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South Korean Antitrust Regulator Fines Qualcomm $865M

Paul Jacobs, CEO of Qualcomm, delivers a speech at the Seoul Digital Forum 2006 in Seoul, May 25, 2006.
Associated Press
Paul Jacobs, CEO of Qualcomm, delivers a speech at the Seoul Digital Forum 2006 in Seoul, May 25, 2006.
South Korean Antitrust Regulator Fines Qualcomm $865M
South Korean Antitrust Regulator Fines Qualcomm $865M GUEST: Congcong Zheng, associate professor of management, San Diego State University Fowler College of Business Administration

Our top story South Korea's fair Trade Commission has left San Diego-based QUALCOMM with a huge fine for what it claims are unfair business practices. The commission says the company must pay $853 million for allegedly forcing its cell phone manufacturing customers to pay royalties for older patents as part of QUALCOMM's modern chip sales. QUALCOMM denies the charges and says it will take the issue to court. Stock prices fell today by almost 2%. Joining me is Congcong Zheng and associate professor in the Department of management at the Fowler College of business administration at San Diego State University. Congcong Zheng welcome to the program. QUALCOMM's most profitable businesses licensing patent -- patents to the industry. Does this find to strike at the heart of the practice. That is the intention of the fine and it did. This is just one of the latest in a number of regulatory challenges QUALCOMM is facing around the world. Last year there were find nearly $1 billion by the Chinese. Is that issue similar to the one in South Korea? Absolutely 100%. How so? This is a bigger issue. The bigger issue is that QUALCOMM is a big player in the mobile phone industry. The bigger picture here -- I tend to start with the bigger picture. The bigger picture is a few years ago none of this happened. Why? QUALCOMM is doing the exact same thing is they are doing now licensing was a key part of this business. A few years back nothing like this happened because at that time when Apple first introduced a smartphone the industry was just growing up and there is plenty of money to be made by everyone. Right now the market has been commoditized so Apple -- I got the statistics from concordia agency Apple has 14% of the market share it has 94% of the entire smartphone market. The smartphone industry itself is softening for QUALCOMM is what you are saying. So QUALCOMM's major industry is sought -- Samsung that could profit if QUALCOMM lowers the cost of its licensing agreements. Is there reason to think this really might be motivated by national interest in South Korea? That is a loaded question. I would say possibly but as I was talking to Megan earlier the fairness is very subjective. As Americans we think this is unfair because it favors Samsung but they think it is fair because of out of the market share has been taken by Americans. A lot of the money has been made by Americans. It is very low -- loaded the pick of the question is very subjective. Absolutely. The same year there was a find the Chinese that was paid. QUALCOMM announced layoffs. Do you think there is a link between those two events? 100%. But the events in academia -- the two events are related but they amount of the layoff are under the control of the board and under the control of top management. When they laid off 15% that was their decision. I believe the source of that is related to this massive fine. If indeed this South Korean fine is upheld by that measure we might see additional laughs at QUALCOMM. Maureen this is why I said that is a loaded question. I do not know. I can see where you're going with this. What I am saying is less. QUALCOMM is doing a lot of great things to try to combat the overrun lines. The QT a business which is the technology licensing business has introduced snapdragon and and -- and has introduced the new chip making business so it's doing a lot of the things so that it may not happen. We will have to just wait and see. I have been speaking with Congcong Zheng and associate professor at the Fowler College of administration thank you so much.

South Korea's antitrust regulator slapped a 1.03 trillion won ($865 million) fine on Qualcomm Inc. Wednesday for allegedly violating competition laws.

The Fair Trade Commission said that the San Diego-based company had engaged in unfair business practices in patent licensing and chip sales, including refusing to let rival chipmakers license patents essential for chip making.

The FTC said Qualcomm allegedly used its dominant position in the modem chip market to force handset makers to pay license fees for a broad set of patents under terms it set unilaterally and to coerce handset makers into signing licensing contracts.

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The fine, the biggest ever levied by the antitrust regulator, "will restore fair competition in the mobile communications industry," Shin Young-sun, secretary general at the Fair Trade Commission, told reporters at a briefing.

Qualcomm rejected the ruling, saying it plans to appeal it in court.

Don Rosenberg, Qualcomm's executive vice president and general counsel, contended competition is "robust" in part because Qualcomm's business model promotes competition.

"For decades, Qualcomm has worked hand-in-hand with Korean companies to foster the growth of the wireless Internet," Rosenberg said. "Qualcomm's technology and its business model have helped those companies grow into global leaders in the wireless industry. This decision ignores that win-win relationship."

Qualcomm made $25.1 billion in 2015 from collecting patent royalties and selling modem chips. South Korea, home to the world's largest smartphone maker Samsung Electronics, accounts for about 20 percent of its global revenue.

Corrected: April 22, 2024 at 10:00 AM PDT
City News Service contributed to this report.