The Korean Government Takes Aim at U.S. Giant Qualcomm
Imagine that the U.S. Federal Trade Commission’s Bureau of Competition, which handles antitrust issues, suddenly decided to do the following: (1) charge Hyundai with alleged antitrust violations regarding its patents, in order to force Hyundai to surrender its patented technologies and thus give U.S. automakers unfair market and technology advantages; (2) hammer Hyundai with a $850 million USD fine; and (3) violate a carefully negotiated and constructed bilateral trade agreement between the U.S. and South Korea.
In the above scenario, Hyundai and automakers worldwide would loudly cry foul. Additionally, the South Korean government quickly would lodge formal protests, especially because large conglomerates like Hyundai or Samsung, known as chaebol, are tightly intertwined with the South Korean government. They would be right to do so, given the blatant unfairness of the procedure and purpose in the above hypothetical.
But, on December 28, 2016, the South Korean government did exactly that to an American company, Qualcomm. If you are not familiar with Qualcomm, just look at your cell phone. If it has 3G or LTE, Bluetooth, video streaming, etc., chances are it is thanks to Qualcomm and the billions of dollars in research and development behind Qualcomm’s patented products. The Korea Fair Trade Commission (“KFTC”), which is roughly equivalent to our FTC Bureau of Competition, fined Qualcomm $850+ million USD, the largest fine in South Korean history, for allegedly engaging in three types of anti-competitive activity:
(1) Refusing to license its cellular standards essential patents to component suppliers who wanted to make and sell their own cellular components;
(2) Charging them patent licensing fees for Qualcomm’s entire patent portfolio, instead of making the patents available separately for licensing; and
(3) Requiring them, if they bought Qualcomm’s semiconductors, to also license Qualcomm’s patents (a practice commonly known as “bundling,” for which Microsoft got in trouble in the mid-to-late 90’s with respect to Windows 95 and Internet Explorer).
Without going into the actual merits of KFTC’s case against Qualcomm, the KFTC appears to have engaged in multiple political and procedural irregularities that should nullify its decision and fine. For example, the KFTC denied Qualcomm certain procedural safeguards that the Korea-U.S. Free Trade Agreement (“KORUS”) guarantees to American companies, such as Qualcomm’s right to cross-examine witnesses and right to examine all evidence in KFTC’s case file, including exculpatory evidence. The KFTC also contravened more than twenty years of industry practices and standards regarding patent royalties, i.e. estoppel. These are basic rights that are important parts of the fair and impartial rule of law, and KORUS itself.
The South Korean chaebol and government know that Qualcomm’s profits from patent licensing fees are crucial to its R&D, that Samsung is Qualcomm’s second-largest customer, that Samsung now seeks to sell its own chipsets to other smartphone manufacturers, and that the KFTC ruling and a weakened Qualcomm artificially boosts Samsung’s market and technological position.
Already other entities are taking advantage of the KFTC’s questionable actions against Qualcomm. For example, the Taiwan Fair Trade Commission (“TFTC”), Taiwan’s antitrust authority, is preparing a case against Qualcomm which is similar to the KFTC’s; an adverse TFTC ruling would presumably benefit Taiwanese companies such as Foxconn and HTC Corp. U.S. companies are not shying away either: last month Apple Computer (for whom Foxconn makes iPads, iPhones, etc.) sued Qualcomm both in the United States and China, alleging antitrust claims similar to the KFTC’s. This despite the fact that Apple and Samsung repeatedly and aggressively sued each other over alleged intellectual property violations.
Politics and strange bedfellows indeed.