Qualcomm antitrust case puts focus on fairness

NDRC must prioritize market competition over industry pressure

All eyes will be on China's anti-monopoly regulator in the days ahead, when it's expected to rule in a case involving the pricing and licensing policies of global smartphone chip leader Qualcomm.

The case is the latest in a string of recent similar antitrust probes by central authorities against major companies. But it's also quite different because it involves licensing practices for proprietary technology, which aren't typically included in the conventional definition of monopolies.

That difference has attracted strong attention from a wide range of parties, from Qualcomm's many Chinese customers to the US government, which has cautioned the Chinese government not to confuse maintaining fair market competition with protectionism.

The regulator needs to take extra care with this important decision to demonstrate its neutrality and dedication to free and fair competition, and avoid letting politics play a role. By doing so, it will send the message that any company - be it domestic or foreign - is free to operate in China's markets as long as it plays by the rules and doesn't try to stifle competition with unfair business practices.

Qualcomm's case first became public during the summer, when reports emerged that it was being investigated for anti-competitive practices by the National Reform and Development Commission (NDRC), one of China's antitrust watchdogs. The case was often grouped together with other similar probes against companies ranging from software giant Microsoft to luxury car maker Audi, which were accused of everything from operating true monopolies to using misleading pricing based on their strong market position.

Unlike those cases, Qualcomm operates in a relatively competitive space, vying for business with a wide range of other cellphone chip makers like MediaTek and Marvell Technology, just to name a few. What's more, Qualcomm's pricing and licensing conditions are well known to all of its customers, since they must sign agreements when they want to use the company's chips in their cellphones.

But many of China's up-and-coming smartphone makers were unhappy about Qualcomm's licensing contracts, which imposed some unusual conditions on them on issues like competition and cross-licensing between each other. Those smartphone makers are some of China's fastest-rising high-tech manufacturers and include the likes of Xiaomi and Lenovo, which were the world's fourth and fifth largest brands in this year's third quarter.

Complaints from Chinese manufacturers were a major factor that caught the NDRC's attention, prompting it to launch its probe more than a year ago. The case has become a regular fixture in the headlines since then, with Qualcomm's executive chairman Paul Jacobs traveling to China last month to discuss the issue.

The NDRC has now held seven rounds of discussions with Qualcomm since launching its probe, and the regulator was quoted late last week as saying it was near a settlement in the case. In another sign that an announcement will come soon, media also reported late last week that Qualcomm dropped the prices on some of its older chips in China to levels more comparable with competitors.

The settlement is expected to see Qualcomm face a large fine, possibly as high as $1 billion, which would break the previous record of nearly $500 million levied earlier this year against British drug maker GlaxoSmithKline for massive bribery of doctors and health officials to buy its products. While the fine will be large, changes to Qualcomm's pricing and licensing practices could be far more damaging by costing the company billions of dollars in lost revenue in the years ahead.

Some industry observers acknowledge that Qualcomm's current licensing practices are more far-reaching and excessive than those of its peers. But it can impose such conditions because its chips are generally considered the best in the industry, leading manufacturers to strongly prefer its products to those of its rivals.

The NDRC should take an evenhanded approach to this case, and force Qualcomm to remove some of its excessive licensing practices while resisting pressure to force it to lower its prices too much, if at all.

Such an approach is especially important as China encourages its own high-tech companies to develop their own exclusive technologies, and would send the message that all firms should be rewarded for such development as long as they remain reasonable in their licensing practices.