Korea/China royalties review by Korea Times earlier this year said the 7% export rate dropped to 5-ish three years after a contract is initiated.
times.hankooki.com
Qualcomm Under Fire for More Discrimination
By Kim Tae-gyu
Staff Reporter
Qualcomm has come under fire once again as the U.S.-based mobile chip giant has been found to have discriminated against Korean companies other than royalty rates when licensing code division multiple access technology.
According to two contracts Qualcomm has doled out to a Korean firm and a Chinese company, several million dollars in up-front license fees were levied on the former while the latter was exempted from any such prepaid lump-sum charge.
Also in cases when legal disputes arise, the Korean firm must bring them up in courts in San Diego, the home turf of Qualcomm, while the Chinese company is entitled to deal with them through arbitration processes in the China-friendly or at least neutral venue of Singapore.
The Korea Times obtained a copy of a contract between Qualcomm and one of China¡¯s major handset makers as well as one between Qualcomm and a Korean manufacturer.
The contract with the Korean firm stipulates that they must pay an up-front license fee in the range of $5 million to $7 million.
In contrast, the Chinese contract says ``Qualcomm agrees that licensee shall not be charged any up-front license fee in consideration for the grant of the China license.¡¯¡¯
``Korean companies are being allowed to use the CDMA technology but with a heavy burden. In addition to higher royalty charges, they have to pay a technology fee ranging from $5 to $7 million, a load Chinese firms don¡¯t have to bear,¡¯¡¯ said Hwang Tae-kyung, an official from the Information and Telecommunications Intellectual Property Association (ITIPA), an institute for Korea¡¯s mid-tier handset providers.
In its exclusive article on March 27, The Korea Times reported Qualcomm imposes higher royalties on Korean corporations than on Chinese competitors.
Korean companies are imposed a 5.25 percent royalty on domestic sales and 5.75 percent for exports.
The basic rate for companies in the Middle Kingdom is 2.65 percent for local vending and 7 percent for outbound shipments. But after three years following the license effective date, the export rate falls to as low as 5 percent if the quarterly export volume exceeds 100,000 units.
Also, Qualcomm allowed Chinese firms to bank on arbitration when the two sides fail to find the middle ground after 30 days of negotiation on contract-related controversy and both are required to abide by the arbitration award.
The arbitrator will be selected by the International Chamber of Commerce, the global business disputes-resolving organization, and the mediation process will commence under the control of Singapore courts, which will also enforce decision.
``As the Singapore court governs Chinese firms¡¯ arbitrations and their enforcement, the actual venue is the Singapore court, while Korean firms¡¯ jurisdiction is within the confines of San Diego courts,¡¯¡¯ Hwang explained.
According to the Qualcomm contract, any dispute, claim or controversy regarding the Qualcomm license with a Korean handset vendor is stipulated to be adjudicated only by a court of competent jurisdiction in San Diego.
In addition, Qualcomm can terminate the CDMA technology usage contract when Korean licensees file suits, another discriminatory provision found in only Korean deals.
``Royalty gaps, up-front fees and legal processes are the three main impartialities found between Qualcomm¡¯s contracts with China and Korea. Chinese CDMA phone makers are competing under heavily favorable contract terms and conditions compared to Korean rivals,¡¯¡¯ Hwang said.
Against such claims, Qualcomm reiterated that the San Diego-headquartered company has complied with the ``most favored obligations¡¯¡¯ provisions as its senior director of corporate public relations Christine Trimble told The Korea Times through an e-mail late last month.
``Qualcomm¡¯s license agreements require the company, under certain circumstances, to offer those licensees the terms and conditions of later agreements. Qualcomm has fully abided by its most favored obligations,¡¯¡¯ she said.
ITIPA¡¯s Hwang said Qualcomm notified the deal with a Chinese firm in 2001 and asked if Korean companies will switch to the new terms and conditions but the outfit didn¡¯t mean to treat Korean firms most favorably.
``Back in 2001, Qualcomm seemed to have no intention to treat us based on the most favored obligations. We asked them to deduct a royalty in consideration of the several million dollars of up-front fee if it could not refund the large money at a time. But Qualcomm flatly refused such request,¡¯¡¯ Hwang said.
He said Qualcomm¡¯s claim that it treats Korean enterprises most favorably is just a diplomatic rhetoric and Chinese firms also have the ``most favored¡¯¡¯ provisions.
Indeed, Qualcomm pledges the ``most favored royalty rate¡¯¡¯ to the Chinese licensee in the contract and the chip maker must notify any deal with better conditions and terms inked with any other company to the firm in the Middle Kingdom.
The jurisdiction was also in the way of Korean firms as they couldn¡¯t mull over the judicial measures as an option to counter Qualcomm¡¯s seemingly discriminatory conditions and terms.
``Korean companies must bet their whole business to bring the case to the court since Qualcomm has the right to terminate the contract in such cases. Also the fact that a San Diego court will be in charge discouraged us from resorting to legal proceedings,¡¯¡¯ Hwang said.
He added if Korean contracts have arbitration clauses or designate neutral venues Korean companies were sure to contend the cases in a court.
The bigger problem is that the current unfair situation is likely to continue with contract renewal between Qualcomm and Korean firms slated mostly for next year.
``I fear Qualcomm would be recalcitrant in lowering royalties or curing unfair conditions in the upcoming negotiation because that is the last time for Qualcomm to rake in royalty revenues from Korean firms,¡¯¡¯ Hwang said.
Qualcomm¡¯s major patents were acquired in the early 1990¡¯s and their rights will expire in several years.
Hwang also said the most favored royalty rate provisions with Chinese firms will further prevent Qualcomm from rendering improved terms to Korean firms because that means the same rules can be applied to Chinese entities, which will eventually chip away at Qualcomm¡¯s bottom line. |
