Qualcomm, China shake hands, all is forgiven – if Qualcomm pays $975m

Antitrust probe resolved with fines, new patent license terms

Qualcomm

Qualcomm says that although it is "disappointed" that China has slapped it with nearly $1bn in penalties for alleged antitrust violations, it plans to pay the fine and move on.

The California mobile chipmaker said in a press release [PDF] on Monday that the PRC government has fined it 6.088 billion Chinese yuan renminbi, or approximately $975m, a sum that Qualcomm says it will not contest.

"Although Qualcomm is disappointed with the results of the investigation," the chipmaker said in a statement, "it is pleased that the NDRC has reviewed and approved the Company's rectification plan."

Qualcomm has been under investigation by China's National Development and Reform Commission (NDRC) – the nation's top antitrust regulator – since early 2014, over alleged abuses of its dominant position in the smartphone chips market.

The agency had accused Qualcomm of unfair and discriminatory pricing policies, particularly in the licensing of various patents the company holds related to wireless technologies.

As part of the new settlement, Qualcomm has agreed to license its patents on 3G and 4G mobile phone tech separately from the rest of its patent portfolio. In addition, if it seeks to cross-license patents from a Chinese firm as part of its licensing agreement, it promises to "negotiate with the licensee in good faith and provide fair consideration for such rights."

Qualcomm also promises not to force licensees to agree to any license that the NDRC has deemed unreasonable, and it says it won't deny any licensee just for challenging the terms of its agreement.

License fees for Qualcomm's patents in China will be pegged at 5 per cent for 3G devices and 3.5 per cent for 4G devices, on a basis of 65 per cent of the net selling price of each device.

Existing licensees can also choose to opt in to the new terms retroactively to January 1, 2015.

The settlement wasn't entirely one-sided, however. The new arrangement "does not require Qualcomm to sell chips to any entity that is not a Qualcomm licensee, and does not apply to a chip customer that refuses to report its sales of licensed devices as required by its patent license agreement."

Qualcomm has long complained that some of its licensees in China have not been accurately reporting the number of devices they have sold that include Qualcomm-patented technologies – meaning the firm hasn't been able to collect all of the fees that it believes it is owed.

What's more, the chipmaker has also cautioned its shareholders that some Chinese firms that use its tech may have avoided taking up new patent licenses while the NDRC investigation was underway.

The new settlement should give Qualcomm more leverage to negotiate new licenses and to collect fees from its existing licensees, in addition to removing a cloud that has had shareholders worried about the future of its business in the all-important China market.

"We are pleased that the resolution has removed the uncertainty surrounding our business in China, and we will now focus our full attention and resources on supporting our customers and partners in China and pursuing the many opportunities ahead," Qualcomm CEO Steve Mollenkopf said in a statement.

The settlement will not be without its costs for Qualcomm, however. To address the fine, the company said it expects to pay a charge equal to approximately $0.58 per diluted share, which it will recognize in fiscal 2015.

Still, investors seemed pleased that the matter has been resolved, sending the company's share price up around 3 per cent in after-hours trading. ®


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