Agenda

EUROPEAN COMMISSION IMPOSES INTERIM MEASURES ON CHIPSET PRODUCER

21/10/2019

European Commission (“the Commission”) imposed interim measures on Broadcom, the world's largest designer, developer and provider of chipsets for fixed video and broadband devices. The ongoing investigation against Broadcom was launched to assess following infringement claims:

  • Exclusive purchasing obligations,
  • Rebates or other advantages conditioned on exclusivity or minimum purchase requirements,
  • Bundling,
  • Interoperability problems against rival products,
  • Abusive intellectual property strategies.

The current decision for interim measures is taken within this ongoing investigation as the Commission reached the understanding that Broadcom is at first sight (prima facie) dominant in three different markets for systems-on-a-chip for (i) TV set-top boxes, (ii) fibre modems and (iii) xDSL modems and causes serious and irreparable (urgency) harm to competition;

  • by engaging into agreements with six manufacturers of TV set-top boxes and modems include exclusive or quasi-exclusive purchasing obligations (conditional commercial advantages, such as rebates and other non-price related advantages) and 
  • leveraging its dominant position into the separate market for systems-on-a-chip for cable modems (where Broadcom is not yet dominant) by granting commercial advantages to customers conditional upon purchasing systems-on-a-chip for cable modems from exclusively from Broadcom.

Based on these assessments, the Commission came to interim conclusion that, if these conducts stay in place, competition on merit with Broadcom will be impossible and competitors will be affected fatally in the future. Hence while the in-depth investigation continues, the Commission ordered Broadcom;

  • to stop applying anticompetitive provisions,
  • to inform its customers that it will no longer apply such provisions and
  • to no longer engage in similar conducts.

Commission ordered Broadcom to comply with these measures in 30 days and declared these measures will remain in effect for three years (or until the end of the ongoing investigation).

Chipset market has been under antitrust scrutiny for a couple years.  The last investigation was against Qualcomm, the leading baseband chipset producer in the world. Baseband chipsets are key components for mobile devices to connect internet. Qualcomm held a dominant position in this market with high market shares that is almost three times of its closest competitor between 2009-2011. Chipset market had high market entry barriers such as intellectual property rights and high initial investment costs. The investigation against Qualcomm was completed in July 2019 and Commission fined the undertaking for abusing its market dominance by predatory pricing. The Commission investigated the claims that Qualcomm’s pricing behavior during 2009-2011 was predatory and forced Icera out of market. Accordingly;

  • Qualcomm priced chipsets below cost between 2009-2011 to Huawei and ZTE, two strategically important customers,
  • Qualcomm aimed to eliminate Icera from the market,
  • Qualcomm’s below-cost pricing had negative impact on Icera’s business,
  • Qualcomm’s below-cost pricing did not provide any efficiencies,
  • Qualcomm’s conducts had a significant detrimental anti-competitive impact on competition of baseband chipset market,
  • Qualcomm’s behavior had a significant detrimental impact on innovation in chipset market,
  • Qualcomm’s behavior reduced consumer choice.

Based on these findings, the Commission, taking into account the duration and gravity of the infringement, fined Qualcomm € 242.042.000 amounting to 1.27% of the turnover in 2018.

Indeed, this was not the first case Commission fined Qualcomm is fined for antitrust infringement. The Commission fined Qualcomm € 997 million in January 2018, for abusing its market dominance in LTE baseband chipsets by preventing competition on merits. Qualcomm was specifically fined for signing agreement with and committing to make significant payments to Apple on the condition that the company would exclusively use Qualcomm chipsets in "iPhone" and "iPad" devices. The agreement was extended until the end of 2016. Therefore, Apple was facing with significant switching costs if it decided to supply from Intel, the main rival. Towards the end of 2016 however, Apple started to switch to Intel, as switching costs lessened. It was clear that Qualcomm’s practices by means of the agreement, prevented rivals to enter the market for long years.

Concurrently, Broadcom’s proposed acquisition of Qualcomm in early 2018, was blocked politically by the US government, before any formal antitrust review.