Global concerns over Qualcomm's antitrust investigation in China more details to be disclosed

Absrtact: The global concern over Qualcomm's antitrust investigation in China has more details to be disclosed. February 10, the China Development and Reform Commission announced the U.S. chip giant Qualcomm's ticket, the fines amounted to 6.088 billion yuan. Hucunlin, director of the price supervision and inspection and anti-monopoly Bureau of NDRC

There are more details to be disclosed about the global focus of Qualcomm's antitrust investigation in China.

February 10, the China Development and Reform Commission announced the U.S. chip giant Qualcomm's ticket, the fines amounted to 6.088 billion yuan. NDRC price supervision inspection and anti-monopoly bureau director Hucunlin to the "First financial daily" reporter said the administrative punishment decision full text will be announced in a few days.

He disclosed some details of the investigation during the ventilation meeting that day, for example, he personally met with Qualcomm's President 8 times. Qualcomm filed a hearing, but they withdrew the application at the last minute.

Qualcomm itself says it does not seek a plea. After the high pass correction (illegal behavior), to its development in China is encouraged. "he said.

The NDRC said the anti-monopoly law has stopped the high-pass monopoly, safeguarded the market's fair competition order and protected the interests of consumers.

For the investigation of the Chinese brand mobile phones and consumer good, in-depth participation in the case of the Tianyuan antitrust team head, the National Bar Association of the Antimonopoly Professional committee Secretary-General Huang lawyer has an estimate. He told the newspaper reporter, the reduction of patent licensing fee is expected to be the Chinese brand mobile phone companies to save billions of yuan a year of expenditure.

How to calculate 6.088 billion yuan

February 10, the Development and Reform Commission announced that the monopoly of Qualcomm companies ordered rectification and a fine of 6.088 billion yuan. The National Development and Reform Commission said Qualcomm had implemented three types of abuses of market dominance: charging unfair high royalty fees, improperly tying up the necessary patent licenses for non-wireless communication standards, and attaching unreasonable conditions to baseband chip sales.

The final penalty for the case was the highest in history, three times times the total number of antitrust fines for the year 2014. (2014 rough Statistics, the NDRC issued a total of 1.8 billion yuan of antitrust tickets).

The fine for Qualcomm is sky-high, but not strictly capped. According to the provisions of China's antimonopoly law, if the operator violates the stipulations and implements the monopoly agreement, the illegal income may be confiscated and a fine of more than 10% of the sales in the previous year shall be forfeited.

Hucunlin said at the above ventilation meeting, the fine is not the main purpose. Because Qualcomm is very closely with the investigation, the company's president repeatedly to communicate with the NDRC, the NDRC did not comply with the highest standard of 10%, but reduced by 2%, according to 8% of the standard punishment.

"Qualcomm initially thought the fine was a bit heavy, but we thought it was reasonable and eventually Qualcomm accepted it." The fines are calculated on the basis of the average exchange rate of safe. "he said.

The NDRC's circular said it was fined 6.088 billion yuan for Qualcomm's 2013 Chinese market sales of 8%.

Earlier, the newspaper has reported that with the European Union to calculate the base for the last year's global turnover, all of its products are different, China's antitrust sector and South Korea similar to only calculate sales in China, and only with the investigation of the behavior related to the product,

"The EU's approach is that a branch has made a mistake, so that the entire group's parent company's turnover needs to be counted as a base; if the chip also produces drugs, the drug should be counted into the base." "said Zhou Zhaofeng, a partner at the UK Honghu law firm, the University of Glasgow's antitrust law.

The NDRC's explanation is that the "related turnover" also defines products and related markets. For example, before the related milk powder antitrust case, just forget about some business of the relevant enterprise milk powder, and the production of milk powder raw materials, and did not count to the base.

Public data show that 2013 Qualcomm global sales of 24.87 billion U.S. dollars in China (including Hong Kong) sales as high as 12.288 billion U.S. dollars, accounting for nearly 50%. According to the annual report of 12.288 billion U.S. dollars in sales of 8% of the amount of fines, 983.04 million U.S. dollars, according to the latest RMB dollar exchange rate of 62,541 percent after the approximate RMB 6.148 billion yuan. This is slightly different from the 6.088 billion dollars of the final fine.

A person familiar with the progress of the case told the first financial daily reporter analysis that this error may be largely attributable to the fact that the relevant sales do not include the Hong Kong region of China; the sales referred to in the annual report refer to the "full business" sales of Qualcomm, while the relevant market defined in the penalty decision is 2G, 3G, 4G Wireless communication standard necessary patent market as well as CDMA, WCDMA, LTE baseband chip market; Qualcomm's annual report calculates 2013 sales in the U.S. fiscal year (October 2012 to September 2013), and when the National Development and Reform Commission imposed fines Generally in the Chinese fiscal year (that is, January 2013 to December).

Communication between the two sides 28 times

Hucunlin revealed that the NDRC's first meeting with Qualcomm listed all the violations, but let Qualcomm back in preparation. The two sides communicated with each other 28 times, in which Hucunlin personally met with Qualcomm's President 8 times. Over 20 of the communication process, Qualcomm's lawyers were present.

