Technology

EU Slaps Qualcomm With $1.2B Fine Over Mobile Chip Deal With Apple Inc.

The European Commission has slapped a fine on Qualcomm for misusing its market dominance in the LTE baseband chipset. The hefty fine of €997 million (or US $1.23 billion) is based on the accusations that the chipmaker restricted competitors from thriving by paying hefty amounts to key customers, who agreed not to buy products and services from the rivals. As per the European Union antitrust rules it is illegal.

EU Slaps Qualcomm With $1.2B Fine Over Chip Deal With Apple Inc.
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What’s the issue here?

“Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance. Qualcomm paid billions of US Dollars to a key customer, Apple, so that it would not buy from rivals,” said Commissioner Margrethe Vestager, in a press release.

Vestager noted that these payments also ensured that Apple would exclusively use Qualcomm’s baseband chipsets in all its iPhones and iPads. Such a strategy from Qualcomm also ensured that no other competitor would stand up against Qualcomm, irrespective of the quality products they had to offer.

Back in 2011, both Apple and Qualcomm entered into an agreement, whereby the chipmaker agreed to make significant payments to Apple on condition that products like “iPhones” and “iPad” run on the Qualcomm Chipset. In 2013, the agreement was extended further to 2016.

Qualcomm clearly mentioned in the agreement that it would stop paying Apple, in case it decided to go with any other chipset for its devices.

“Furthermore, for most of the time the agreement was in place, Apple would have had to return to Qualcomm a large part of the payments it had received in the past, if it decided to switch suppliers,” said a press release from the European Commission.

Apple and Qualcomm’s legal tussle started last year. Apple sued the chip maker for approximately $1 billion in patent royalty rebates not shared by Qualcomm. The United States Federal Trade Commission (FTC) is also looking into the matter in which both the companies have locked horns.

Qualcomm to appeal against the case

Qualcomm says it will appeal against the decision as the verdict “does not relate to Qualcomm’s licensing business and has no impact on ongoing operations.”

European Commission’s fine represents 4.9% of Qualcomm’s 2017 turnover.

The EU’s decision could work against Qualcomm in its $103 billion hostile bid for Broadcom. On the other hand, Intel is a direct beneficiary in this case. The chip giant has struggled for years to sell its chips to prominent companies. Even though Apple has started fitting its iPhones with Intel chips, the situation is far from comforting for Intel.

Before the European Union’s decision, Qualcomm also faced scrutiny from the South Korean authorities over anti-competitive practices. At the time, the chipmaker was charged with forcing vendors to pay royalties on its patents. Prior to this, Korean authorities also fined Qualcomm to the tune of $208 million over its CDMA dominance in 2009.

The policy of vendor financing, which is in question here, is not the brainchild of Qualcomm. The practice emerged in the late nineties and early 2000’s, when the telecom networks updated their legacy infrastructure and built new mobile and digital networks, noted TechCrunch.