European Commission Initiates Proceedings Against Qualcomm

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The European Commission (EC) announced on October 1 its decision to open formal antitrust proceedings against Qualcomm Incorporated, a U.S.-based chipset manufacturer, concerning an alleged breach of EC Treaty rules on abuse of a dominant position in the wireless technology market.

Qualcomm is a holder of intellectual property rights in the “code division multiple access” (CDMA) and “wideband CDMA” (WCDMA) standards under which cellular telephone service providers operate. The WCDMA standard forms part of the “3G” (third generation) standard for European mobile phone technology.

Refusal to License on Reasonable Terms

The proceeding follows complaints lodged with the EC by Ericsson, Nokia, Texas Instruments, Broadcom, NEC, and Panasonic—all cellular phone and/or chipsets manufacturers—that Qualcomm breached its commitment to the standards-determining organizations (SDO) for the mobile wireless telephony industry by refusing to license its technology on fair, reasonable, and nondiscriminatory (FRAND) terms and conditions.

More specifically, the complaints claimed that Qualcomm imposed exploitative licensing terms and royalties on patents it holds that are essential to the WCDMA standard.

Economic Principle

The economic principle underlying FRAND commitments is that essential patent holders should not be able to exploit the extra power they have gained as a result of having technology based on their patent incorporated in the standard, the EC said.

The complaints also allege that charging non-FRAND royalties could lead to final consumers paying higher handset prices, a slower development of the 3G standard, and all the related negative consequences for economic efficiency associated with inhibited growth of the standard. In addition, the complainants allege that this behavior could negatively affect the standard-setting process more generally as well as the adoption of the future 4G standard.

The EC’s initiation of proceedings does not imply that it has proof of an infringement, the EC explained. Rather, it signifies that the EC will conduct an in-depth investigation of the case as a matter of priority.

There is no strict deadline for the EC to complete inquiries into anticompetitive conduct; their duration depends on a number of factors, including the complexity of each case, the extent to which the undertakings concerned cooperate with the EC and the exercise of the rights of defense.

Similar Domestic Action

A private suit based on similar allegations that was brought against Qualcomm in the United States by Broadcom in 2005 remains before a federal district court in New Jersey, after the U.S. Court of Appeals in Philadelphia recently reversed dismissal of two of Broadcom’s Sherman Act, Section 2 claims (2007-2 Trade Cases ¶75,852).

A blog item on this domestic development (“Monopoly Claims for Abuse of Standard-Setting Process Revived”) was posted on September 12.