Saturday, December 7, 2019

Korea Fair Trade Commission defeats Qualcomm's antitrust appeal in court, but Qualcomm will appeal--and violate--further

As Reuters and other media outlets reported, the Seoul High Court upheld the record $873 million fine the Korea Fair Trade Commission (KFTC) had imposed on Qualcomm. The issues in the South Korean antitrust case are very similar to the ones in the U.S. FTC v. Qualcomm case, and the most important overlap concerns the obligation to extend exhaustive SEP licenses, on FRAND terms, to rival chipset makers.

For the South Korean competition authority, this is a major legal victory. Qualcomm has announced its intent to appeal this matter further to the Supreme Court of South Korea. But that appeal will take roughly half a decade to be resolved.

Qualcomm's problem is not to cough up the (almost) billion-dollar fine. Korea--with Samsung and LG being based there--is a strategically important market. What hurts Qualcomm much more in the short term is that this Korean decision may also serve to demonstrate to the Ninth Circuit that the U.S. FTC and Judge Lucy H. Koh reached decisions that are simply in the global antitrust mainstream. I guess the U.S. FTC will file a request for judicial notice soon--and, by the way, I believe the companies who lodged EU antitrust complaints against Nokia (Daimler, Continental, Valeo, Gemalto, BURY Technologies) should also try to leverage the Korean decision in Brussels.

The United States Court of Appeals for the Ninth Circuit will hear FTC v. Qualcomm on February 13, 2020. In the post I just linked to, I listed my posts on most of the amicus curiae briefs filed in support of the FTC, and subsequently I also blogged about an automotive-industry brief.

Competition enforcement is not meant to serve a revenue-generation purpose. Fines are meant to deter anticompetitive behavior. So the real measure here is what the KFTC is going to do now. If they continue to refrain from actually enforcing the corrective order requiring Qualcomm to license rival chipset makers, with pressure from the U.S. government being considered the primary reason for this failure to enforce, then they're not going to restore fair competition. Qualcomm will then just continue to refuse to license its rivals, and nothing will change in the marketplace.

A Korean source tells me that the Korean public may be too focused on the fine as a major victory for the government while failing to see the importance of actually enforcing the corrective order. And the large companies who originally complained to the KFTC have settled with Qualcomm in the meantime (or, as in Intel's case, have exited the market). Huawei and MediaTek could have complained, but Korean observers believe they aren't interested in that particular jurisdiction to the extent they'd take action there. So, all in all, the KFTC may be reluctant to allocate the resources to an enforcement effort that would be required.

Realistically, I wouldn't expect a Korean enforcement action to begin in the months ahead. However, I'm a bit more optimistic that something might happen in case the Ninth Circuit affirms Judge Koh's decision on chipset-level licensing (even if on the right-for-the-wrong-reasons basis espoused by the FTC and various amici). In that case, the U.S. government would be in a fundamentally weaker position to tell Korea not to enforce a decision upheld not only by a Korean court but also ordered by one U.S. court and affirmed by one of the most important courts of appeal.

Theoretically, Korean antitrust enforcement should be independent--and effective. But in practical terms, it appears that U.S. influence over this is strong, unless some modem chip makers complain actively and vocally in Korea over Qualcomm's continued non-compliance with the KFTC's corrective order.

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