Qualcomm fined $271M for predatory pricing

The Commission’s investigation found Qualcomm blocked competition of baseband chipsets (mainly used in mobile broadband devices) by applying predatory prices to protect its dominance in the market.

“EU competition rules do not prevent dominant companies like Qualcomm from offering low prices to their customers, but dominant companies have a special responsibility not to impair competition in the internal market,” Commissioner Margrethe Vestager said in her announcement of the settlement. “They can sell at low prices, but they cannot sell below costs with the intention of eliminating a competitor. This is not competition on the merits.”

The case began with a complaint filed by Icera, a small, growing startup, which introduced its first baseband chipset to the market in 2006. Icera’s chipsets became an attractive alternative to Qualcomm’s baseband chipsets, particularly for data cards. Consequently, by 2010, Qualcomm saw Icera as posing a “critical” threat to its chipset business.

In response, Qualcomm began to take, as it stated in internal documents, “preventive actions.” This meant offering very targeted price concessions to two strategically important customers, namely Huawei and ZTE. These were big customers of chipsets for data cards, and they were essential for Icera to succeed in the market.

“Our investigation found that, during two crucial years for Icera’s development prospects, Qualcomm offered three of its leading-edge chipsets at prices below cost to both these key customers,” Vestager said. “The prices set by Qualcomm did not allow it to cover its cost for developing and producing these chipsets.”

“The evidence we have seen shows that this was done on purpose to prevent Icera from gaining a foothold in the market, at a time when Icera was Qualcomm’s main contender in the market segment of chipsets for data cards.” Ultimately, such anticompetitive behavior prevented Icera from gaining reputation and scale as a supplier of chipsets for data cards and from entering the larger smartphone segment. It was bought in 2011 by Nvidia, which decided to abandon the baseband chipset market a few years later.

“In short, Qualcomm’s behaviour deprived consumers of a wider choice of technologies and affected Icera’s ability to develop chipsets for the next wireless technology generations,” Vestager said. “This is why we have fined Qualcomm 242 million Euros; the fine reflects both the seriousness and the duration of the infringement.”

Rare and trying case

Vestager went on to explain that predatory-price cases are not common. “The last time the Commission imposed a fine for such behaviour was 16 years ago—but no matter how difficult and complex these cases are, we remain committed to fighting predatory pricing by dominant companies,” she said.

“Moreover, our decision today will support any action for damages caused by Qualcomm’s anti-competitive behaviour before national courts. In fact, in cases before national courts, a Commission decision is binding proof that the behaviour took place and was illegal,” Vestager said.

She also spoke about the amount of time and effort it took. The Commission opened its formal investigation and sent a Statement of Objections to Qualcomm in 2015, and that was just the start of deliberations.

From that point, Qualcomm was sent a supplementary Statement of Objections; two oral hearings were held; and the Commission engaged in “detailed exchanges with the company concerning additional information required for our investigation,” Vestager said. “Qualcomm has also appealed one of our information requests to the General Court and, after losing in the first instance, it appealed the Decision to the European Court of Justice.”

“These procedural steps are a key part of the checks and balances that ensure the procedural fairness of our enforcement system, but they do take time. We have made progress in this mandate in expediting our anti-trust procedures, but that is a challenge that will also stay with us for the future,” Vestager said.

In a statement, Qualcomm said it plans to appeal the finding to the General Court of the European Union.

“The Commission spent years investigating sales to two customers, each of whom said that they favored Qualcomm chips not because of price but because rival chipsets were technologically inferior. This decision is unsupported by the law, economic principles or market facts, and we look forward to a reversal on appeal,” said Don Rosenberg, executive vice president and general counsel of Qualcomm.

Rosenberg continued, “The Commission’s decision is based on a novel theory of alleged below-cost pricing over a very short time period and for a very small volume of chips. There is no precedent for this theory, which is inconsistent with well-developed economic analysis of cost recovery, as well as Commission practice.

“Contrary to the Commission’s findings, Qualcomm’s alleged conduct did not cause anticompetitive harm to Icera. Icera was later acquired by Nvidia for hundreds of millions of dollars and continued to compete in the relevant market for several years after the end of the alleged conduct.”

“We cooperated with Commission officials every step of the way throughout the protracted investigation, confident that the Commission would recognize that there were no facts supporting a finding of anti-competitive conduct,” Rosenberg said. “On appeal we will expose the meritless nature of this decision.”

Previous fines

This case marks the second antitrust fine that the Commission has imposed on Qualcomm. In February 2018, the Commission fined the company €997.4 million (U.S. $1.23 billion) for setting up a deal to be Apple’s sole supplier for five years.

Like this case, the Commission held that Qualcomm’s attempts to secure exclusive supply terms with the computer giant was an abuse of its dominant position, with the company effectively paying Apple to use its chips. The Commission found Qualcomm prevented rivals from competing in the market by making “significant” illegal payments to Apple—amounting to billions of dollars largely through price reductions—on condition it would not buy from rivals.

The penalty marked the third largest imposed by the Commission for market abuse, after Google’s €2.42 billion (U.S. $2.99 billion) fine in 2017 and Intel’s €1.06 billion (U.S. $1.31 billion) fine in 2009.