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Qualcomm headquarters in San Diego, California, USA
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Only one contract of global ICT company has abided by correction order
The Fair Trade Commission (FTC) imposed penalties of over US$900 million after uncovering patent-related abuses by the global ICT company Qualcomm – but has been lax in its oversight of a previously issued “correction order,” which could potentially have a far bigger ripple effect. Despite two full years having passed since the FTC’s order was issued, only one Qualcomm contract has abided by FTC’s terms. Having created an opportunity to straighten out the global communications market order following two years of studies, the FTC has neglected the corrections that represent the truly important part. In Dec. 2016, the FTC imposed penalties of 1.0311 billion won (US$904 million) on Qualcomm, which it concluded had “abused its monopoly of standard-essential patents (SEP) on mobile communications to engage in unfair transactions.” It also issued an order for corrective action in three areas, demanding that Qualcomm “be sincere in its patent usage contract negotiations with companies producing modem chip sets, including Intel, MediaTek, and Samsung Electronics.” While the press focused its attention on the sheer amount of the penalty, the business community expressed hopes for what it saw as the far bigger changes the corrective order would bring. Two years later, the results have been minimal. FTC materials on the “Implementation of the Qualcomm Correction Order and Current Verification Status” acquired by the Hankyoreh on Oct. 24 through Democratic Party lawmaker Jeon Hae-cheol state that Qualcomm’s only move so far has been to sign a revised contract with Samsung Electronics in February on patent licensing for mobile phone and infrastructure equipment. No other company – including LG Electronics, the US companies Intel and Apple, China’s Huawei, or Taiwan’s MediaTek – has yet signed a revised contract with Qualcomm. The details of Qualcomm’s revised contract with Samsung Electronics were not disclosed, but business world observers said it was likely not to have been a patent contract in connection with modem chip manufacturing, which was the key focus of the correction order. No significant action taken 7 months after FTC notified of revised contract with Samsung The problem stems in part from the FTC’s half-hearted approach. According to FTC data, while the order’s implementation was verified in February, September, and November 2017, no verification actions had been carried out in more than seven months since the FTC received notification from Qualcomm about the revised contract with Samsung in Feb. 2018. Since the verifications in Feb. and Sept. 2017 concerned whether the individual companies had been notified that corrective action was possible, only two actual verifications have taken place apart from those. Amid the lax oversight from the FTC, companies have not been sitting down to negotiate with Qualcomm. LG Electronics requested a revised contract from Qualcomm around April and May, but no progress has been made in negotiations. “I’m aware of a few companies that have asked Qualcomm for negotiations, but Qualcomm hasn’t responded to them,” an industry source said. FTC unaware of its own rules FTC rules state that companies are to be given two warnings at 30-day intervals for failure to comply with a corrective action, with an accusation to be lodged if they still do not comply. But the FTC did not appear to be even aware of this. “There is no time limit on correction orders,” said FTC market oversight bureau director Shin Young-ho. “We will take action if we determine that Qualcomm is not complying with the correction order, but there is not much we can do in the absence of that,” Shin added. Industry observers see the correction order as a much more forceful step than a penalty. The anticipated profits for the industry if the correction order is implemented could amount to far more than one trillion won. Patent contracts between Qualcomm and the modem chip set companies (Intel, MediaTek, Samsung Electronics, and Huawei) in particular would fundamentally alter the current structure where Qualcomm receives usage fees from all smartphone manufacturers based on its communications patents. Around one-third of Qualcomm’s US$23.2 billion (26 trillion won) in sales last year is estimated to have come from communications patents. “It may be a decision by South Korea’s FTC, but it applies to major global ICT companies like Apple, Samsung Electronics, and Intel,” an industry source said. “That’s why the communications companies around the world have taken notice of the South Korean FTC’s decision,” the source explained. By Choi Hyun-june, staff reporter Please direct comments or questions to [english@hani.co.kr]
