In our last article titled “Apple Sued Qualcomm in China, Qualcomm Is Suspected of Abusing Market Dominant Position Again?”, we listed the cases in which Qualcomm was investigated, sued or punished in countries (and regions) for abusing its dominant market position and briefly introduced Qualcomm’s worldwide business model.
In this article, we will further analyse Apple’s claims in the case of Apple vs Qualcomm regarding abuse of dominant market position from the perspective of PRC laws, with reference to other relevant cases and the facts that we collected through public channels.
1. Qualcomm charges unfairly high royalties for licensing of standard essential patents (SEPs) and sets unreasonably strict conditions for Apple to obtain such licences
It is not difficult to determine that such claim is based on items (1) and (6) paragraph 1 of Article 17 of the Anti-monopoly Law. Pursuant to these two provisions, “selling commodities at unfairly high prices” and “applying dissimilar prices or other transaction terms to counterparties with equal standing” both belong to abusing of dominant market position. Qualcomm made a response to such claim a couple of days after Apple’s filing, stating that Apple was offered terms consistent with those accepted by more than 100 Chinese companies and those terms were in conformity with Qualcomm’s rectification plan approved by the National Development and Reform Commission of PRC (NDRC) in 2015 (according to the rectification plan, Qualcomm commits to reduce the royalty base to 65 percent of the net selling price of mobile phones). In our opinions, if Qualcomm’s statement in its response is true, it might be very difficult for Apple to win the support from the court for such claim. After all, NDRC is the most authoritative enforcement agency of price monopoly in China and the court will not easily challenge the rectification plan approved by it.
2. Qualcomm refuses to license SEPs to some SEPs users
Korea Fair Trade Commission (KFTC) and US Federal Trade Commission (FTC) both determined that Qualcomm’s conduct of “refusing to license mobile communication SEPs to rival chipset makers” is illegal. We are inclined to believe that Apple would intend to take this opportunity to challenge Qualcomm’s business model and it is very likely that Apple will take reference of the penalty decision made by KFTC. From the perspective of PRC laws, Qualcomm’s conducts may fall into “refusing to trade with a trading party without any justifiable cause” and “violating the principles of fairness, reasonableness and no discrimination in refusing to licence, bundling or attaching any other unreasonable transaction conditions at the time of transaction so as to eliminate or restrict competition after their patent becomes a standard essential patent” that are respectively prohibited by item (3) paragraph 1 of Article 17 of Anti-Monopoly Law and item (2) paragraph 2 of Article 13 of the Provisions on Prohibition of Abuse of Intellectual Property Rights to Exclude and Restrict Competition.
3. Qualcomm restricts Apple to use exclusively the products/services it supplies or approves to use
During the investigation against Qualcomm, FTC mentioned that Qualcomm has paid accumulatively several billion US dollars to Apple in return for entering into exclusive chipset purchase agreements with Apple and for the purpose of hampering rival chipset makers. We guess that Apple’s claim has some connections with the aforesaid rebate and exclusive agreement. The conduct of hampering competitors through granting rebate has already been determined illegal by the State Administration for Industry & Commerce of PRC (AIC) in the Tetra Pak case. Therefore, if the aforesaid statement of the FTC is true, Qualcomm is also suspected of violating item (4) paragraph 1 of Article 17 of the Anti-Monopoly Law, ie “a business operator with a dominant market position shall not require a trading party to trade exclusively with itself or trade exclusively with a designated business operator(s) without any justifiable cause through abusing its dominant market position”.
Qualcomm has not yet given any response to the aforesaid claim 2 and claim 3 of Apple. It seems that Qualcomm is not confident enough, as some other countries have already determined its conducts illegal. Meanwhile, Apple chose to submit the dispute to the court directly rather than reporting to AIC in China, demonstrating that Apple’s intention is to compel Qualcomm to reach a settlement with it through claiming a high compensation and putting pressure on Qualcomm in the court of public opinion — that is, to subdue the enemy without fighting, a strategy from Sun Tzu’s Art of War. In our opinion, as long as Qualcomm’s illegal conduct does exist, no matter what approach Apple will take, it should not affect AIC’s initiation of anti-trust investigation against Qualcomm for the purpose of protecting the public interest.
It should be noted that in the lawsuit brought by Apple against Qualcomm in the US in January 2017, in which Apple claimed US$1 billion, Qualcomm has recently filed counterclaims against Apple, alleging that Apple breached agreements with Qualcomm; interfered with Qualcomm’s long-standing agreements with Qualcomm licencees; and encouraged regulatory attacks on Qualcomm’s business in various jurisdictions around the world by misrepresenting facts and making false statements; etc. It can be seen that such counterclaims have made the situation more complicated and are Qualcomm’s revenge against Apple from another perspective rather than a statement of defence with regard to Apple’s anti-trust claims. It is not clear whether Qualcomm’s counterclaims will have any impact on Apple’s lawsuit in China. In addition, it has not yet come out any update on this case since Apple’s filing. All we can do is continue to wait and see.