Li on China's Qualcomm Decisions

Yan Bing Li has published an article titled Antitrust Concerns for Qualcomm's SEPs Package Licensing and Its Flexibility in China, 47 IIC 336-51 (2016).  Here is the abstract:

China's National Development and Reform Commission (NDRC) issued its first antitrust administrative sanction decision relating to SEP licensing in 2015, finding that Qualcomm had abused its dominant position int he CDMA, WCDMA and LTE wireless communication standard-essential patents (SEPs) licensing market and baseband chip sale market by: (a) charging unfairly excessive royalties, (b) unreasonably bundling SEPs licensing with non-SEPs, and (c) making the sale of baseband chips conditional upon the buyer signing a patent license agreement with a patent no-challenge clause and other unfair clauses.  As a result, Qualcomm was ordered to cease its abusive acts and was fined RMB 6.088 billion (approx. USD 975 million), the severest ever imposed by the NDRC or any other Chinese Anti-Monopoly Enforcement Authorities (AMEAs) under its Anti-Monopoly Law (AML).  This article provides a structured description of the NDRC's findings, explores the NDRC's two-step approach of "the rebuttable assumed dominance" for SEPs and its flexible antitrust approach to correct Qualcommon's SEPs package licensing practice, and lastly comments on the commercial and industrial significance of this decision in China and beyond.

Ms. Li discusses, among other matters, the royalty calculation to which Qualcomm agreed (5% for 3G devices and 3.5% for certain 4G devices, "using a royalty base of 65% of the net selling price of the device"), noting that "it remains to be seen whether China will achieve [the goal of reducing excessive SEP royalties] by adopting the narrowed calculation base of 'smallest saleable unit', or by settling for a lower royalty rate or reduced percentage of the net wholesale price of the entire device, or by determining on a case-by-case basis" (p.349).  She also states that the NDRC did not adopt a rule of per se illegality for post-expiration royalties (as in the U.S. under Brulotte and Kimble and as applied in Korea by the KFTC) (p.346).