15 February 2018

Commission fines Qualcomm for exclusive dealing

The European Commission’s defeat in the Intel case has not marked an end to its fight against exclusivity payments and rebates applied by dominant companies. This follows from the Commission’s recent EUR 997 million fine on Qualcomm, the world’s largest supplier of LTE baseband chipsets. Qualcomm made significant payments to its key customer, Apple, for the exclusive use of its chipsets in Apple devices. Unlike the Intel case, the Commission had a close look at Qualcomm’s “as efficient competitor” test. The Commission concluded that this test was not sufficiently robust to rebut the presumption that exclusive dealing arrangements constitute an abuse of dominance. Once the Commission’s decision is published, it may become clearer how high the bar of proof was set in the Qualcomm case. This will provide dominant companies with more guidance when considering exclusive dealing arrangements.

Qualcomm concluded an agreement with Apple to pay it handsomely for the exclusive use of Qualcomm’s chipsets in all Apple devices. Switching to a competing chipset supplier would cost Apple dearly, since the agreement stipulated that not only would the payments stop in such event, but Apple would also have to pay back a large part of the payments it had already received. According to the Commission, these exclusive payments prevented Qualcomm’s competitors from effectively competing for Apple’s business and deprived them of the opportunity to acquire other customers that may have followed Apple’s example once it had become a customer.

The Commission took the following evidence into account before qualifying Qualcomm’s conduct as abuse:

  1. The extent of Qualcomm’s dominant position. Qualcomm had a market share of over 90% in the global market for LTE baseband chipsets for the majority of the investigation period (from 2011-2016).
  2. The significant amounts paid by Qualcomm in return for Apple’s exclusivity.
  3. A range of evidence proving Apple’s reduced incentive to switch to competitors. This included internal documents supplied by Apple showing that, after serious consideration, it never switched to Qualcomm’s competitor Intel for part of its chipset requirements because of the payments.
  4. The importance of Apple as a customer in the market for LTE baseband chipset suppliers. Apple accounts on average for over a third of LTE chipset demand. In addition, its strong position as leading smartphone and tablet manufacturer could affect other customers’ and manufacturers’ choice of chipset supplier.
  5. The fact that Qualcomm failed to demonstrate that the exclusivity condition resulted in any efficiencies.

Qualcomm had also presented an “as efficient competitor” test to the Commission as evidence that its exclusive payments had no anti-competitive effects. However, according to Competition Commissioner Vestager: “there were serious problems with the way it was done, which meant it didn’t actually prove that the rebates could not harm competition”.

Qualcomm has stated it intends to appeal the Commission’s decision.

Dominant companies can continue to rely on the fact that the rebuttable presumption that exclusive dealing arrangements may constitute abuse, can be refuted by proving that the arrangement was incapable of restricting competition. How high the bar of proof was set in Qualcomm’s case may become clear once the Commission’s decision is published.