Qualcomm will appeal against a €242 million penalty for allegedly selling its 3G baseband chipsets below cost to force a rival out of the market, in the European Commission’s first predatory pricing fine in 16 years.
At a press conference in Brussels today, EU competition commissioner Margrethe Vestager said predatory pricing is not a common type of case, and that Qualcomm’s behaviour deprived consumers of a wider choice of technologies.
“A dominant company that is no longer challenged by competition will try to recoup what it has lost [from below-cost pricing] by raising prices and slowing down investments and innovation to the detriment of consumers,” Vestager said.
Unlike the US Supreme Court, EU courts have said that showing the likelihood of recouping losses from below-cost pricing is not necessary to a claim of predatory pricing.
The European Commission found that between 2009 and 2011, Qualcomm abused its dominance by selling certain Universal Mobile Telecommunications System baseband chipsets at below-cost price to block rival Icera from the market. UTMS chipsets are key components that enable voice and data transmission in 3G mobile phones.
Qualcomm held a dominant position in the UMTS chipset market, with market shares of around 60%, the agency said. The market also displays high barriers to entry, including the need for companies to make significant initial investments in research and development, the commission said.
The commission accused Qualcomm of selling three of its UTMS chipsets to Huawei and ZTE at a price below cost to eliminate Icera – its main rival at the time in the market segment offering advanced data rate performance.
The tactics were employed at a time when Icera was becoming a significant player on the market and posing a threat to Qualcomm’s chipset business, the enforcer said. The agency used evidence from its price-cost test as well as qualitative evidence showing Qualcomm’s intention to drive Icera out of the market.
The commission issued a statement of objections to Qualcomm in 2015, after receiving the original complaint from Icera in 2009. Last year, the enforcer sent the company a supplementary statement of objections, followed by a letter sent this year setting out additional facts relevant to its decision.
Qualcomm challenged a commission request for information before the EU’s General Court. The commission threatened to fine Qualcomm €580,000 for each day it did not comply with its request and the General Court refused to suspend the enforcer’s order.
At a hearing before the court, Qualcomm argued the commission has “mismanaged” the predatory pricing case and embarked on a fishing expedition when it sent its request for information. However, earlier this year, the General Court ruled the information request did not exceed the scope of the enforcer’s probe.
During a press conference today, Vestager said these procedural steps are a key part of the checks and balances that ensure procedural fairness, but noted such procedures take time.
“We have made progress in this mandate in expediting our antitrust procedures. But that is a challenge that will also stay with us for the future,” she said.
Qualcomm said it will appeal against the commission’s decision. The commission spent years investigating sales to two customers – Huawei and ZTE – and each of those companies said they favoured Qualcomm chips because rival chipsets were inferior, Qualcomm said.
The company’s general counsel, Dan Rosenberg, said: “The commission’s decision is based on a novel theory of alleged below-cost pricing over a very short time period and for a very small volume of chips.”
Icera was later acquired for hundreds of millions of dollars and continued to compete in the relevant market for several years after the end of the alleged conduct, he added. After purchasing Icera in 2011, Nvidia decided to wind down the company’s baseband chipset business in 2015.
“On appeal we will expose the meritless nature of this decision,” Rosenberg said.
Last year, the commission fined the chipmaker €997 million for giving Apple exclusivity rebates that illegally shut out rivals from the 4G baseband chipset market.
Freshfields Bruckhaus Deringer partner Tone Oeyen in Brussels said the commission seems to have concluded that Qualcomm priced below its average total costs, but above-average variable costs, under the predatory pricing test established by the European Court of Justice in Akzo.
The commission’s cost allocations are inherently complex, he said – particularly in the chipset industry, which is characterised by significant upfront research and development spending.
Linklaters counsel Sibel Yilmaz said it is notable that the decision does not appear to have been a “pure numbers game”, as the commission relied not only on cost-price analysis but also on Qualcomm’s internal documents.
“I believe we should expect continued use of ‘old’ enforcement tools in innovative sectors such as tech and healthcare,” she added.
Nvidia was not available for comment.
Counsel to Qualcomm
Quinn Emanuel Urquhart & Sullivan
Partner Miguel Rato in Brussels and counsel Marixenia Davilla assisted by Mark English, Athena Kontosakou, Pedro Fajardo, Susanna Kärkelä and Maria Belen Gravano
Counsel to Nvidia
Cleary Gottlieb Steen & Hamilton
Partner Maurits Dolmans in London and counsel David Little assisted by Wanjie Lin