Published: 7/23/09
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On 23 July 2009, the Korea Fair Trade Commission (KFTC) decided to impose final corrective measures and a penalty of USD 227.6 million on Qualcomm for abusing its dominant position in the CDMA technology market. The KFTC determined that Qualcomm excluded its competitors and maintained its very high market share in the Korean CDMA market by engaging in a number of abusive behaviors, such as requiring discriminatory royalty rates and conditional rebates. Of relevance here, Qualcomm charged a 5% royalty for its modem chips and a 5.75% royalty for non-Qualcomm modem chips. In addition to discriminatory royalty discounts, Qualcomm also used discriminatory ceilings on royalties and discriminatory price netting for handset components. These practices became entry barriers that prevented Via and EoNex from entering the Korean modem chip market.
The KFTC noted that, with the adoption of its CDMA patents in mobile communication standards, Qualcomm became a market dominant player in the upstream mobile communication technology market. The KFTC emphasized that a FRAND commitment is generally required during the standard setting process, not only to maximize the efficiency of standardization, but also to deter abuse of dominance by the holder of standard essential patents (SEPs). The KFTC also determined that Qualcomm’s breach of its FRAND commitment by charging discriminatory royalties evidences both its anticompetitive intent and anticompetitive potential in the modem chip market. Thus, among other competition problems, the agency decided that Qualcomm’s behavior constituted a violation of Article 3-2(1)3 of the Monopoly Regulation and Fair Trade Act (MRFTA), which prohibits a market dominant firm from unreasonably interfering with the business activities of other enterprisers. The Qualcomm investigation appears to be used as the basis for a hypothetical example in the KFTC’s Guidelines on the Unreasonable Exercise of Intellectual Property Rights, which were revised in December 2014 (see example 1).
Qualcomm appealed to the Seoul High Court, which generally upheld the KFTC’s decision in June 2013. While affirming the competition agency’s decision, the court took a slightly different approach than the KFTC. It ruled that the breach of a FRAND commitment evidences only anti-competitive intent, not the potential to harm competition. The High Court also found that the breach of a FRAND commitment is not a breach of contract, but important evidence of a violation of the MRFTA. This case is pending in the Supreme Court of Korea.