South Korean Court Fined the U.S. Chip Giant: Qualcomm

This Wednesday was a ‘tough one’ for the U.S. chip giant Qualcomm when it was fined by a South Korean court for unfair business practices related to patent licensing and modem chip sales.

A ‘Jab’ of $873 Million!

Rejecting the company’s appeal against the penalty the court imposed a fine of $873 million. With an ongoing case brought by the U.S. Federal Trade Commission (FTC), this ruling by South Korea is a major setback for Qualcomm as it battles customers over royalties and antitrust violations around the world.

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

“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.

Regulators claim that Qualcomm had exhausted the Smartphone makers by signing “comprehensive” licensing deals, which opens the door for the company to take a cut of the price of the phone, as a license fee. However, this claim was dismissed by the court.

Being the world’s biggest supplier of mobile phone chips and drives, Qualcomm makes most of its profits from business segments that invent technologies and licenses them. According to IBES data from Refinitiv, the company’s revenue is going to be between $1.3 billion and $1.5 billion from the licensing segment for its fiscal first quarter, which exceeds analyst expectations.

Qualcomm’s chips are crucial components in many mobile devices and the company is a top supplier to South Korean Smartphone makers LG Electronics, Samsung Electronics, and Apple Inc.

Monopolized Market

Park Sung-soon, an analyst at Cape Investment and Securities said, “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”.

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

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