Sunday, March 10, 2019

Qualcomm will face criminal charges in Korea over refusal to license chipset makers once the KFTC's saintly patience is exhausted

Qualcomm presently has to defend itself against antitrust cases around the globe, and is awaiting, like the industry at large, Judge Lucy H. Koh's upcoming ruling following the FTC v. Qualcomm trial held in San Jose in January. But while most of the industry is eagerly anticipating the decision, Qualcomm is still lobbying hard to avoid it. The "national security" concerns purportedly voiced by Department of Defense and Department of Energy officials in this context are the non sequitur of the decade, given that any security issues would relate to actual products (and would have to be addressed at that level, such as by taking a "trust but verify" attitude toward Huawei's base stations), not to patent licensing practices. ACT | The App Association has thankfully already debunked that BS with a short post that points to a more detailed write-up by a Gibson Dunn lawyer (PDF). I recommend both documents strongly. They are so good that I really don't feel I have anything to add at the moment.

In five weeks, the huge Apple, Foxconn et al. v. Qualcomm trial will commence in San Diego (Southern District of California), where a trial of a sideshow lawsuit is currently taking place even though the way the mirror case in the ITC went suggests the complaint has very little or no merit. A second trial will be held in July over Apple's patent infringement counterclaims, and to be honest, I don't have any opinion on those claims yet for lack of having performed even the most superficial analysis so far.

But there's also a number of things going on overseas. Today I'd like to draw some attention to the situation in South Korea, where the current earth-spinning wave of antitrust actions against Qualcomm started in December of 2016 with a decision by the Korea Fair Trade Commission (KFTC) that involved a $853 million fine. The fine, however, is not what Qualcomm is primarily concerned about. A highly knowledgeable Korean source tells me that Qualcomm's efforts to appeal the KFTC's decision clearly focus on behavioral remedies: remedial orders that require Qualcomm to do something, or to cease doing something.

Since a Korean court's denial of Qualcomm's motion to stay the execution of the KFTC's remedial orders (a denial that was upheld on appeal as I just learned), I haven't written about the Korean situation. That's because my own primary research is limited to the U.S. (easy for me to do wherever I am, thanks to electronic access), Germany (provided I'm there when something happens), and occasionally also including the rest of Europe (especially the UK, sometimes also the Netherlands, France, and other countries). With respect to Asian cases, I depend on sources, and fortunately I get an increasing quality and quantity of information from that part of the world.

Just like chipset-level licensing is going to be the most interesting part of Judge Koh's impending decision (her summary judgment to that effect was great, but it was limited to two particular FRAND commitments), it's also a cornerstone (to say the least!) of the Korean antitrust case against Qualcomm. As I reported about two years ago, Qualcomm allegedly kept Samsung out of the wireless chipset market through restrictive contract terms, an impression that was confirmed by some of Samsung's videotaped testimony in the FTC trial. However, with a view to the FTC trial and its overall global antitrust woes, Qualcomm entered into a new agreement with Samsung more than a year ago. Qualcomm's "gag orders" in contracts are well-known, so it's a safe assumption that Samsung, whether or not it even has the desire to do so anymore, simply can't pursue antitrust charges against Qualcomm without potentially being held to have breached its contract.

In December 2018 it became known that LG Electronics became (once again) a party to the Korean proceedings. While nowhere near as large and powerful as Samsung, LG is also an interesting and impressive Korean company. In fact, while only number two in this field in Korea, LG is yet a more significant mobile handset maker than everything that the entire, digitally degenerated, European continent (just thinking of that utter morony and indicator of digital-age delusion named "Article 13") brings to the table in that particular product category.

The aforementioned Korean source believes LG wanted a similar deal from Qualcomm as Samsung got, but Qualcomm gave LG short shrift, and that's why LG rejoined the appellate proceedings as an interested party.

