Qualcomm Just Got Fined $1.23 Billion for Illegal Payments to Apple
Qualcomm has been hit with a massive €997 million ($1.23 billion) antitrust fine in the European Union, for illegally paying billions of dollars to Apple to make sure that its components were used in iPhones and iPads.
The payoffs ensured that rival manufacturers of LTE baseband chipsets—the components that let mobile devices connect to cellular networks in order to provide internet connectivity—had no chance of getting into Apple’s devices for half a decade.
Intel (INTC) appears to have been the main victim of this secretive tie-up. Because of the severity of the infringement, the European Commission opted to fine Qualcomm 4.9% of its 2017 revenues.
“Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance,” said Margrethe Vestager, the Commission’s competition chief. “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.”
“This meant that no rival could effectively challenge Qualcomm in this market, no matter how good their products were. Qualcomm’s behaviour denied consumers and other companies more choice and innovation—and this in a sector with a huge demand and potential for innovative technologies. This is illegal under EU antitrust rules and why we have taken today’s decision.”
Qualcomm, which stressed that the decision had no effect on its ongoing operations, said it would appeal.
“We are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers,” said Don Rosenberg, the company’s executive vice president and general counsel. “We have a strong case for judicial review and we will immediately commence that process.”
The agreement between Apple (AAPL) and Qualcomm (QCOM) began in 2011 and was renewed in 2013. It ran until the end of 2016.
The Commission examined internal Apple documents that showed the payments steered the company away from sourcing part of its baseband chipset requirements from Intel. A few months before the agreement expired, once the Commission had started probing the arrangement, Apple went ahead and did just that.
Ironically, Intel was itself fined $1.3 billion by the Commission’s antitrust directorate in 2009—a record at the time—for paying PC manufacturers to exclusively use its processors.
South Korea’s antitrust regulator fined Qualcomm $854 million in late 2016 for unfair business practices in its patent licensing and modem chip sales.
Fortune has asked Apple and Intel for reaction to Wednesday’s fine, but has received none at the time of writing.
This article was updated to include Qualcomm’s statement, and to note that Apple started sourcing Intel parts shortly before its Qualcomm agreement expired.