European Commission Fines Qualcomm EUR 242 Mio. for Predatory Pricing

By Maria E. Sturm

On July 18, 2019, the EU Commission, the European antitrust supervisory body, fined Qualcomm Inc. for using predatory prices between 2009 and 2011. The EU Commission argued as follows:

1. It explained that Qualcomm had a dominant position in the world market. This dominance is based on:
2. Its market share of 60% and
3. The high entry barriers: competitors are confronted with significant initial investments for research and development in this sector, as well as with obstacles regarding intellectual property rights.
4. While it is not illegal to hold a dominant position, the EU Commission accuses Qualcomm of abusing such a position by using predatory prices for UMTS-chip sets. To prove this, the EU Commission used a price-cost test for the chipsets in question. In addition, it claimed to have qualitative evidence for anti-competitive behavior. Qualcomm used this problematic pricing policy when its strongest competitor, Icera, tried to expand on the market in an effort to hinder Icera from building up its market presence.
5. Finally, the EU Commission argues that Qualcomm’s behavior could not be justified by potential efficiency gains.

 

History

This Commission decision is the latest, but presumably not the final point of a long case history. Already in 2015, the Commission has initiated a formal investigation and issued Statements of Objections against Qualcomm. In 2017, the Commission requested further information from Qualcomm. As Qualcomm did not respond to this request, the Commission made a formal decision which Qualcomm claimed to be void. Qualcomm filed for annulment of the decision and an application for interim measures. The latter was dismissed on July 12, 2017.  Art. 278 TFEU establishes the principle that EU actions do not have a suspensory effect, because acts of EU institutions are presumed to be lawful. Thus, an order of suspension or interim measures is only issued in exceptional circumstances where it is necessary to avoid serious and irreparable harm to the applicant’s interests in relation to the competing interests. The cumulative requirements are:

1. The applicant must state the subject matter of the proceedings.
2. The circumstances must give rise to urgency.
3. The pleas of fact and law must establish a prima facie case for the interim measures.

Qualcomm mainly brought forward two arguments for the urgency of the matter:

1. The amount of work and cost for answering the questions would be too burdensome. In response, the Court stated that the damage would be only of a pecuniary nature. Such damage normally is not irreparable, because it can be restored afterwards. Qualcomm did not argue that its financial viability would be jeopardized before the final judgment would be issued, that its market share would be affected substantially, or that it was impossible to seek compensation.
2. The enormous amount of work for the employees of the financial department would make it impossible for them to perform their regular tasks. However, Qualcomm mentioned itself that the burden would weigh particularly heavily on a limited number of employees in the financial department only. The Court held that if only some employees of only one department would be affected, the argument is not strong enough to justify urgency.

 

Latest decision

The latest decision in this case was issued on April 9, 2019, about Qualcomm’s claim for annulment. Qualcomm brought forward six pleas against the EU Commission, but all of them were dismissed:

 

1. Infringement of the obligation to state reasons.

According to relevant case law, statements of reasons must be appropriate to the measure at issue and must disclose the reasons clearly and unequivocally. The Commission must show that the request is justified. The undertakings concerned must be able to assess the scope of their duty to cooperate and their right to defense must be safeguarded. However, the EU Commission is not obliged to communicate all information at its disposal, as long as it clearly indicates the suspicions. Since the Commission clearly indicated the products and the customers involved, as well as the suspicions of infringement, it fulfilled its obligation to state reasons.

 

2. Infringement of the principle of necessity.

There must be a correlation between the request for information and the presumed infringement and the Commission must presume reasonably that the information will help determine whether the alleged infringement has taken place. Qualcomm accused the Commission of having expanded the scope of the investigation and contended that the required information was not necessary. Concerning the first point, Qualcomm mainly referred to the Statement of Objections and said the Commission must terminate its preliminary investigations before issuing such a document. However, according to the Court, the Statement of Objections is only procedural and preliminary, the Commission is thus free to continue with fact-finding afterwards. Concerning the second point, the Court grants the Commission broad powers of investigation, including the assessment of whether information is necessary or not. In particular, the Commission needed the information required from Qualcomm to avoid factual errors in calculating the price-cost test. The Commission had to request the information to keep up with its obligation to examine carefully and impartially.

 

3. Infringement of the principle of proportionality.

Qualcomm argued that the information requested was disproportionate, because it was not legally obliged to keep documents for longer than three and a half years and that they did not organize their documents systematically. Here, the Court said that at least from the moment when Qualcomm learned about the Commission’s investigation, it should have been more careful and should have kept documents. Moreover, undertakings who keep their documents in an organized and systematic order cannot be penalized for that. Therefore, the unsystematic organization falls under Qualcomm’s responsibility. Furthermore, a significant workload is not per se disproportionate. One must consider it in relation to the investigated infringement. An alleged predatory pricing requires complex analyses of a large amount of data and is not disproportionate because of its nature.

 

4. Reversal of the burden of proof.

This plea is, according to the Court, based on a misreading. Qualcomm was asked to neither audit financial accounts nor prove that they have conducted their business in accordance with the law.  Rather, it was only asked to issue information for the Commission to conduct the price-cost test and internal documents pertaining to the relevant period.

 

5. Infringement of the right to avoid self-incrimination.

Qualcomm claims that the Commission’s requests were beyond the scope of simply providing information. According to Regulation No 1/2003, undertakings cannot be forced to admit that they have committed an infringement, but they are obliged to answer factual questions and to provide documents, even if this information may be used to establish against them. Therefore, they do not have an absolute right of silence. On the contrary, in order to ensure the effectiveness of Regulation No 1/2003, the Commission is entitled to request all necessary information concerning relevant facts to prove the existence of anticompetitive conduct.

 

6. Infringement of the principle of good administration.

Qualcomm claimed the required information was excessive and that the Commission abused its investigative power by prolonging a flawed investigation. According to the relevant case law, the principle of good administration requires EU institutions to observe the good guarantees afforded by the legal order. Those guarantees include the duty to examine carefully and impartially all the relevant aspects of the individual case. Here, the Court held that the Commission requested the information in question precisely to comply with its duty to examine carefully and impartially the arguments put forward by Qualcomm regarding the Statement of Objections.

On June 18, 2019, Qualcomm lodged an appeal for the annulment of the General Court’s judgment. The case is to be continued.