China fines Qualcomm $1B

http://www.bloomberg.com/news/articles/2015-02-09/china-fines-qualcomm-975-million-sets-patent-licensing-rates

by jacobsimon • 11 years ago

83 33 11 years ago

johnpmayer• 11 years ago

...Qualcomm will offer licenses to 3G and 4G essential patents and will no longer require the bundling of those rights with other patents in its portfolio...

Wow, is that a common tactic? No wonder antitrust was on them.

DrJosiah3• 11 years ago

Not to defend Qualcomm, but patent bundling is very common in telecommunications tech for a very simple reason: what good is 1 licensed patent when you need 5 patents to actually build a product?

And more specifically, 4g phones usually have fallback to 3g or even lower speeds, so if you're going to build a 4g phone, you almost always need to license the tech for 3g and prior. Unbundling the patents in this situation is great theoretically, but in practice it is likely to result in licensees not licensing enough patents, opening themselves up for patent lawsuits.

nichtich• 11 years ago

So bundling should be one of the options instead of the only option. With bundling they are locking up the tech stack for the manufactures.

Dwolb• 11 years ago

Interesting. From a microeconomics perspective, bundling is a form of price discrimination which is optimal for situations where the seller has multiple products, but buyers' wants are negatively correlated.

e.g. Roger sells both candy bars and packs of gum, both of which cost him $0 to produce (for simplicity). Al is willing to pay $5 for a candy bar, but $1 for a pack of gum. Jesse willing to pay $1 for a candy bar and $5 for a pack of gum. Roger could sell one candy bar to Al for $5 and one pack of gum to Jesse for $5 for a total profit of $10. More optimally, Roger could sell a bundle consisting of both the candy bar and the pack of gum to both Al and Jesse for $6 for a total profit of $12. Bundling has optimally increased Roger's profits.

JohnTHaller2• 11 years ago

Odd that they state that "For handsets sold in China, Qualcomm will charge a licensing rate that’s similar to the royalty rates it charges elsewhere in the world, countering concerns that it would be forced to offer a discount to settle the investigation."

And then immediately follow with "While the percentage being charged is similar, the value of the handsets -- used as the basis for the calculation -- will be assessed at 65 percent of the device’s total price for phones sold in China, Qualcomm said."

If read right, that means Qualcomm is forced to effectively discount licensing fees in China based on this decision, meaning the Chinese government has engaged in a bit of price-fixing relative to the rest of the world on the patent fees.

jacobsimon2• 11 years ago

I would love to have this clarified by someone who knows more about patent royalties. It's possible that you're right and they're essentially discounting their fees by 35%, but it's also possible that there is a difference between the OEM sales price and the net sales price that this royalty applies to.

glasslion• 11 years ago

No. Qualcomm changes Chinese companies with a rate that is higher than anywhere else in the world.

JohnTHaller2• 11 years ago

Not quite before and not now. Before, they forced bundling in China, as they do in a few other countries. Now, Qualcomm must unbundle the basic 3G and 4G patents and charge the same rates in China. But, a fair and level playground wasn't quite good enough, so the Chinese government has forced Qualcomm to value the Chinese handsets at 65% of the actual value which is used to calculate the amount of the patent fee per unit, effectively giving Chinese companies a discount compared to everywhere else in the world. So this verdict forces some price fixing in favor of Chinese companies vs the rest of the world. Plus a billion dollars to the Chinese government.

drawkbox• 11 years ago

The $1B fine might be one reason why they suddenly are charging for Vuforia AR SDK in version 4.0. They maybe rushed the change to pay licenses.

EDIT: Yes slightly off topic but Vuforia is owned by Qualcomm and recently surprised all SDK developers with the bait and switch to licensing from free for commercial. But it has happened so drastically that there is no way to find out what it costs, "contact sales" is the answer but no response from them yet. It was very rushed see here: https://developer.vuforia.com/forum/vuforia-40-beta/prices-a... This is a good example of how not to introduce pay commercial licensing on something that used to be free.

freyr2• 11 years ago

Qualcomm's IP portfolio is sufficient that the company can demand royalties from virtually any company that wants to produce a cell phone. It had a stranglehold over CDMA technologies, and has a great deal of valuable LTE-related IP.

I don't know how China defines a monopoly relative to the U.S. definition, but Qualcomm seems like a natural candidate.

nostromo• 11 years ago

Patents are monopolies by design.

freyr2• 11 years ago

In a reductionist sense, yes, but this is interesting because the patents are intertwined with an international standard that every participant must conform to.

When a patent covers a stand-alone product, you may be able to avoid licensing by developing an innovative or otherwise differentiated product. But when patents cover critical portions of a standard, your hands are pretty much tied.

nharada• 11 years ago

Somewhat unrelated to this specific case, but what happens to all that money? The government can't exactly budget for influxes of cash like this, so what do they do with it and who gets to spend it?

qopp2• 11 years ago

Government money/budgets isn't that precise, income from taxes are variable, for example. Also most countries spend more then they make anyway (deficit).

