

China fines Qualcomm $1B - jacobsimon
http://www.bloomberg.com/news/articles/2015-02-09/china-fines-qualcomm-975-million-sets-patent-licensing-rates

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k_sze
“It makes more sense if China wants to protect the Chinese consumer.”

No, it doesn't. Just like every other neoliberal economy out there, since when
has China's government started caring about the consumers?

The Chinese government is "punishing" Qualcomm for monopoly, yes, but it has
nothing to do with the consumers.

"fueling concern that the country -- the world’s second-largest economy -- is
using such inquiries to boost its native enterprises."

No shit. Look at all the local clones/"competitors" that have started doing
very well after the original companies have been eliminated from the market
(Google, Dropbox, just to name two obvious cases).

It's all about lobbying, the kind that you don't find in public records - i.e.
bribing and corruption.

~~~
AceJohnny2
History repeats:
[http://en.wikipedia.org/wiki/Textile_manufacture_during_the_...](http://en.wikipedia.org/wiki/Textile_manufacture_during_the_Industrial_Revolution#Export_of_technology)

To be more specific, because the parallels may not be evident, the IP tactics
of a burgeoning industrial nation are likely to be underhanded because the
system favors the established power (see patents within the US). I find it
extremely amusing to watch the US crow about IP when its very own industrial
base was built upon foreign tech... just like China today.

~~~
mahranch
> I find it extremely amusing to watch the US crow about IP

Irrelevant nationalism. What does the U.S have to do with China's blatant IP
theft? Plenty of my non-American friends have lost quite a bit due to China's
underhanded tactics, and they're not big players. China isn't stealing IPs
from the U.S because it's "America", they're stealing any IP they can get
their hands on, whether it's from America, Russia or Bulgaria. They've already
"caught up" to the rest of the world as far as technological development goes,
now they're trying to get ahead.

It's largely the reason why every country who participates in the ISS wants
absolutely nothing to do with China and wouldn't let them participate in the
program. There was a vote and it was unanimous. Participating in the ISS would
have opened the doors to a lot of sensitive and classified IPs and nobody
trusts China enough not to abuse their position of corroboration.

China is literally bursting with corruption and it boggles my mind why anyone
would want to do business there. My experience with that country is that if
you're _not_ corrupt, you stand no chance. It's not something that's
underhanded or kept "hush hush", but par for the course. Expected.

China really is shooting itself in the foot here. It's not just America
they're pissing off and scaring, but the rest of the world. America isn't the
only country with IPs to lose, and if you think everyone else isn't paying
attention, then you're naive.

~~~
kragen
Artificial “intellectual property” monopolies are anathema to innovation, and
they’re a major reason why the US tech industry is mostly reduced to making
online chat room apps for cellphones developed by China’s tech industry.
China’s choice to not enforce foreign companies’ “intellectual property”
rights against its domestic industry exactly mirrors the US’s very successful
choice to do exactly the same thing in the 1800s, except that the US did it
overtly, rather than in violation of treaties it had signed. (However, the
US’s territorial expansion during the same period, also crucial to its
prodigious economic growth, _was_ in violation of treaties it had signed.)

~~~
saryant
> US tech industry is mostly reduced to making online chat room apps for
> cellphones

That may be the face of the US tech industry that shows up on TechCrunch but
the reality is that the rest of the industry is far more varied and much
deeper than consumer apps like that.

Healthcare, energy, aerospace. Those—and a few dozen more—are all tech
industries worried about IP protection. They just aren't sexy and don't make
it to the top of HN.

~~~
kragen
The US has the least cost-effective healthcare system in the world except
possibly for Switzerland — it manages to provide a reasonable level of care,
similar to that of Cuba, but only by throwing enormous amounts of money at the
problem. It's certainly true that it’s “worried about intellectual property
protection”, but not in the way that you imply — intellectual property harms
healthcare more than perhaps any other industry, accounting for a very
substantial fraction of those massively overinflated costs. And it’s only
through pushing through exceptions to the “intellectual property” regime
pushed by the US, in WIPO, that India has been able to essentially end the
AIDS epidemic in Africa.

Energy is the industry where US producers of photovoltaic panels — the primary
source of marketed energy for the world starting in the 2020s — have had to
seek domestic protection behind punitive tariffs against the Chinese
manufacturers who are dominating the market by relentlessly copying each
other’s innovations. Evergreen Solar, the only pure-play US photovoltaic
company, went bankrupt in 2011.

The part of the US energy industry that’s actually an economic bright spot is
oil and gas extraction. I don’t know much about their economic structure.
Maybe you can elaborate?

Aerospace is indeed an exception to the overall pathetic performance of the US
tech industry, and the 481,400 people working in 3364 aerospace in the US are
rightly proud of that, although you’ve probably noticed that a lot of US
companies that want to launch satellites end up having to buy launch services
from Russia or Europe. But the US aerospace industry is largely supported by
the US Department of Defense (74% of Lockheed’s income is from the military,
and 45% of Boeing’s income is from BDS), and the DoD does not consider it an
option to buy from lower-cost and higher-quality manufacturers in China or
even Europe. That massive DoD R&D subsidy is what enables companies like
Boeing and Lockheed Martin to compete overseas (admittedly, against other
similarly-subsidized competitors).

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JohnTHaller
Odd that they state that "For handsets sold in China, Qualcomm will charge a
licensing rate that’s similar to the royalty rates it charges elsewhere in the
world, countering concerns that it would be forced to offer a discount to
settle the investigation."

And then immediately follow with "While the percentage being charged is
similar, the value of the handsets -- used as the basis for the calculation --
will be assessed at 65 percent of the device’s total price for phones sold in
China, Qualcomm said."

If read right, that means Qualcomm is forced to effectively discount licensing
fees in China based on this decision, meaning the Chinese government has
engaged in a bit of price-fixing relative to the rest of the world on the
patent fees.

