Wednesday, August 30, 2017

EU investigations of Qualcomm have come out of hibernation this summer: will anything noteworthy happen?

The European Commission's Directorate-General for Competition--the 28-nation bloc's top antitrust agency--has been criticized on various occasions (on which it went after U.S. tech companies) that it focused more on the strategic interests of competitors of their investigation targets than on consumer harm, which is the central and paramount aspect of U.S. antitrust law. And more than once it has been alleged or insinuated that draconian fines or a certain order to collect taxes were driven, in no small part, by a desire to siphon off billion-dollar amounts from highly-innovative American companies.

It's not always easy, and in some contexts I'm not at all inclined in the first place, to defend DG COMP against such criticism, though it is definitely the most impactful division of an EU institution that is, in pretty much every other regard, little more than the EU Council's de facto secretariat.

The issues raised by Qualcomm's aggressive conduct are serious from a consumer point of view since every European consumer effectively pays a Qualcomm SEP (standard-essential patents) monopoly tax on every smartphone or other cellular device sold in the EU's Single Market. There may not be any significant European smartphone maker left, nor any European chipset maker (Infineon's mobile chips division was acquired by Intel, a Silicon Valley company, and might still be a European company if not for Qualcomm's behavior). But with more than 500 million consumers living in the EU, the European aspect of Qualcomm's patent licensing and other practices is very important nonetheless.

By requiring Qualcomm to extend FRAND patent licenses to all comers, including rival chipset makers (even if those may typically be American and Asian corporations), the EU Commission could have a far greater positive impact than the fines it might impose on Qualcomm would suggest. Qualcomm's annual worldwide revenues are in the $25 billion range, so theoretically the EU could fine Qualcomm to the tune of $2.5 billion (10%), but more likely the amount would "only" be in the hundreds of millions (since 10% is the absolute maximum under EU law).

So by giving the Qualcomm matter(s) as much attention as other tech antitrust matters DG COMP is pursuing, and as much as other major competition agencies (such as the FTC and the KFTC) are giving their investigations of Qualcomm's unilateral conduct, the EU Commission could demonstrate that this is about principles of fair competition and consumer interests, not about being used by someone's competitors, and that revenue generation is not really the objective. However, should the EU just stay on the sidelines of the Qualcomm matter, some will compare such lack of follow-through against what's going on in some other cases.

There are two EU cases involving Qualcomm, but it's been quiet about them lately:

  • In late June, the Commission stopped the clock in the Phase II merger review of Qualcomm's proposed acquisition of NXP, but restarted it two weeks ago (August 16). The new deadline for a decision (which, if the Commission stayed firm and Qualcomm didn't offer meaningful concessions, would be a decision to block the merger) is December 6.

  • Further to a complaint by Icera, a once-European semiconductor company acquired by Nvidia and closed down later, DG COMP opened an investigation of Qualcomm's exclusivity arrangements and predatory pricing in July 2015 (technically, two parallel investigations) and issued Statements of Objection in December 2015. Since then there hasn't been any news. The narrow scope of those investigations hasn't been widened.

    Some delay was caused by Qualcomm's refusal to respond to a January 2017 information request by DG COMP. Qualcom argued it would cost millions of euros for "thousands of working hours" (in the aggregate of the effort made by up to 50 employees and external advisers) to comply. The EU Commission then ordered Qualcomm to produce the requested information lest it be fined more than half a million euros per day. Qualcomm took this matter to the EU General Court (formerly called the Court of First Instance), which upheld the Commission's order by decision of July 12 as Qualcomm failed to convince the judges it faced significant disruption of its business or other serious and irreparable harm.

In legal terms, and with respect to the professionals on the case teams, those are two separate matters. In practical terms, however, neither investigation exists in a vacuum. From a certain level up, the decision-makers are the same, and even below that level, people will be aware of what's going on in the other case. Qualcomm's unwillingness to cooperate with an information request does nothing to improve its relationship with the Commission--and this could also affect the merger review, which could turn into a bitter fight anytime now.

There is a potential overlap with respect to remedies, too. The most logical and most meaningful remedy would be a requirement to extend FRAND patent licenses to rival chipset makers. That wouldn't resuscitate Icera, but it would be unbelievably positive for consumers (though it would just be a reasonable interpretation of the relevant FRAND licensing promises). It's also what the FTC wants to see happen, and apparently the KFTC, too.

Hopefully there will be some positive EU developments to report in the coming months. If not, we can still talk about possible reasons then.

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