Qualcomm v. KFTC case in Korea

Last year the Korea Fair Trade Commission (“KFTC”) imposed $865 Million sanctions against Qualcomm for abuse in licensing standard essential patents (“SEP”) in the mobile communications industry. In particular, KFTC released an English translation of the Attached is the press release of Qualcomm case.

1.      Facts

Qualcomm and its affiliates owns patents essential to mobile cellular technology standards (“SEPs”). Qualcomm holds over 90% of the SEPs on 2G CDMA technology, but had a smaller share of SEPs on later generations of the standard: 27% of the 3G WCDMA standard and 16% of the 4G LTE standard.

KFTC indicates that Qualcomm only offers a comprehensive license to its entire portfolio of cellular patents that includes both SEPs and non-SEPs. Qualcomm licenses its patents to handset companies regardless of whether they use Qualcomm mobile chips or a competitor’s mobile chips.

The license terms may include the handset company granting Qualcomm a cross-license to the handset company’s patents. Competing cellular modem chip suppliers have asked for a license to Qualcomm’s SEPs. But Qualcomm either refused to grant them a license or has entered limited, non-exhaustive licenses with restrictive terms that do not extend a license to handsets that use those chips (the handset companies must seek such license rights from Qualcomm).  The number of modem chip competitors has decreased.

2.     KFTC’s Position

KFTC asserted that Qualcomm participated in three specific areas of conduct that combined to form an unfair business model:

(1)    Qualcomm not licensing SEPs to competitor chip suppliers (or restricting those licenses)

(2)   Qualcomm not selling its modem chips to handset companies that are not licensed to Qualcomm patents that cover those chips.

(3)   Qualcomm licensing together as a single patent portfolio its SEPs and non-SEPs without fairly negotiating the licensing terms and requiring free cross-licenses to handset company patents

KFTC further indicated that patent holdup has occurred based on three licensing terms:

(1)    Qualcomm licensing only the entire portfolio of SEPs and non-SEPs, so handset companies wanting only licenses to SEPs also must license unnecessary patents.

(2)   Qualcomm has kept the same licensing rate over long term licenses even though Qualcomm’s contribution of SEPs declined over each new generation of the cellular standard.

(3)   Qualcomm obtained free cross-licenses to handset company patents.

KFTC also pointed out that handset companies lost incentive to invest in research and development (“R&D”), because any cellular SEPs they obtained would be cross-licensed to Qualcomm for free. Qualcomm collects a significant portion of any increased value-added created by those companies’ innovation efforts.