Over 3G and 4G licenses

Qualcomm to pay $975M to China in antitrust settlement

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Qualcomm chips and intellectual property are increasingly found in smartphones around the world, but there’s been a cloud of uncertainty hanging over the San Diego silicon firm for the past 14 months: Namely, the chance that China would boot the company out of the country or severely hamper it because of issues with a 2008 Chinese anti-trust law.

Qualcomm announced Monday that it had reached an agreement with China’s National Development and Reform Commission. As Reuters reported earlier, citing China’s state-run securities trade paper, the deal includes a 6 billion RMB fine (approximately $975 million) and Qualcomm has agreed to change its licensing practices, including a promise that it will license its “essential” 3G and 4G patents separately from its other intellectual property, at what looks like a lower rate than before. Qualcomm’s summary of the key terms is below:

  • Qualcomm will offer licenses to its current 3G and 4G essential Chinese patents separately from licenses to its other patents and it will provide patent lists during the negotiation process. If Qualcomm seeks a cross license from a Chinese licensee as part of such offer, it will negotiate with the licensee in good faith and provide fair consideration for such rights.

  • For licenses of Qualcomm’s 3G and 4G essential Chinese patents for branded devices sold for use in China, Qualcomm will charge royalties of 5% for 3G devices (including multimode 3G/4G devices) and 3.5% for 4G devices (including 3-mode LTE-TDD devices) that do not implement CDMA or WCDMA, in each case using a royalty base of 65% of the net selling price of the device.

  • Qualcomm will give its existing licensees an opportunity to elect to take the new terms for sales of branded devices for use in China as of January 1, 2015.

  • Qualcomm will not condition the sale of baseband chips on the chip customer signing a license agreement with terms that the NDRC found to be unreasonable or on the chip customer not challenging unreasonable terms in its license agreement. However, this does not require Qualcomm to sell chips to any entity that is not a Qualcomm licensee, and does not apply to a chip customer that refuses to report its sales of licensed devices as required by its patent license agreement.

China is a key market for Qualcomm — nearly half of its profits come from the country, thanks to its large smartphone manufacturing industry as well as its huge smartphone market. Given that Qualcomm’s revenue last year was nearly $27 billion, the fine won’t cripple the company, but CEO Steve Mollenkopf has warned that the settlement would have a tempering effect on the company’s fiscal 2015 outlook.

The NDRC’s main allegation was that Qualcomm had a “monopoly” on modems for cell phones, particularly those using the CDMA standard, and had “abused its dominant position,” presumably by overcharging on licensing fees. Qualcomm, in defense, has alleged that Chinese licensees selling devices with Qualcomm chips have not accurately reported sales figures — meaning that it’s hard to accurately collect licensing fees.

It’s important for Qualcomm to continue to strengthen its business ties with Shenzen’s smartphone industry, or manufacturers could turn to improving 3G and 4G chips from companies like MediaTek and Samsung.

In December, President Barack Obama discussed the 2008 anti-trust law with his Chinese counterpart, Xi Jinping. A national security spokesman said that Obama had “concerns” about China’s use of its anti-trust policy to limit royalty fees from foreign countries, turning this business issue into a matter of foreign policy.

2 Responses to “Qualcomm to pay $975M to China in antitrust settlement”

  1. In 2014 Apple’s iphone revenue was 120.675 billions.
    At those China rates they would have payed 3.922 billions licenses
    And that’s in addition to likely 20$ plus (maybe 25$) for the actual chip in 192.662 million units.
    So yeah Qualcomm would get over 40$ per iphone at those so called reduced China rates when the BOM of a device is 200$.
    Ofc Apple is unlikely to be paying anywhere near those kind of licenses ,they would be insane to do so., there are far cheaper ways out of it.
    A freaking 5.5 inch 1080p screen is 20$ now and that is a lot more value than 4G in a smartphone , luckily nobody gets to charge an extra 20-40$ license fees for it.

  2. Shameful!!!
    See China can be as corrupted as others.
    Instead of fixing things they make it worse by reinforcing Qualcomm’s absurd position.
    Lets take one of the many technologies in a phone and in some cases multiply it’s value by up to 10 times.
    In the low end adding LTE is a few $ while such a device can retail at up to 500$ so Qualcomm would get 16.25$ without doing anything , getting payed for all the other hardware and innovation in the device plus marketing and margins and so on.
    For low end cheap devices they just double the value.
    Everybody else gets very little (or nothing) for technologies for more relevant in a pocket PC while Qualcomm ( and Ericsson) get to rob us blind.
    Funny how our best hope might be Apple vs Ericsson (for the same per price of device licensing model) and Nvidia vs Qualcomm and Samsung – what’s next after Nvidia wins and gets to charge absurd licensing fees? Others will gun for that too ofc, Lets triple the price of NAND too, Sandisk totally worked for that and while at it why not give ARM 30 times more, because if Qualcomm deserves it, so does ARM. How about wifi, we use it more than we use 4G, why wouldn’t they add 10% to the device…..
    Well over a billion devices per year get the Qualcomm tax today ,that’s how many people are cheated by Qualcomm with the help of the US gov and cowardly regulators.
    The device makers, all of them should sue them and ask for their money back, this is an absurd scam, patent trolling at it”s best.

    In calendar Q4 Qualcomm revenue was QCT $5,242 , QTL $1,816.
    QCT is chips , 270 million MSM .
    QTL are licensing with 87% earnings before tax
    At the same time in R&D they invested 1,173
    In the fiscal year that ended in Sept their licensing revenue was 7,569 while income before tax from it was $6,590 vs their chips with 18,665 revenue and 3,807 income before tax. Others are investing 20% of their revenue in R&D without 60% of their income coming from criminal licensing models that just enables their monopolistic position.
    Intel , Nvidia , Marvell , Mediatek and many others are investing 20-25% of their revenue in R&D without tens of billions of gifted income. Nvidia for it’s cross licensing patent agreement with Intel for GPUs make 66 millions per quarter and that makes sense, 100 times that wouldn’t but when it comes to Qualcomm everybody is just supposed to bend over.
    Sorry i just can’t stand seeing how corrupted politicians enable this kind of deeply damaging behavior.