'Qualcomm fine' shadow looms over TPP talks

Qualcomm Inc's decision to pay a record fine of $975 million for antitrust violations in China is likely to increase trade tensions and hamper negotiations on a key trade pact in the Asia-Pacific region, experts said on Tuesday.

On Monday the United States-based chip maker agreed to pay the largest corporate fine ever in China for anti-competitive practices, ending a 14-month investigation against it by the National Development and Reform Commission.

The "unfair" and "excessively high" royalties Qualcomm collected from Chinese smartphone makers were the key factors that led to the historic fine, the NDRC said.

Talian Chi, professor and Carl A Scupin Faculty Fellow at the University of Kansas School Of Business, said: "The settlement is likely to add to the trade tension between China and the US and may also complicate the negotiations on the Trans-Pacific Partnership. One of the issues that has bogged down the TPP negotiations is the objection by some developing countries to the US insistence on stringent rules for the protection of patents. I suspect that the US negotiators are trying to prevent any potential TPP partners from using antitrust rules in their future bargaining with US multinationals."

The Trans-Pacific Partnership is a free-trade deal among the US, Canada, and 10 countries in the Asia-Pacific region (not including China) that has been under discussion.

However, Robert Atkinson, president of the Information Technology and Innovation Foundation think tank in Washington, said the Qualcomm case could actually prove beneficial to the TPP.

"If anything this and other similar actions by the Chinese government will increase support (for TPP) because it will be seen as a way to better exert pressure on China to curtail these kinds of practices that discriminate against foreign firms. As far as US-China bilateral relations are concerned, this action will only heighten the concerns held by the US government over Chinese economic policies," he said.

Chi said: "Any firm possessing proprietary technology has monopoly power, but such monopoly power is often protected by the government under the patent system."

"Given the monopoly status of Qualcomm over its technology, the negotiation of the licensing fees is inevitably subject to its bargaining power relative to that of its Chinese licensees. The governments of some developing countries do try to boost the bargaining power of their domestic firms by limiting the maximum royalty rate in licensing contracts via domestic legislation. This type of government policy is unlikely to work for a small country, but China is the largest cell phone market in the world and is thus better able to get concessions from foreign firms."

Qualcomm will also offer licenses to its current 3G and 4G Chinese patents separately from licenses of its other patents, and it will provide patent lists during the negotiation process.

Qualcomm said it plans to continue to grow its investments and expand collaborations in China, including with China's mobile operators, handset and device suppliers, and within the Chinese semiconductor sector.

Chi said the Chinese government may be trying to alter the balance of bargaining power between Qualcomm and its Chinese licensees.