E.U. fines Qualcomm for paying Apple billions to shut out rivals

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Qualcomm allegedly paid Apple billions to keep its business.
Photo illustration: Ste Smith/Cult of Mac

The European Commission has fined Qualcomm 997 million euros ($1.2 billion) for abusing its market dominance in LTE baseband chipsets, supposedly paying Apple billions of dollars in order to secure their business and stop Apple buying chips from rivals.

Such practice is illegal under EU antitrust laws.

“Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance,” Commissioner Margrethe Vestager, in charge of competition policy, said. “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.”

The EU is arguing that Qualcomm’s move meant that no rival could challenge it, no matter how superior their products might be.

The deal with Apple was first signed in 2011. According to the EU’s investigation, this is when Qualcomm committed to “make significant payments” to Apple on condition that the company would exclusively use Qualcomm chipsets in its devices. In 2013, this deal was extended through 2016.

A report from the European Commission notes that:

“In fact, internal documents show that Apple gave serious consideration to switching part of its baseband chipset requirements to Intel. Qualcomm’s exclusivity condition was a material factor why Apple decided against doing so, until the agreement came to an end. Then, in September 2016, when the agreement was about to expire and the cost of switching under its terms was limited, Apple started to source part of its baseband chipset requirements from Intel. But until then, Qualcomm’s practices denied consumers and other companies the benefits of effective competition, namely more choice and innovation.”

Qualcomm vs. Apple

Qualcomm and Apple are currently in the middle of their own battle. The dispute began in January last year, when Apple sued Qualcomm for allegedly withholding $1 billion in rebates because Apple assisted South Korean regulators investigating Qualcomm’s business.

Qualcomm hit back by arguing that Apple had breached its contract. The subsequent decision by Apple to withhold royalty payments to Qualcomm then meant that Qualcomm was forced to revise its earnings forecasts to give a smaller number, due to Apple cutting off one of its major sources of revenue.

Apple’s manufacturers also got dragged into the fight, with even Apple’s biggest rivals stepping up to support Apple. Since then, the battle escalated — with Qualcomm attempting to ban iPhones being imported to the United States that use chips, “other than those supplied by Qualcomm affiliates.”

At the end of 2017, both Apple and Qualcomm filed new lawsuits and counter-lawsuits against one another. Qualcomm is currently seeking a ban on the import of all AT&T and T-Mobile iPhone X and iPhone 8 units in the U.S., while Apple claims that Qualcomm is infringing on its patents by using tech in its Snapdragon mobile phone chips that belongs to Apple.

Apple vs. EU

Apple itself is no stranger to being the subject of investigations by the European watchdog. In 2016, the European Union handed Apple a massive tax bill of around $14.5 billion, claiming the company took advantage of illegal state aid that allowed it to route profits through Ireland. The investigation alleged that Apple paid the equivalent of as little as 0.005 percent on all European profits in 2014.

Update: Qualcomm has confirmed that it will appeal the case. In a statement given to TechCrunch, Don Rosenberg, executive vice president and general counsel of Qualcomm, said that, “We are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers. We have a strong case for judicial review and we will immediately commence that process.”

Source: Europa