Qualcomm stumbles in Korea

Korean antitrust authorities slapped unprecedented heavy fines totaling 260 billion won ($208.7 million) on Qualcomm Inc. for violation of local competition laws. The San Diego-based company that holds key patents to CDMA ? or code division multiple access standard, which supports virtually all Korean-made wireless chip sets ? was accused of abusing its dominant market position to engage in unfair market practices.

The Korea Fair Trade Commission concluded that the U.S. company offered frequent discounts and rebates to maintain its 98 percent market control.

Companies opting for chips made by rival companies had to pay heavier royalty fees, while those buying a large amount of Qualcomm products were rewarded with rebates.

Qualcomm inked deals with Korean chipmakers to get a share of royalty fees even after it lost exclusive rights on licensing the CDMA standard.

It contested that the royalty discounts were in line with the terms in the CDMA standard import agreement that the government signed in 1993. It also claimed that the rebates amounted to “pro-competitive and lawful” marketing practices that helped benefit Korean companies and customers.

The administrative fines are far greater than the market expected. But it’s not very meaningful to Qualcomm, considering it rakes in 4.8 trillion won in revenue from the Korean market every year. Korean companies have filed numerous complaints against the U.S. telecom company but grew familiar with Qualcomm’s dominant position.

Qualcomm announced it will appeal to the Korean courts, claiming that the fines are “excessive and unwarranted.”

Still, the company should take heed of the Korean antitrust agency’s corrective order and refrain from further unfair practices.

Then local companies will finally be free to diversify their supply lines.

The effect of the antitrust action on local players is undecipherable at this time. If Korean chipmakers can seek market deals with other suppliers, they can save costs tied to purchasing chip supplies.

It cannot be denied that the cozy partnership between Qualcomm and Korean chipmakers has contributed to advancing Korean wireless technology. But the latest KFTC findings provided a rude awakening and highlight how local manufacturers still remain vulnerable to original technology holders. It reaffirms the significance of technology development and licensing dangers.