It's accounted for as revenue via fines and spent according to the normal budget.

qopp2• 11 years ago

The exception to what I said in the other post is sometimes lower branches of government hold on to their cash for various purposes and spend it however the lower branch wants to essentially.

For example, in Michigan cops used drug money to buy drugs: http://reason.com/blog/2012/10/15/michigan-cops-used-asset-f...

InclinedPlane• 11 years ago

Seriously? A billion dollar "windfall" for the government of a country with one the world's largest economies is basically just pissing into the wind. China's government spends $2.3 trillion in a year, so this is a fraction of a tenth of a percent of their spending.

k_sze• 11 years ago

“It makes more sense if China wants to protect the Chinese consumer.”

No, it doesn't. Just like every other neoliberal economy out there, since when has China's government started caring about the consumers?

The Chinese government is "punishing" Qualcomm for monopoly, yes, but it has nothing to do with the consumers.

"fueling concern that the country -- the world’s second-largest economy -- is using such inquiries to boost its native enterprises."

No shit. Look at all the local clones/"competitors" that have started doing very well after the original companies have been eliminated from the market (Google, Dropbox, just to name two obvious cases).

It's all about lobbying, the kind that you don't find in public records - i.e. bribing and corruption.

AceJohnny2• 11 years ago

History repeats: http://en.wikipedia.org/wiki/Textile_manufacture_during_the_...

To be more specific, because the parallels may not be evident, the IP tactics of a burgeoning industrial nation are likely to be underhanded because the system favors the established power (see patents within the US). I find it extremely amusing to watch the US crow about IP when its very own industrial base was built upon foreign tech... just like China today.

mahranch• 11 years ago

I find it extremely amusing to watch the US crow about IP

Irrelevant nationalism. What does the U.S have to do with China's blatant IP theft? Plenty of my non-American friends have lost quite a bit due to China's underhanded tactics, and they're not big players. China isn't stealing IPs from the U.S because it's "America", they're stealing any IP they can get their hands on, whether it's from America, Russia or Bulgaria. They've already "caught up" to the rest of the world as far as technological development goes, now they're trying to get ahead.

It's largely the reason why every country who participates in the ISS wants absolutely nothing to do with China and wouldn't let them participate in the program. There was a vote and it was unanimous. Participating in the ISS would have opened the doors to a lot of sensitive and classified IPs and nobody trusts China enough not to abuse their position of corroboration.

China is literally bursting with corruption and it boggles my mind why anyone would want to do business there. My experience with that country is that if you're not corrupt, you stand no chance. It's not something that's underhanded or kept "hush hush", but par for the course. Expected.

China really is shooting itself in the foot here. It's not just America they're pissing off and scaring, but the rest of the world. America isn't the only country with IPs to lose, and if you think everyone else isn't paying attention, then you're naive.

est• 11 years ago

Google's technology & experience is far superior than BIDU, but to be fair, Google never caught up with BIDU in market share even before 2010.

joshjkim• 11 years ago

I agree - it's not good, but to be horribly cynical about it China (and it's local chip manufacturer lobby) is just optimizing: as long as they can squeeze Qualcomm without pushing them out entirely, it's effectively the same as granting a subsidy to the local market, except that Qualcomm pays for it and ultimately is happy to since even after the shakedown Qualcomm is making a lot of $$ in China. In fact, to me the most perverse thing is that after a $975M fine share prices are UP, which I at least partially read as: now Qualcomm is in the fold and will (at least for the short term) benefit from the stability of being part of the machinery.

jacobsimon2• 11 years ago

Well put. Re: stock price, there was so much uncertainty about this situation building up since the summer that most investors are happy to see a conclusion.

eva1984• 11 years ago

I heard that Qualcomm's record on monopoly is not good either.

mark_l_watson• 11 years ago

OK, Qualcomm puts a good face on this and their stock goes up, but:

It is starting to really annoy me when powerful countries like China and my country, tha USA, throw their weight up against companies just doing business. This article is about one example with China, and my personal pet peeve is the USA under FICA laws brutalizing (sometimes small) banks in developing countries for not keeping up with the paperwork demanded by the empire.

It seems to me that the world needs an effective way for small countries to not get rolled over, including unfair patent portfolio attacks. If this article was about a small developing country vs. Qualcomm my reaction would be different.

rodgerd• 11 years ago

It is starting to really annoy me when powerful countries like China and my country, tha USA, throw their weight up against companies just doing business.

Patents only exist because governments offer companies a framework to have government-backed enforcement of a property right. If Qualcomm want to do business without government interference, let them go without copyright, trademarks, and patents.

JohnLen• 11 years ago

Business in China. You need to evaluate all aspects before you decides.

noonespecial• 11 years ago

At this level isn't a "fine" simply a tax, custom made just for you by the government of the country you'd like to sell your stuff into?

shmerl• 11 years ago

Qualcomm is a known patent abuser. They attacked Opus codec with fake claims which were refuted: https://datatracker.ietf.org/ipr/1520/

But Qualcomm refused to withdraw those claims. Just to be nasty. So I don't feel sorry for them.

China fines Qualcomm $1B

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