By Kim Yoo-chul
Qualcomm faces up to a 1 trillion won fine in Korea for allegedly violating anti-trust regulations, the Fair Trade Commission (FTC) said Friday.
The decision follows a 17-month investigation of Qualcomm's practices that breached fair trade rules, an official said.
If finalized, it will be the largest fine ever issued by the country's anti-trust regulator.
"The FTC's mission is to encourage fair market competition between market players. Qualcomm's business model is still controversial because it charges excessively high licensing fees and requires unfair conditions for use of its patents," said another FTC official.
He said the anti-trust agency will take steps to stop Qualcomm taking advantage of its dominant position.
It will fix the final fine at a policy-setting commission meeting, after reviewing a response from Qualcomm.
The FTC plans to close the case by the end of the year.
The anti-trust agency launched the investigation in February last year after complaints were filed against the company.
Qualcomm is said to collect excessively high royalties from its Korean partners in return for using the firm's standard essential patents (SEPs), which is against the principle of fair, reasonable and non-discriminatory guidelines.
The creator of the CDMA patent is also alleged to have asked its Korean partners to pay royalty fees for the use of commercial patents beyond SEPs.
"Qualcomm has been collecting royalty fees from mobile phone manufacturers based on certain fixed rates from the suggested price of a mobile device. Qualcomm should have sought royalty fees based on each chipset," said the official.
He said Qualcomm's practice to let its affiliates manufacture chipsets with standard patents is also against the anti-trust law.
It is a common practice of patent holders to calculate royalties on the basis of where the patent is used in a single device rather than based on the value of the whole product, according to market experts.
For example, if a company owns a patent for tires of buses, it could charge a percentage of the value of tires where the patent is used instead of charging a percentage of the entire bus's value. What Qualcomm did, however, was to charge "a certain percent of the wholesale price" of the entire device, they said.
If a Qualcomm patent is used in producing a cellular chip for a mobile phone, Qualcomm calculates the royalty for use of the patent on the basis of the phone's wholesale price, even though it has many other components.
Qualcomm is collecting about $1.27 billion in royalty fees from Korean device manufacturers such as Samsung and LG Electronics, annually.
Qualcomm said it has significantly helped Korean handset companies become the world's most-competitive players.
If the FTC fixes the 1 trillion won fine, then this will raise heated controversy as Korea accounts for 16 percent of Qualcomm's total sales last year, compared to China's 53 percent. Qualcomm was also ordered by China to pay about 1 trillion won.