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Taiwan-Qualcomm antitrust settlement draws fire from rivals

$773m fine slashed after US chipmaker commits to tech development plan

Taiwan’s Fair Trade Commission reached a settlement that reduces its fine against U.S. chipmaker Qualcomm by around 90%. (Photo by Cheng Ting-Fang)

TAIPEI -- Taiwan's Fair Trade Commission on Friday said it has reduced a 23.4 billion New Taiwan dollar ($773 million) antitrust ruling against U.S. chipmaker Qualcomm in exchange for a five-year investment plan aimed at fostering technology on the island. Local competitors, though, see little fairness in the decision.

The commission said it has cut the fine against the world's top mobile chip producer to NT$2.7 billion, or about one-tenth the original penalty imposed in 2017. Qualcomm has agreed to spend about $700 million over the next five years to help Taiwan develop fifth-generation wireless communications technology, said Hong Tsai-Lung, the trade commissioner. The company will also set up a local manufacturing and operations center to create jobs, Hong said.

It is not yet clear how the San Diego-based Qualcomm will execute the investment plan for Taiwan, or how the program will be evaluated. Neither the FTC chairperson nor vice chairperson was at the news conference announcing the settlement.

Hong said the commission has come up with key performance indicators for Qualcomm to follow and that it will submit progress reports every six months, but he did not disclose the details. He added that if Qualcomm fails to make the investments as agreed, the FTC would seek commercial arbitration to resolve any dispute.

"We are pleased to have reached a mutually beneficial resolution with Taiwan's FTC that puts the litigation behind us," said Alex Rogers, president of Qualcomm Technology Licensing, in a news release. The resolution does not require the company to change its current licensing model or "set specific financial terms," the statement said. Qualcomm did not say how much it would invest in Taiwan under the settlement.

In October 2017, the Taiwanese antitrust watchdog imposed the record fine, saying Qualcomm had abused its dominant market position to maintain its monopoly. In a statement at the time, the commission said it had determined that Qualcomm had made exclusionary agreements with other chipmakers and mobile phone manufacturers, and that its royalty fees and chip prices were excessive. The FTC found that Qualcomm had been in breach of Taiwan's antitrust laws for seven straight years.

The reversal appears to reflect concerns voiced by the Ministry of Economic Affairs that the fine could jeopardize Taiwan's partnership with Qualcomm on 5G and hurt the island's chances of becoming part of the supply chain for the new technology.

Lawmakers Kuan Bi-ling, Huang Wei-che and Chiu Chi-wei of the ruling Democratic Progressive Party echoed those concerns, questioning the wisdom of the FTC fine. Qualcomm suspended cooperation with Taiwan's Industrial Technology Research Institute on 5G after the penalty was announced, according to the economics ministry.

It is unclear whether the commission was pressured into the settlement by the ministry or lawmakers. The reversal is a departure from the decisions taken by antitrust authorities elsewhere.

In February 2015, Qualcomm agreed to pay China $975 million to end a 14-month probe into alleged anti-competitive practices. The deal also required the U.S. company to cut its royalty rates on patents used in China, helping local handset makers such as Huawei Technologies, Oppo, Vivo and Xiaomi.

South Korea, in late 2016, slapped Qualcomm with a fine of about $850 million for violating competition laws with its patent licensing and chip sales, and demanded that the chipmaker change its licensing model. A South Korean court rejected Qualcomm's request in September 2017 to suspend the antitrust authority's order.

In January, European Union regulators fined Qualcomm 997 million euros ($1.15 billion) for violating antitrust laws by paying Apple to use its chips exclusively in iPhones and iPads between 2011 and 2016, which they said squeezed competitors out of the market. Qualcomm in June filed an appeal asking that the fine be scrapped, citing errors in the antitrust body's decision.

The settlement by Taiwanese authorities may put further pressure on Taiwanese chip designers, such as MediaTek and Realtek, according to market watchers. These are Qualcomm's competitors in chips for connected devices, wireless products and smartphones.

"Previously, some local chip designers may have thought the penalty on Qualcomm could help them secure a better competitive environment in the future," said Arisa Liu, an analyst at the Taiwan Institute for Economic Research. "However, the new terms will kill their hopes, and we expect the competition in the mobile chip market will continue to escalate in a slowing smartphone market," Liu said.

"It's not clear whether the Taiwanese government or the FTC received pressure from the U.S. to pursue the new settlement," she added.

MediaTek slammed the commission's move in a stock exchange filing on Friday afternoon, saying the regulator had failed to stick to its stance of protecting fair competition. The commission completely scrapped its previous ruling and did not demand component-level licensing or order Qualcomm to adjust its royalty collections, the company said.

"MediaTek cannot agree with this outcome," Chief Financial Officer David Ku said. MediaTek invests and purchases more than NT$200 billion in Taiwan every year, and is also a key player in developing 5G. "We believe the settlement will impose a negative impact on Taiwan's 5G-related industry development and competitiveness in the global market."

For many years, Qualcomm has made money selling chips to mobile device makers worldwide, and charging royalties for the use of its technologies. But the company's licensing practices have come under scrutiny in recent years.

The U.S. mobile chipmaker has been embroiled in a legal battle with Apple, a major customer, since the beginning of 2017. Qualcomm disclosed in a recent earnings call that the iPhone maker will stop using its modem chips, sourcing them exclusively from U.S. rival Intel this year. Meanwhile, the U.S. Federal Trade Commission filed a lawsuit against Qualcomm in January 2017, accusing it of anticompetitive practices.

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