In 2015, Qualcomm was accused of abusing its dominant market position, prompting the European Union’s Competition Commission to open an investigation into the matter. Today, that investigation has concluded, with Qualcomm being fined a sum of €997,439,000 ($1.23B) – or 4.9% of its turnover in 2017.
As per the Commission, Qualcomm abused its market position between 2011 and 2016 by committing itself “to make significant payments to Apple on condition that the company would exclusively use Qualcomm chipsets in its ‘iPhone’ and ‘iPad’ devices” via the means of an agreement signed between the two companies.
European Union Competition Commissioner Margrethe Vestager elaborated in a press statement:
"Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance. Qualcomm paid billions of US Dollars to a key customer, Apple, so that it would not buy from rivals. These payments were not just reductions in price – they were made on the condition that Apple would exclusively use Qualcomm"s baseband chipsets in all its iPhones and iPads.
This meant that no rival could effectively challenge Qualcomm in this market, no matter how good their products were. Qualcomm"s behaviour denied consumers and other companies more choice and innovation – and this in a sector with a huge demand and potential for innovative technologies. This is illegal under EU antitrust rules and why we have taken today"s decision."
“Apple was seriously thinking of switching,” Vestager told reporters at a press conference in Brussels per Bloomberg, adding that it would “have cost Apple a lot of money” to quit Qualcomm’s agreement:
The agreement made clear that Qualcomm would cease these payments, if Apple commercially launched a device with a chipset supplied by a rival. Furthermore, for most of the time the agreement was in place, Apple would have had to return to Qualcomm a large part of the payments it had received in the past, if it decided to switch suppliers.
Interestingly, Apple began using Intel modems with iPhone 7 and 7 Plus, soon after the Qualcomm agreement had ended.
In a press statement, Qualcomm said that it “strongly disagrees with the decision,” and that it plans an appeal. The decision will have no impact on its ongoing operations:
The EC alleges that certain provisions of this agreement were in violation of European Union competition law and has imposed a fine of approximately 997, 439,000 million Euros (approximately $1.23 billion USD at current exchange rates). Qualcomm strongly disagrees with the decision and will immediately appeal it to the General Court of the European Union. The EC decision does not relate to Qualcomm"s licensing business and has no impact on ongoing operations.
It’s also noteworthy that Qualcomm sued Apple in November last year accusing the company of sharing trade secrets with Intel.
Vestager added that the fine served as a warning for other companies: “Don’t go there.” The €997M fine is EU’s third-highest; Google was fined a record-breaking €2.42B in June last year for antitrust violations.
Qualcomm’s troubles seem endless as its profits dwindle amid the legal battles with Apple, all the while it faces a $130 billion hostile takeover bid from Broadcom.