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Freshfields Risk & Compliance

| 3 minutes read

Commission fines Qualcomm €242 million for setting prices too low using theories it has not applied for 16 years

The European Commission has fined Qualcomm €242 million for predatory pricing of chipsets which are a key component of mobile devices. This comes on top of the fine of €997 million that Qualcomm received last year, concerning a different chipset market, for granting Apple rebates in return for its purchasing exclusively from Qualcomm.

This is the first predatory pricing fine imposed by the Commission since 2003 when it fined Internet service provider Wanadoo for below-cost pricing on the French broadband market.

What is predatory pricing?

Predatory pricing occurs when a firm for a certain period sets its prices so low that it is making a loss, thereby excluding or weakening actual or potential competitors, so that later it is able to raise its prices. Commissioner Vestager, speaking of this case, said “While such predatory pricing can lead to lower prices in the short term, consumers are worse off in the long run, once the victim of the predatory strategy is marginalised or leaves the market. A dominant company that is no longer challenged by competition will try to recoup what it has lost by raising prices and slowing down investments and innovation to the detriment of consumers”.

Predatory pricing is one of the types of unilateral abusive conduct covered by Article 102 of the EU Treaty which prohibits abuse of dominance. It is therefore only illegal when done by a business which is dominant – that is, has a very strong market position. (In any case a non-dominant company will not normally be capable of engaging in predatory pricing.)

What did Qualcomm do?

The Commission found that Qualcomm held global market shares of approximately 60% in 3G baseband chipsets, and that there were high barriers to entry into this market, in particular those linked to IP rights and the high levels of R&D investment needed. Qualcomm was therefore dominant.

As to the abuse, the Commission held that Qualcomm had engaged in below-cost pricing of the chipsets to Huawei and ZTE for two years between 2009 and 2011, and that it did this with the intention of driving its main competitor Icera from the market. It based this finding on both quantitative price-cost calculations and qualitative evidence showing Qualcomm’s exclusionary intent regarding Icera.

What next for Qualcomm and other dominant companies?

Qualcomm had to provide very large volumes of data and internal documents, and these will be crucial in any case of this sort. The Commission required large amounts of data in order to run its economic models to prove below-cost pricing, and in addition Qualcomm’s internal documents showing anti-competitive intent appear have been critical to the case. The Commission’s emphasis on the “broad range of qualitative evidence demonstrating the anti-competitive rationale behind Qualcomm's conduct” suggests that it concluded that Qualcomm had priced below its average total costs, but above average variable costs. This would mean that it applied the second test for predatory pricing set out in in the Akzo judgment, which requires evidence not only of below-cost pricing but also of anti-competitive intent.

Though the formal investigation started in 2015, the case started with Icera’s complaint some time before that, and Qualcomm refers to it as having lasted 10 years. The fact that the decision comes so many years after the abuse took place, and that Icera was bought out in 2011 and its chipset business wound down in 2015, illustrates the difficulty of bringing complex Article 102 cases in a way that minimises damage to competition, and interim measures can surely be expected in any future case of this kind. The Commission’s announcement last month that it intends to impose interim measures in its ongoing abuse case against Broadcom signals that companies under investigation for abuse of dominance can in future expect, at least in relatively clear cut cases, to be subject to interim measures.

As for Qualcomm, it has said it will appeal. It states that chipsets of competing manufacturers were technologically inferior, and that it was for this reason, and not because of price, that customers preferred its products. Also, in separate proceedings, Qualcomm is contesting a request for information made by the Commission in this case, claiming on a number of grounds that the request was too broad and unjustified. The General Court rejected this claim and Qualcomm has appealed to the Court of Justice.