EU and Qualcomm clash over 3G baseband chipset pricing

Out-Law News | 19 Jul 2019 | 1:22 pm | 2 min. read

The European Commission and Qualcomm are set for a lengthy legal battle before the EU courts after the technology company was fined €242 million by the competition regulator for what it labelled as anti-competitive "predatory pricing".

The Commission said Qualcomm sold 3G baseband chipsets at "below cost" to Chinese device manufacturers Huawei and ZTE with the aim of eliminating a rival supplier, Icera, from the market. The regulator said this activity, which it said occurred between mid-2009 and mid-2011, represented an abuse of a dominant market position by Qualcomm, in breach of EU competition law.

EU competition commissioner Margrethe Vestager said: "Baseband chipsets are key components so mobile devices can connect to the internet. Qualcomm sold these products at a price below cost to key customers with the intention of eliminating a competitor. Qualcomm's strategic behaviour prevented competition and innovation in this market, and limited the choice available to consumers in a sector with a huge demand and potential for innovative technologies."

Qualcomm, though, has hit back at the Commission's findings. Don Rosenberg, executive vice president and general counsel of Qualcomm, said the Commission's decision is "unsupported by the law, economic principles or market facts". The company has said it will raise an appeal before the EU's General Court.

"The Commission’s decision is based on a novel theory of alleged below-cost pricing over a very short time period and for a very small volume of chips," Rosenberg said. "There is no precedent for this theory, which is inconsistent with well-developed economic analysis of cost recovery, as well as Commission practice."

"Contrary to the Commission’s findings, Qualcomm's alleged conduct did not cause anticompetitive harm to Icera, the company that filed the complaint. Icera was later acquired by Nvidia for hundreds of millions of dollars and continued to compete in the relevant market for several years after the end of the alleged conduct. We cooperated with Commission officials every step of the way throughout the protracted investigation, confident that the Commission would recognise that there were no facts supporting a finding of anti-competitive conduct.  On appeal we will expose the meritless nature of this decision," Rosenberg said.

The Commission has defended the 'price-cost test' it applied when assessing Qualcomm's pricing practices. It said the findings from the test "are consistent with the contemporaneous evidence gathered".

The Commission said: "The targeted nature of the price concessions made by Qualcomm allowed it to maximise the negative impact on Icera's business, while minimising the effect on Qualcomm's own overall revenues from the sale of UMTS chipsets. There was also no evidence that Qualcomm's conduct created any efficiencies that would justify its practice."

UMTS is Universal Mobile Telecommunications System, the standard associated with 3G mobile wireless technology.

Qualcomm was fined €997 million by the European Commission in early 2018 under EU competition rules for practices deemed anti-competitive in the market for LTE baseband chipsets. LTE (Long-Term Evolution) is a standard associated with 4G technology. Qualcomm has said it will appeal the Commission's decision in that case to the EU's General Court.

Competition law expert Robert Vidal of Pinsent Masons, the law firm behind Out-Law, said: "This is a key milestone in the European Commission’s 10-year investigation into Qualcomm’s pricing of its 3G baseband chipsets, and is the first time in 16 years the Commission has imposed a fine for predatory pricing. As Qualcomm had already announced yesterday that it intends to appeal the decision we can expect to see further developments in this case for some time."

"Both the €997 million fine from 2018 in respect of 4G technology and yesterday’s €242 million fine in respect of 3G technology imposed on Qualcomm reflect the Commission’s continuing focus on the technology sector, and its concern that large technology companies may be using their strong market position to inhibit competition and stifle innovation, to the detriment of consumers," he said.