European Commission may fine Qualcomm $2 bn over deal with Apple

24 Jan 2018

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Qualcomm could face up to a $2 billion fine from the European Commission for having an anticompetitive chip deal with Apple, The Financial Times reports.

In a ruling expected today, the EC will issue a ruling declaring Qualcomm to have hurt competition and innovation in its dealings with Apple. The dealings are alleged to include Qualcomm paying Apple to be the exclusive vendor of communications chipsets for iPhones, which report sources say took place between 2011 and 2016.

This ruling could fuel several lawsuits Apple has against Qualcomm around the world.

The iPhone maker has accused the chipmaker of 'exclusionary tactics and excessive royalties' that it alleges have cost it billions of dollars in recent years.

However, Qualcomm argues that its business model is fair, and that compensation is equal with the innovation its chips offer. Furthermore, Qualcomm is trying to stop Apple from selling iPhones with Qualcomm components through import bans. The European Commission began its investigation in July of 2015.

Apple exclusively used Qualcomm chips up until September of 2016, when the iPhone maker began using Intel modems on its iPhone 7 and iPhone 7 Plus handsets. Reports have indicated that Apple is working towards developing an iPhone that relies entirely on Intel and MediaTek, a move that would put a strain on Qualcomm's business.

Qualcomm's move effectively excluded all other chipset vendors offering similar components that could have been used by Apple.

Under EU rules, fines are capped at a maximum of 10 per cent of annual turnover, which if used would cost Qualcomm in the region of $2 billion. As the European Commission is allegedly seeking to use the fine to punish Qualcomm and act as a deterrent for future offenses, it may elect to go close to the maximum allowable penalty.

The investigation into Qualcomm's deal with Apple commenced in June 2015 with the Commission issuing a charge sheet over the matter five months later. On issuing the charges, European competition commissioner Margrethe Vestager expressed concern that "Qualcomm's actions may have pushed out competitors or prevented them from competing''.

This is not the only investigation the European Commission is conducting into Qualcomm, as it is still looking into the chip firm's actions between 2009 and 2011, when Qualcomm produced a chipset to two of its customers at below cost. It is claimed this activity was aimed at forcing the rival Icera out of the market, a firm based in the UK that was acquired by Nvidia in May 2011 and shuttered four years later.

The ruling could have an impact on Qualcomm in a number of areas, including its ongoing and various lawsuits against Apple, giving the iPhone producer more ammunition in court. The list includes a $1 billion suit from Apple claiming unpaid rebates withheld over Apple's part in an antitrust investigation, a countersuit from Qualcomm citing breach of contract, requests by Qualcomm to the US International Trade Commission to block iPhone and iPad imports, and patent infringement suits in Germany and China.

In November, Qualcomm revealed the toll its lawsuits and fines, as well as actions such as Apple withholding royalty payments, had on its finances. For the fourth quarter, Qualcomm's net income dropped year-on-year from $1.6 billion to just $168 million, with the firm claiming its earnings "were negatively impacted as a result of actions taken by Apple and its contract manufacturers."

Qualcomm has already been fined $773 million by Taiwan's Fair Trade Commission, which found the company guilty of anti-trust and monopolistic tactics. According to Focus Taiwan, Qualcomm recently applied to pay the fine in instalments, with the FTC confirming t will review the application in the near future.

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