etc. Certainly their competition could kill such a deal by just beating the price cut?
It used to be legal regardless of your market share, but during the tail end of the Gilded age, we learned the hard way that once someone gets big enough that they can kill the business of their customers/suppliers by refusing to sell to/buy from them, they can stop playing by the rules of a free market where they compete with others to provide a better product or service at a cheaper price, and instead entrench themself as a permanent monopoly that gets monopoly rents and does not have to fairly compete.
So, antitrust laws were born, which limit the kind of actions you can take if you have a commanding market position.
No. "We take less money for our products than our competitor" is a competitive market.
> 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.
Also, no, there are many reasons why the competition couldn't beat them. Be it that Qualcomm is selling at a loss, simply to kill the competition, or be it that the competition can only supply a smaller amount than the buyer needs, but at a lower price. In a competitive market, that smaller supplier could earn money to gradually grow, but the headstart of the established supplier can be used to keep the smaller supplier unable to ever sell.
Part of the reason Apple agreed to such a deal is because having a longer term contract will give them a better per unit price.
If you follow that line of thinking and Qualcomm gets a fine because of that, the commission should also force Apple to purchase LTE chips from multiple suppliers, because they can force the price down so much due to the fact they're 80% of the market. It goes both ways.
Does it still sound okay to you?
> 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.
The fine isn't because of a discount, it's because of a clawback clause that is punitively anti-competitive and completely illegal.
They will still have earned more from making the illegal deal than this penalty will cost them.
Three strikes.
I do like that libertarians have started using the word statist. It shows that this is not about freedom, it's about the state. Corporations can have as much power over you as they want.
Nations are supposed to respect each others decisions. Both are USA companies and USA is ok with this practice, why does EU disrespect USA's stance ?
I know its offtopic, but GDPR calculates based on global revenue.
If you think a manufacturer should not be able to make its own hardware parts that's your opinion and you're entitled to have it, but it's a completly different issue.
Well it could be called extortion. Apple could well have initiated the conversation, or placed such financial pressure on Qualcomm in terms of price reductions that they considered this was the only financially stable way of giving them what they want. It's not like Qualcomm could bully Apple into much of anything. If push came to shove that would just result in a hostile takeover.
In the end Qualcomm failed with faulty lawyering, as there should have been a carveout for the EU, and none of this would have mattered.
Please note: I am not saying it was extortion, just that there is a case that needs to be made to rule that out since the players are not unsophisticated. I think it is ridiculous that a company as large and well-informed as Apple gets a total pass when they obviously benefited significantly from the deal (or they would not have made it). It also seems a bit myopic to see every large company with sector dominance as in a position of power and therefore as the aggressor. There should be codification for market-dominant consumers as well.