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Brussels, 1st October 2007

Antitrust: Commission initiates formal proceedings against Qualcomm

The European Commission has decided to open formal anti-trust proceedings against Qualcomm Incorporated, a US chipset manufacturer, concerning an alleged breach of EC Treaty rules on abuse of a dominant market position (Article 82). Qualcomm is a holder of intellectual property (IP) rights in the CDMA and WCDMA standards for mobile telephone. The WCDMA standard forms part of the 3G (third generation) standard for European mobile phone technology (also referred to as "UMTS"). This follows complaints lodged with the Commission by Ericsson, Nokia, Texas Instruments, Broadcom, NEC and Panasonic, all mobile phone and/or chipsets manufacturers. The complaints allege that Qualcomm's licensing terms and conditions are not Fair, Reasonable and Non-Discriminatory ("FRAND") and, therefore, may breach EC competition rules.

This initiation of proceedings does not imply that the Commission has proof of an infringement. It only signifies that the Commission will conduct an in-depth investigation of the case as a matter of priority.

There is no strict deadline for the Commission to complete inquiries into anticompetitive conduct. Their duration depends on a number of factors, including the complexity of each case, the extent to which the undertakings concerned co-operate with the Commission and the exercise of the rights of defence.

What is the decision of the Commission to initiate proceedings about?

The alleged infringement concerns the terms under which Qualcomm licenses its patents essential to the WCDMA standard. The investigation will focus on whether Qualcomm is dominant and whether the licensing terms and royalties imposed by Qualcomm are, as alleged by the complainants, not fair, reasonable and non-discriminatory. In a context of standardization, a finding of exploitative practices by Qualcomm in the WCDMA licensing market contrary to Article 82 of the EC Treaty may depend on whether the licensing terms imposed by Qualcomm are in breach of its FRAND commitment.

The complaints are based on their understanding that the economic principle underlying FRAND commitments is that essential patent holders should not be able to exploit the extra power they have gained as a result of having technology based on their patent incorporated in the standard.

The complaints also allege that charging non-FRAND royalties could lead to final consumers paying higher handset prices, a slower development of the 3G standard, and all the related negative consequences for economic efficiency associated with inhibited growth of the standard. In addition, the complainants allege that this behaviour could negatively affect the standard setting process more generally as well as the adoption of the future 4G standard.

What is the legal base for the decision?

The legal base of this procedural step is Article 2(1) of Commission Regulation No 773/2004.

Article 2 of Regulation No 773/2004 provides that the Commission can initiate proceedings with a view to adopting at a later stage a decision on substance according to Articles 7-10 of Regulation No 1/2003 at any point in time, but at the latest when issuing a statement of objections or a preliminary assessment notice in a settlement procedure. In the present case, the Commission has chosen to open proceedings before such further steps.

The Commission may make public the initiation of proceedings in any appropriate way. Before doing so, it will inform the parties concerned. The company's rights of defence will be fully respected.

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