predatory pricing

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On 18 July 2019, the European Commission imposed a €242 million fine on the multinational chipset manufacturer Qualcomm for engaging in predatory pricing in the market for 3G baseband chipsets, a component that enables smartphones and tablets to connect to cellular networks for voice and data transmission.

Following an April 2010 complaint lodged by Icera (Qualcomm’s main competitor), the Commission initiated an investigation against Qualcomm for alleged predatory pricing practices in the 3G baseband chipsets market. After 5 years and numerous requests for information, and despite Icera closing down its baseband chipset business line in 2015, the European Commission decided to open formal proceedings against Qualcomm in July of the same year, before making its infringement decision almost 10 years after the initial complaint.

According to the European Commission’s decision, Qualcomm held between 2009 and 2011 a 60% market share in the 3G baseband chips market, a market which was characterized by high barriers to entry, stemming from the substantial R&D investments required to design the chipsets, on the one hand, and Qualcomm´s ownership over certain intellectual property rights, on the other.

In this context, the European Commission found that Qualcomm abused its dominant position from 2009 to 2011 by selling 3G baseband chips to Huawei and ZTE below total cost, as prices effectively charged did not allow Qualcomm to cover its cost for developing and producing these chipsets. According to the European Commission, that abusive practice allowed Qualcomm to maintain its overall revenues minimally affected and at the same time maximize the negative impact on Icera’s business. As a result, it imposed a fine on Qualcomm that amounted to 1.27% of its total turnover.

Qualcomm has recently announced that it will appeal the European Commission decision on the basis that the decision is unsupported by economic reality and that the Commission unprecedentedly used a “novel theory” of alleged below-cost pricing. In fact, Qualcomm also challenged a request for information sent by the Commission in 2017 during the investigation arguing that it was overly intrusive and that the Commission had started a fishing expedition against the company. However, earlier this year, the General Court ruled that the information request was lawful and did not exceed the scope of the investigation. The case is now pending before the Court of Justice.

In fact, this is the second fine for Qualcomm, and the third appeal to the EU courts in two years, after the €997 million fine for an alleged abuse of dominance on the LTE baseband chipsets market, where Qualcomm supposedly made significant payments to Apple on condition it would not buy from its competitors. This decision is currently appealed before the Court of Justice.

The case is also the first predatory pricing decision since 2003, when the Commission decided to impose a €10.35 million fine on Wanadoo, a subsidiary of France Telecom, for charging retail prices below cost on the ADSL-based Internet access services for the general public in the Wanadoo Interactive case.

The lengthy investigation and the lack of enforcement reflects the big challenges that competition enforcers face when dealing with predatory pricing investigations, mainly derived from the relevant role of economic analysis in this area and the difficulties arising from the need of measuring, allocating and comparing the company’s costs and prices. Nevertheless, the decision is a reminder to dominant firms that not all price cutting is competitive, and that great care must be taken when engaging in targeted price cuts for strategic reasons.

The press release from the European Commission is available here.

Authors: Emilija Berzanskaite, Alexandre Picón and Pedro López Aránega

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alexandre.picon@cuatrecasas.com

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pedro.lopez@cuatrecasas.com

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