European antitrust officials hammered Qualcomm with a $1.2 billion fine on Wednesday, saying the American chip maker, whose technology underpins much of the world’s mobile phone industry, had abused its dominant market position to squeeze out competitors.
The penalty of 997 million euros follows a two-year investigation and is the latest move by regional regulators against a United States tech giant. Officials in Brussels say that Qualcomm offered financial incentives to Apple so that it would buy equipment solely from the chip maker. Qualcomm immediately said it would appeal the ruling, which would probably extend the case, originally announced in the summer of 2015, for years to come.
The decision on Wednesday bolsters the argument that Margrethe Vestager, Europe’s antitrust chief, has become the most aggressive regulator of the world’s technology sector. In recent years, Ms. Vestager’s office has mounted a concerted campaign against tax avoidance, anti-competitive behavior and the mishandling of private data. In June, it fined Google a record $2.7 billion for unfairly favoring some of its own services over those of rivals.
Those moves have prompted complaints from American technology giants that they are being unfairly targeted, but European Union officials strongly deny the accusations.
The ruling also serves to compound Qualcomm’s troubles. The company has been locked in a legal battle with Apple over pricing issues, and it is trying to fend off a hostile takeover by a rival chip maker.
In the latest decision, European regulators found that Qualcomm, the world’s largest maker of smartphone chips, abused its market dominance by preventing rivals from competing in the smartphone chip market thanks to an agreement in which it paid Apple to exclusively use its chips in iPhones and iPads between 2011 and 2016.
“Qualcomm illegally shut out rivals from the market” for a particular kind of microchip, Ms. Vestager said in a news release, “thereby cementing its market dominance.”
“Qualcomm paid billions of U.S. dollars to a key customer, Apple, so that it would not buy from rivals,” she added. “These payments were not just reductions in price — they were made on the condition that Apple would exclusively use Qualcomm’s baseband chipsets in all its iPhones and iPads.”
The European Commission, the European Union’s executive arm, found that Qualcomm’s practices had a significant, detrimental impact on competition in the region. “It excluded rivals from the market and deprived European consumers of genuine choice and innovation,” the commission said.
Ms. Vestager said that she could not say how much Apple had ultimately received from Qualcomm in payments, but that it was in the “billions of dollars.”
She said that internal documents reviewed as part of the inquiry showed that Apple had seriously considered using chips made by a rival manufacturer, Intel, during the period of its agreement with Qualcomm, but did not do so until the deal with Qualcomm had concluded.
If Apple had introduced a smartphone using products from a different chip maker, she said, Apple not only would have lost future payments from Qualcomm, but also would have been forced to pay back some of the money it had already received.
Ms. Vestager said that Apple would not face any repercussions because the inquiry had been focused on Qualcomm’s practices. European regulators are also continuing a separate investigation into preliminary findings that Qualcomm sold its chips at below cost price from 2009 to 2011 to force a competitor out of the market.
In a statement, Qualcomm said that it “strongly disagrees” with the decision and that it would appeal the ruling to the European Union’s highest court.
“We are confident this agreement did not violate E.U. competition rules or adversely affect market competition or European consumers,” Don Rosenberg, Qualcomm’s general counsel, said in a news release. “We have a strong case for judicial review, and we will immediately commence that process.”
The fine on Wednesday came with Qualcomm in the midst of multiple takeover battles. It has sought to fight off a hostile $105 billion takeover attempt by a rival, the Singapore-based chip maker Broadcom. If completed, that takeover would be the largest technology deal in history. And despite that battle in the background, Qualcomm is still looking to complete a $38.5 billion acquisition of NXP Semiconductors.
In a letter to investors last week, Qualcomm raised its profit forecast, outlined plans to reduce its costs and promised to buy back shares if it was unsuccessful in its efforts to acquire NXP. Qualcomm said the Broadcom offer “dramatically undervalues” the company and “does not reflect our clear path to near term value.”
Qualcomm has been a longtime leader in cellphone chip technology, and its trove of patents, which include ubiquitous processes such as the way applications are downloaded from smartphone app stores and the use of airplane mode, remains one of the most lucrative assets in the world of wireless networking.
Founded in 1985, the company helped build the modern mobile phone industry with its technology. For decades, Qualcomm engineers have made crucial innovations that have helped the sector develop and expand, and bolstered the company’s results along the way.
But more recently, it has faced a multitude of legal and shareholder issues. The company in 2015 agreed to pay a $975 million fine for violating China’s antimonopoly law. Later that year, an activist campaign within the company forced layoffs. In December 2016, Qualcomm was also fined $850 million in South Korea for unfair patent licensing.
Then a year ago, the company was hit with separate lawsuits just days apart. First, the Federal Trade Commission filed a complaint against it for charging unreasonable fees to partners like Apple. Soon after, Apple sued Qualcomm over what it claimed were $1 billion in withheld rebates.
The continuing disputes have weighed on Qualcomm’s results, cutting its profit by 89 percent in the fourth quarter. The company took a $778 million charge related to a fine imposed by Taiwanese regulators in October, and its results were again hit by the royalty dispute with Apple.
Photo Credit : Credit Francois Lenoir/Reuters