~~~
glasslion
No. Qualcomm changes Chinese companies with a rate that is higher than
anywhere else in the world.

~~~
JohnTHaller
Not quite before and not now. Before, they forced bundling in China, as they
do in a few other countries. Now, Qualcomm must unbundle the basic 3G and 4G
patents and charge the same rates in China. But, a fair and level playground
wasn't quite good enough, so the Chinese government has forced Qualcomm to
value the Chinese handsets at 65% of the actual value which is used to
calculate the amount of the patent fee per unit, effectively giving Chinese
companies a discount compared to everywhere else in the world. So this verdict
forces some price fixing in favor of Chinese companies vs the rest of the
world. Plus a billion dollars to the Chinese government.

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freyr
Qualcomm's IP portfolio is sufficient that the company can demand royalties
from virtually any company that wants to produce a cell phone. It had a
stranglehold over CDMA technologies, and has a great deal of valuable LTE-
related IP.

I don't know how China defines a monopoly relative to the U.S. definition, but
Qualcomm seems like a natural candidate.

~~~
nostromo
Patents are monopolies by design.

~~~
freyr
In a reductionist sense, yes, but this is interesting because the patents are
intertwined with an international standard that every participant must conform
to.

When a patent covers a stand-alone product, you may be able to avoid licensing
by developing an innovative or otherwise differentiated product. But when
patents cover critical portions of a standard, your hands are pretty much
tied.

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mark_l_watson
OK, Qualcomm puts a good face on this and their stock goes up, but:

It is starting to really annoy me when powerful countries like China and my
country, tha USA, throw their weight up against companies just doing business.
This article is about one example with China, and my personal pet peeve is the
USA under FICA laws brutalizing (sometimes small) banks in developing
countries for not keeping up with the paperwork demanded by the empire.

It seems to me that the world needs an effective way for small countries to
not get rolled over, including unfair patent portfolio attacks. If this
article was about a small developing country vs. Qualcomm my reaction would be
different.

~~~
rodgerd
> It is starting to really annoy me when powerful countries like China and my
> country, tha USA, throw their weight up against companies just doing
> business.

Patents only exist because governments offer companies a framework to have
government-backed enforcement of a property right. If Qualcomm want to do
business without government interference, let them go without copyright,
trademarks, and patents.

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shmerl
Qualcomm is a known patent abuser. They attacked Opus codec with fake claims
which were refuted:
[https://datatracker.ietf.org/ipr/1520/](https://datatracker.ietf.org/ipr/1520/)

But Qualcomm refused to withdraw those claims. Just to be nasty. So I don't
feel sorry for them.

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johnpmayer
...Qualcomm will offer licenses to 3G and 4G essential patents and will no
longer require the bundling of those rights with other patents in its
portfolio...

Wow, is that a common tactic? No wonder antitrust was on them.

~~~
DrJosiah
Not to defend Qualcomm, but patent bundling is very common in
telecommunications tech for a very simple reason: what good is 1 licensed
patent when you need 5 patents to actually build a product?

And more specifically, 4g phones usually have fallback to 3g or even lower
speeds, so if you're going to build a 4g phone, you almost always need to
license the tech for 3g and prior. Unbundling the patents in this situation is
great theoretically, but in practice it is likely to result in licensees not
licensing _enough_ patents, opening themselves up for patent lawsuits.

~~~
Dwolb
Interesting. From a microeconomics perspective, bundling is a form of price
discrimination which is optimal for situations where the seller has multiple
products, but buyers' wants are negatively correlated.

e.g. Roger sells both candy bars and packs of gum, both of which cost him $0
to produce (for simplicity). Al is willing to pay $5 for a candy bar, but $1
for a pack of gum. Jesse willing to pay $1 for a candy bar and $5 for a pack
of gum. Roger could sell one candy bar to Al for $5 and one pack of gum to
Jesse for $5 for a total profit of $10. More optimally, Roger could sell a
bundle consisting of both the candy bar and the pack of gum to both Al and
Jesse for $6 for a total profit of $12. Bundling has optimally increased
Roger's profits.

~~~
DrJosiah
It would be interesting to know to what extent Qualcomm was doing this.

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nharada
Somewhat unrelated to this specific case, but what happens to all that money?
The government can't exactly budget for influxes of cash like this, so what do
they do with it and who gets to spend it?

~~~
qopp
Government money/budgets isn't that precise, income from taxes are variable,
for example. Also most countries spend more then they make anyway (deficit).

It's accounted for as revenue via fines and spent according to the normal
budget.

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noonespecial
At this level isn't a "fine" simply a tax, custom made just for you by the
government of the country you'd like to sell your stuff into?

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JohnLen
Business in China. You need to evaluate all aspects before you decides.

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eva1984
I heard that Qualcomm's record on monopoly is not good either.

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drawkbox
The $1B fine might be one reason why they suddenly are charging for Vuforia AR
SDK in version 4.0. They maybe rushed the change to pay licenses.

EDIT: Yes slightly off topic but Vuforia is owned by Qualcomm and recently
surprised all SDK developers with the bait and switch to licensing from free
for commercial. But it has happened so drastically that there is no way to
find out what it costs, "contact sales" is the answer but no response from
them yet. It was very rushed see here:
[https://developer.vuforia.com/forum/vuforia-40-beta/prices-a...](https://developer.vuforia.com/forum/vuforia-40-beta/prices-
and-64bit-commercial-only) This is a good example of how not to introduce pay
commercial licensing on something that used to be free.

