On July 18, 2019, the Commission fined Qualcomm €242 million for abusing its dominance in the global market for broadband chipsets by selling below cost to “strategically important” customers, to force a competitor out of the market.[1] This is the first time in 16 years that the Commission has fined a company for predatory pricing after the Wanadoo decision of 2003.[2]
Predatory pricing
Baseband chipsets enable smartphones and tablets to connect to cellular networks for voice and data transmission. The Commission concluded that Qualcomm was dominant in the global market for Universal Mobile Telecommunications System (“UMTS”) baseband chipsets between 2009 and 2011, based on its considerable market shares (c. 60%, almost three times ahead of its closest competitor) and the high entry barriers to the R&D-intensive industry.
The Commission found that Qualcomm abused its dominance by selling UMTS chipsets below cost to Huawei and ZTE to foreclose Icera, a U.K. startup that was establishing itself as a viable alternative, but ultimately left the market in 2015. The Commission’s theory of harm was supported by a price-cost analysis (based on long-run average incremental cost representing the sum of average variable costs and fixed costs specific to the chipsets at issue) as well as a “broad range of qualitative evidence” demonstrating Qualcomm’s intent to force Icera out of the market by deliberately adopting a below-cost pricing strategy without any efficiency justifications. Importantly, unlike in the U.S., the Commission is not under an obligation to demonstrate a serious probability of recoupment to establish a predatory pricing theory of harm.[3] The Commission’s rare intervention on account of predatory pricing may well have been motivated by the fact that the targeted competitor has ultimately been forced out of the market.
What’s next?
The case is noteworthy for the “targeted nature” of Qualcomm’s practices relating to key contracts with “strategically important” customers to maximize the damage on its competitor’s business, while ensuring minimal impact on its own revenues. The decision is binding on national courts, paving the way for NVIDIA (who acquired Icera in 2011, prior to Icera’s partial wounding down in 2012 and ultimate exit from the market at issue in 2015) to seek compensation for Icera’s demise, although Qualcomm is expected to appeal before the General Court.
A separate but related appeal by Qualcomm relating to a Request for Information (“RFI”) it received as part of the investigation is pending before the Court of Justice, following the General Court’s dismissal of allegations that the Commission failed to state reasons and infringed the principle of necessity by sending an extensive RFI to Qualcomm a year and a half after the SO in the aforementioned investigation. In addition, the Commission recently fined Qualcomm €997 million for exclusivity payments to Apple,[4] and Qualcomm has also been subject to increased antitrust scrutiny in the U.S.[5]
[1] Qualcomm (predation) (Case COMP/AT.38711), decision not yet published.
[2] Wanadoo Interactive (Case COMP/AT.38233), Commission decision of July 16, 2003.
[3] See France Telecom v. Commission (Case C-202/07 P) EU:C:2009:214, para. 37.
[4] See Qualcomm (exclusivity payments) (Case COMP/AT.40220), Commission decision of January 24, 2018.
[5] In May 2019, the U.S. Federal District Court for the Northern District of California found that Qualcomm’s standard essential patent licensing terms infringed federal antitrust laws. Qualcomm’s appeal against the judgment is pending, with the DoJ filing a statement of interest to pause the ruling on national security grounds.