Qualcomm, Inc., Administrative Penalty Decision of the National Development and Reform Commission of PRC

Published: 2/9/15

No available links. The Summary is based on unofficial English translations.

In this decision, China’s National Development and Reform Commission (“NDRC”) determined that several aspects of Qualcomm’s licensing of telephony SEPs constituted an abuse of a dominant position. The NDRC imposed a fine of RMB6.088 (~US$975 million) and ordered Qualcomm to discontinue the practices that NDRC found unlawful. The specific practices deemed to be unlawful were: (1) charging royalties for expired SEPs, (2) conditioning SEP licenses on licensees’ agreement to take licenses to other Qualcomm patents that were not SEPs (“non-SEPs”), (3) requiring SEP licensees to grant back royalty-free licenses to their non-SEPs, (4) imposing a “relatively high royalty” calculated on a device-level royalty base, and (5) requiring baseband chip purchasers to agree to licenses with unreasonable conditions such as the ones listed above and not to challenge Qualcomm’s licenses.

The NDRC found that Qualcomm was dominant in markets for its SEPs because “each of the SEPs incorporated into the related technological standards is indispensable and a technological patent that is necessarily practiced.” Therefore, “a license to each of the SEPs itself constitutes an independent relevant product market.”

The most significant aspect of the decision concerned the reasonableness of Qualcomm’s royalties. The NDRC found that Qualcomm committed an abuse of dominance by imposing a “relatively high royalty” on a royalty base of “the net wholesale price of the whole device, which is beyond the coverage of [Qualcomm’s] SEPs.” The decision did not set out either the royalty level that the NDRC deemed excessive or the factors that the NDRC considered in determining the reasonableness of the royalty level. Nor did it reach any conclusions regarding the permissibility of charging a royalty that reaches product features that are beyond the coverage of Qualcomm’s patents.

NDRC also found that Qualcomm abused its dominant position by conditioning licenses to its telephony SEPs on licensees’ agreement to license non-essential patents. The NDRC determined that “non-SEPs are not necessarily valuable to all wireless communication terminals, and wireless communication terminals manufacturers do not necessarily need to obtain licenses from [Qualcomm] to its non-SEPs.” NDRC rejected Qualcomm’s justification that SEPs and non-SEPs are difficult to distinguish. It said that “SEPs and non-SEPs can be distinguished and licensed separately, and it is a normal practice to define with contractual terms the scope of standards essential patents in a license agreement.”

The other significant aspect of the decision involved the NDRC’s determination that Qualcomm abused its dominance by conditioning a license to its SEPs on licensees’ agreement to grant back licenses to their non-SEPs on a royalty-free basis.