In my opinion, the single most important one of the KFTC's remedial orders is the one that requires Qualcomm to extend exhaustive standard-essential patent (SEP) licenses to rival chipset makers including the chipset divisions of device makers. A "covenant to sue last" is the very opposite of a clearly-exhaustive license: it's an attempted end-run around the actual requirement.

From what I hear (including what I heard at the January trial), Qualcomm appears to continue to go about its patent licensing business as if the KFTC's remedial orders didn't exist or weren't enforceable. But they do exist, and they are enforceable, so Qualcomm is practically at the mercy of the Korean government in this regard.

There comes a point when the South Korean government will have to step up the pressure massively. In the alternative, South Korea's reputation as an antitrust jurisdiction would be in jeopardy. The KFTC can't turn a blind eye to Qualcomm's blatant contempt of the remedial order regarding chipset licensing without paying a reputational price. What will other antitrust offenders do in other (present and future) cases?

I have been pointed to two Korean articles:

  • a story published on, entitled "Qualcomm Scoffing at the KFTC's 'Remedial Orders Against Patent Bullying'--KFTC 'Not Doing Much'" and

  • an report on a parliamentary hearing where KFTC chairman Kim Sang-Joo said he would "take actions if Qualcomm does not implement the remedial orders," but a high-ranking KFTC official, its director general Shin Yeong-ho, also pointed to the fact that the competition enforcement agency would firstly have to find that Qualcomm is in contempt of an order that does not state specific deadlines before it can take the next step.

That next step would involve criminal charges. There are some differences between different jurisdictions in terms of antitrust enforcement:

  • In the U.S., the goverment has to sue an antitrust violator, like in the FTC v. Qualcomm case. It's then up to a court to enter a judgment, and remedial orders must then take the shape of an injunction (absent a settlement such as a consent decree, of course). Failure to comply with the injunction can then give rise to contempt proceedings (again, in court).

  • The European Commission's competition enforcement division can hand down an order, and the affected company can appeal it to the EU's judiciary in Luxembourg (examples: the Republic of Ireland and Apple are appealing the "state aid" decision on Apple's Irish taxes, and Google is also in the process of appealing a couple of EU antitrust rulings). Enforcement of EU decisions is ultimately always limited to fines, but they can hurt.

  • The KFTC is in a stronger position. It has quasi-judicial authority like the EC, but the consequences of failing to comply with an enforceable KFTC decision are worse because enforcement means a criminal complaint is filed by the KFTC with the Prosecutor General's office in accordance with Article 71 of Korea's Monopoly Regulations and Fair Trade Act (MRFTA). According t Article 67, para. 6, of the MRTFA, executives failing to comply with a corrective measure or prohibition order taken under various articles of the law can be fined or, in serious cases, imprisoned for up to two years. By contrast, the EU Commission can't imprison anyone because it's a supranational institution.

More and more people in Korea appear to be wondering why the KFTC is sitting by idly as Qualcomm disregards the remedial orders. The articles indicate that Jeon Haechul, a member of South Korea's national parliament, asked tough questions last year.

Talking about companies that have not received a better licensing offer from Qualcomm despite the KFTC's remedial orders, one of the articles specifically names LG, Intel, Apple, Huawei, and MediaTek. The terms of Samsung's agreement with Qualcomm are not known beyond what was said in the public part of the U.S. FTC proceedings.

The KFTC had already been very patient in the build-up to its decision, granting Qualcomm about three times as many hearings as it usually does before making a decision. But whenever its patience will be exhausted, Qualcomm's wireless SEPs will have to be licensed at the chipset level, which will also result in exhaustion, but in the sense of exhaustion under patent law. "Exhaustion" is the magic word here.

With more than a year having passed since Qualcomm's new deal with Samsung, something will have to happen in the not too distant future. If Judge Koh decides the question of chipset-level licensing, on a broader basis than last year, in the U.S. FTC's favor, the KFTC may (and in my view should) be encouraged to take this antitrust matter to the next level, giving Qualcomm one last warning before pursuing criminal charges.

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