Big setback for Qualcomm as South Korea court upholds $873 million antitrust penalty

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A South Korean court on Wednesday upheld a record $873 million fine against US chip giant Qualcomm for unfair business practices related to patent licensing and modem chip sales, rejecting the company’s appeal against the penalty.

The ruling is a setback for Qualcomm as it battles customers over royalties and antitrust violations around the world, including an ongoing case brought by the U.S. Federal Trade Commission (FTC).

Seoul High Court Judge Noh Tae-ak rejected the company’s appeal against the penalty imposed by the Korea Fair Trade Commission (KFTC) in 2016 saying Qualcomm had abused its dominant market position.

“The defendant exerted a significant influence over mobile phone manufacturers either through unfair relationships or making them depend on the defendant’s supplies of modem chipsets,” Noh said in his ruling.

The court however dismissed the regulator’s claims that Qualcomm had disadvantaged smartphone makers by signing “comprehensive” licensing deals, opening the door for the company to continue taking a cut of the price of the phone as a licence fee.

It was not immediately clear whether Qualcomm or the KFTC would appeal to the Supreme Court.

Qualcomm is the world’s biggest supplier of mobile phone chips and derives most of its profits from a business segment that invents technologies and licenses them.

The company forecast between $1.3 billion and $1.5 billion in revenue for that segment for its fiscal first quarter, above analyst expectations, according to IBES data from Refinitiv.

Qualcomm’s chips are essential components in many mobile devices and it is a top supplier to South Korean smartphone makers Samsung Electronics and LG Electronics, as well as Apple Inc.

In a sign it retains its strong market position even after the KFTC ruling, Qualcomm has since extended its strategic relationship with global smartphone leader Samsung and in August entered into a new five-year patent license agreement with LG.

“This ruling will not really affect or weaken Qualcomm’s status in the market, because we are heading into the 5G era and Qualcomm is one of a very few companies that can manufacture 5G modem chips,” said Park Sung-soon, an analyst at Cape Investment and Securities.

“Handset makers and telecom companies will still have to heavily rely on Qualcomm’s products regardless of its supposedly unfair business practice.”