Qualcomm Draws Fine in Taiwan -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 12, 2017).

Qualcomm Inc. was fined about $773 million by the Taiwanese government, the latest setback as the chip maker defends its patent-licensing business against an international wave of regulatory and legal challenges.

In a filing Wednesday, the Taiwanese Fair Trade Commission ruled that Qualcomm violated the country's laws by licensing its patents unfairly. Qualcomm, in a statement, said it plans to appeal.

Qualcomm is the dominant supplier of chips for smartphones. Its intellectual-property business, though, is far more profitable, accounting for roughly 80% of the company's pretax profit last year.

As an owner of patents deemed essential to cellular communications, Qualcomm is required to license its intellectual property on fair and reasonable terms. How it does so has come under fire. For instance, Qualcomm bases its royalty rate on the price of a whole device rather than that of its chips, and it licenses its essential patents only along with its entire patent portfolio.

"Their model is under real pressure," said Rufus Pichler, a partner at Morrison & Foerster LLP, a law firm specializing in intellectual-property issues. "These antitrust rulings have two elements. One is the fine for conduct in the past, but the other is making changes to fix it going forward."

Qualcomm didn't respond to requests for comment.

The San Diego-based company's shares, which have fallen nearly 18% this year as of Tuesday's close, were up less than a percentage point to $54.34 in midday trading Wednesday.

In Taiwan, sales accounted for 12% of Qualcomm's revenue in 2016. The fine from the country's government follows similar regulatory actions in the U.S., South Korea and China.

In January, the U.S. Federal Trade Commission sued Qualcomm, alleging the company engaged in unlawful tactics to maintain a monopoly on cellular-communications chips. The company has said the suit is based on flawed legal theory and misconceptions about its business. The European Commission also is investigating Qualcomm's business practices.

In late 2016, the South Korean Fair Trade Commission fined the company $853 million for alleged antitrust violations, the highest such penalty brought against a single company there.

The previous year, Qualcomm said it would pay a $975 million fine in China. It also agreed to modify some of its patent-licensing practices in that country. However, its basic approach to patent licensing remained intact.

Qualcomm also is embroiled in a tangle of bitter lawsuits with Apple Inc. and the companies it has contracted to manufacture iPhones, which are based in Taiwan.

Write to Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

October 12, 2017 02:47 ET (06:47 GMT)