Qualcomm charged with violating EU antitrust law

Commission alleges chipset maker used price discounts to drive rivals from the market.

The European Commission on Tuesday leveled antitrust charges against Qualcomm, alleging it sold 3G and 4G mobile chips at discounted prices to drive rivals out of the market.

The move hit Qualcomm’s share price, which dropped 4 percent after U.S. markets opened with investors taking stock of yet more regulatory woes for the San Diego-based chip-maker.

EU antitrust regulators said Tuesday Qualcomm’s sales tactics may amount to an abuse of a dominant position. Qualcomm is the world’s largest supplier of baseband chipsets, which connect devices to the mobile Internet.

“I am concerned that Qualcomm’s actions may have pushed out competitors,” said Margrethe Vestager, the European commissioner for competition. The Commission said it suspected Qualcomm stifled innovation.

“Qualcomm’s sales practices have always complied with European competition law,” said Don Rosenberg, Qualcomm general counsel and executive vice president, adding the company would cooperate with the Commission.

The Commission’s charges relate to chips for 3G and 4G mobile phone technology. Those chips are used in more than three billion phones worldwide and sales total an estimated €18 billion annually, according to research firm Strategy Analytics.

In 2014 Qualcomm had a two-thirds chunk of those sales, and over 80 percent when it comes to the narrower market for 4G chips. But its market share has been falling in the face of competition from Chinese chip-makers. Strategy Analytics estimated its market share mid-2015 for 4G at 66 percent.

The probe, which became public in July, will stoke a view from across the Atlantic that EU antitrust officials are persecuting U.S. tech firms in order to protect weaker European rivals. The Commission’s current targets include Google, Apple and Amazon.

Yet Qualcomm’s 30-year rise from a research boutique founded by university scientists to a €23.4 billion company whose inventions include much of the technology underlying 3G has attracted antitrust scrutiny across the globe.

In a rare reversal for the Commission, the San Diego firm beat back a European probe into how it priced its 3G patents in 2009.

But tensions between Brussels and San Diego have simmered ever since, while phone manufacturers have continued to complain about Qualcomm’s tough approach to licensing out its patents.

Regulators in the U.S. and in South Korea are also probing Qualcomm’s business practices. In February, Qualcomm paid €895 million to settle a Chinese probe into its patent licensing business.

Tuesday’s announcement outlined two sets of charges against Qualcomm.

One set of concerns relates to a supply contract between Qualcomm and a “major smartphone and tablet manufacturer.”

The Commission, which declined to name the manufacturer, alleges that Qualcomm made payments to the producer to ensure its loyalty.

“This conduct [may have] reduced the manufacturer’s incentives to source chipsets from Qualcomm’s competitors and has harmed competition and innovation in the markets for [3G] and [4G] baseband chipsets,” the Commission said in a statement.

The second set of concerns relates to a 2010 complaint filed by Icera, a U.K.-based subsidiary of Nvidia, a U.S. semiconductor company.

Icera, says the Commission, started challenging Qualcomm’s market position in a narrow chip segment.

Antitrust officials allege Qualcomm reacted by offering two customers chips below-cost, so as to cut demand for Icera, a smaller rival which would not be able to sell at a loss over the medium term.

In theory, Qualcomm could face a maximum fine of about €4 billion, or 20 percent of annual revenues, although fines are generally much less.

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