Qualcomm Probed in South Korea Over Licensing Practices

Officials with the chip maker say South Korean regulators claim the company's licensing practices violate the country's competition laws.

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Qualcomm's difficult year continued this week when executives with the chip company admitted that it was being investigated by South Korean regulators for its licensing practices in that country.

Company officials said in a statement that they had received a Case Examiner's Report (ER) from the Korea Fair Trade Commission that says Qualcomm's licensing practices violate the country's competition laws. The regulatory agency pointed to Qualcomm's practice of licensing patents to the value of the mobile device while requiring that chip customers be licensed to its intellectual property.

As part of the ER, the South Korean agency is proposing changes to the chip maker's business practices and monetary fines.

Qualcomm officials are pushing back at the findings.

"The allegations and conclusions contained in the ER are not supported by the facts and are a serious misapplication of law," they said in a statement. "Our patent licensing practices, which we and other patent owners have maintained for almost two decades, and which have facilitated the growth of the mobile communications industry in Korea and elsewhere, are lawful and pro-competitive. Device level licensing is the worldwide industry norm, and Korean companies have long enjoyed the benefits and protections of access to our patents, which cover essentially the entire device."

Reports of a South Korean investigation first surfaced in February, but this is the first time Qualcomm officials have acknowledged it. It's only the latest in a series of setbacks this year for the world's largest mobile chip maker. The company in February announced it was paying a $975 million fine as part of a settlement over an antitrust investigation in China, and has had to deal with similar probes in the United States and Europe.

It was also hurt earlier this year when it was learned that Samsung rejected Qualcomm's Snapdragon 810 system-on-a-chip (SoC) for its Galaxy S6 smartphone reportedly due to overheating issues. While other device makers used the processor in their products, the fallout from the Samsung situation impacted Qualcomm.

Earlier this month, the company unveiled its Snapdragon 820, which saw Qualcomm's return to using custom-made CPUs in its SoCs. In an effort to quickly get out a 64-bit chip, the company with the Snapdragon 810 used off-the-shelf ARM CPUs.

During the year, the chip maker also had to deal with pressure from activist investor Jana Partners to return more money to shareholders, possibly by splitting the company in two. In July, Qualcomm officials announced a restructuring of the company that they said would cut annual costs by about $1.4 billion. The plan included cutting the workforce by 15 percent, streamlining the engineering organization, shedding some facilities and outsourcing work to lower-cost regions. There also were changes to executive compensation and a restructuring of the board of directors. CEO Steve Mollenkopf at the time also said more restructuring options—including the possibility of breaking the company in two—were under review, with decisions coming by the end of the year.

Mollenkopf said the company was feeling market pressures, including the 80 percent or so share that Apple and Samsung have of the high-cost premium smartphones, leaving little room for other device makers that use Qualcomm processors. Qualcomm also is seeing less demand in China for devices that are powered by its processors, the CEO said.