"First Financial daily" previously reported that the NDRC's punishment decision, is only an administrative penalty. If a fined enterprise, or Qualcomm, is not satisfied, it can be asked to be judicially reviewed by the court. In the judicial review process, you can conduct a first instance, if the appeal, the final examination of the second instance, even if the NDRC's administrative penalties, the case has a long legal process to go.

From the current investigation process disclosed, Qualcomm did not raise a plea.

The NDRC announced that Qualcomm offered a package of corrective measures, including five points:

For the use of mobile phones in China, according to the wholesale net sale price of the whole machine to receive a patent license fee, to the licensee of China to carry out patent licensing, will provide a patent list, not to the expired Patent charge license fee, do not require our licensee to the patent for free reverse license;

When carrying out the necessary patent license for the wireless standard, there shall be no valid reason to tie the non-wireless communication standard necessary patent license;

Sales baseband chip does not require our licensee to sign a license agreement containing unreasonable conditions, and will not challenge the patent license Agreement as a condition for supplying baseband chips to our licensee.

The NDRC said a package of corrective measures submitted by Qualcomm met the agency's decision and rectification requirements.

This, according to the report before this newspaper, touches on the rectification of some of the core business models of Qualcomm.

Qualcomm's so-called "free anti-license", Qualcomm's demand for a Qualcomm-chip mobile phone companies to buy the necessary standards of the required patents and even non-standard necessary patents for Qualcomm, such as a mobile phone companies to buy Qualcomm Chips, It has to have the standard necessary patents and even non-standard necessary patents to Qualcomm, free of charge, when Qualcomm will chip sales to other mobile phone manufacturing Enterprise B, the company will no longer pay the mobile phone company a patent fee.

Qualcomm, through free anti-license, indirectly has a high share of wireless communications standards, and possibly even most of the standard of the necessary patent rights, which includes both its own patents, but also the Chinese enterprises granted the free license to its patents.

The significance of "charging a patent license fee of 65% of the wholesale net price of the whole machine" also raises concern in the industry.

Previously, the industry has been uneven, Qualcomm's patent fees are charged according to the whole machine price to collect, and access to the way patent fees, it is involved in the patent part of the basis of the calculation ratio. Coupled with high licensing fees, Qualcomm is described by the industry as "rogue behavior," and Qualcomm is essentially more like a company that relies on royalty charges.

What is the concept of the whole machine price charge? Industry insiders made an analogy: for example, you invented a lighting method of electric light, if the manufacturer of the electric lamp uses this patent, produces the electric lamp, according to the result of the negotiation, the 3%~5% of the turnover is compensated to you with the patent fee. If your patent is about the light bulb, then you will be paid when you sell the light bulb, which is the 3%~5% of the bulb price. But, the light bulb outside has very beautiful base, finally the whole lamp needs 100 yuan, according to Qualcomm's way, is according to 100 yuan's whole lamp base to collect the patent fee.

China Mobile phone brand or province billions of

Several industry lawyers and experts, who asked to be anonymous, commented on the first financial journal that from the above description, the biggest change to the Qualcomm business model is the cancellation of the free reverse license; As a result of a given rate, it looks as if the rate is 65 percent, but it does not change the mode of patent pricing for the wholesale net price of the whole machine. In addition, due to the failure to give a given rate and other factors, some in the industry worried that Qualcomm made a partial commitment to the future may also be circumvented.

Hucunlin said antitrust enforcement will not protect some companies, mainly to restore competition order. In addition, the mobile phone price changes in the conduction of time, will eventually lead to product technology improvement, quality improvement, low prices.

"But it takes a process, everyone needs patience, and ultimately consumers are benefiting." "Hucunlin said.

Huang lawyer more optimistic, he gave this reporter calculate a ledger, according to Saino retail monitoring data, 2014 China Mobile phone market sales of about 387 million, domestic brands share more than 70%.

According to the level of comment, Qualcomm charges a license fee of about 5% of the total price of the whole machine, after the penalty of the price levy ratio adjusted to 65%, if per cell phone 1000 yuan, license rate of 5% calculation, rough estimate 65% Discount means it can reduce the cost of about billions of yuan a year for Chinese companies.

In his view, the total unit sales were retained as the basis for pricing, but concessions were made in terms of licensing rates, which would have been a major breakthrough for the 5% per 65 percent license rate for 3.25%, compared with the previous 5% and 6.5% license rates.

He analyzed that Qualcomm's related corrective actions also meant that handset makers could sign a license agreement with Qualcomm on a single patent, without having to sign an overall packaged patent agreement.

Huang to the "First financial daily" reporter commented that the case from the launch of the investigation to the results of the official announcement lasted more than a year, is the current number of head-on confrontation, the most difficult investigation, the highest amount of punishment, the follow-up impact of the most far-reaching China's antitrust investigation first case.

Dengsong, a lawyer at Dacheng law firm, told our correspondent that this is the first time that global regulators have challenged and tried to change Qualcomm's model, a sign of positive justice.