Qualcomm is under fire once again as the Korea Fair Trade Commission (KFTC) delivers a report alleging that the company's licensing practices are illegal. The report advises Qualcomm to pay a fine and reform its methods.

Qualcomm has acknowledged receipt of the KFTC Case Examiner's Report (ER), which was prepared and sent so that Qualcomm could respond to allegations and prepare a defence. Qualcomm said in a statement "the allegations and conclusions contained in the ER are not supported by the facts and are a serious misapplication of law."

The scale of the potential fine was not revealed, but in similar cases has often been up to 10 per cent of annual sales.

South Korea is the latest of many jurisdictions that have pursued Qualcomm. In February 2015, after an investigation lasting over a year, Qualcomm settled with China's National Development and Reform Commission (NDRC). The result was a $975-million fine and a significant royalty rate cut (about one-third off) for Chinese handset vendors (see China wins royalty cuts from Qualcomm).

Qualcomm is also under investigation by the European Commission, which is investigating whether Qualcomm has engaged in "tied selling" of 3G and 4G mode chips as well as whether it has engaged in "predatory pricing." (see EC probe on Qualcomm's sales practices opens).

One of the issues that the KFTC has highlighted is that Qualcomm bases its percentage royalty rate on the value of the equipment it's technology is embedded in, but also demands that individual chip companies should be licensees. The KFTC states that this violates Korean competition law. ARM, for example, calculates royalties for its technology based on the price of the SoC processor in which it is included and the SoC vendor is the licensee.

In its statement Qualcomm states that "device licensing" is a worldwide industry norm and that it has been doing this for almost two decades.

However, some observers reckon that Qualcomm's on-off relationship with Samsung could have a bearing on the outcome of the investigation. Qualcomm was a long-time supplier of Snapdragon application processors to Samsung before, earlier this year, Samsung decided to go exclusively with its own Exynos 7 Octacore processor in the flagship Galaxy S6 smartphone. Meanwhile, Qualcomm's finances have started to falter (see Qualcomm to cut 4,700 employees).

Qualcomm has hopes that its Snapdragon 820 could be included in next year's Galaxy S7 smartphone and many others, but it is notable that Samsung has just rolled out its own Exynos 8 application processor (Samsung FinFET Exynos 8 has custom cores).

"We intend to vigorously defend ourselves at the Commission hearings and remain hopeful that the Commission will reject the conclusions of the Examiner's Report. We expect the process to take some time," Qualcomm states.

However, it seems likely that neither South Korea nor Europe will be satisfied with a deal with Qualcomm any less beneficial than that obtained by China. And the more those deals chip away at Qualcomm's licensing base, the harder it is for the company to make money in the uber-competitive mobile-phone market where it appears that self-builders such as Apple and Samsung are winning the day.

By: DocMemory
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