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Qualcomm is one of several technology firms that have been the target of Chinese probes. Photo: Reuters

China pressures Qualcomm to cut its patent fees amid anti-monopoly probe

Anti-monopoly probe may force US chipmaker to change how it imposes royalty charges in return for access to the mainland phone market

China wants Qualcomm to accept lower royalty payments for technology used by its smartphone producers, people familiar with the matter said, a proposal that would hurt the chipmaker's main source of profit.

An agreement would end a 13-month anti-monopoly probe by the Chinese government.

Talks with the National Development and Reform Commission were continuing, with last-minute changes still possible, the people said, asking not to be identified because the matter is private.

The government also might require the San Diego-based company to unbundle its licensing agreements, the people said.

The potential concessions show the high price Qualcomm may have to pay for access to the biggest smartphone market, where sales have already been hurt by the probe as some device makers avoid paying licensing fees.

The world's largest maker of mobile-phone chips was pushing back against China's attempt to amend its business model out of concern it could lead to changes in other countries, the people said.

The probe is one of several into non-Chinese companies, particularly in the technology sector. Microsoft Corp and Symantec Corp also have been the target of Chinese government investigations, fuelling concern that the world's second-largest economy is pursuing a mercantilist agenda to boost its own enterprises. Premier Li Keqiang sought to counter such perceptions in September, pledging to open China more to outside investment and encourage innovation.

In the past five years Qualcomm has collected US$30.5 billion in licensing fees, according to data compiled. Qualcomm was willing to accept a higher fine to avoid changes to licensing, an offer rejected by Chinese authorities, the people familiar with the matter said.

Elsewhere, Qualcomm has asserted patents that cover most modern phone systems, allowing it to charge producers a percentage of the price of every device they sell, regardless of whether they use its chips.

The NDRC, which announced its antitrust probe in November last year, wanted to change that practice to use the value of some phone components, not the whole device, the people said. That would cut the basis on which the licensee fee is calculated to a total measured in tens of dollars from the current hundreds of dollars.

Emily Kilpatrick, a spokeswoman for Qualcomm, declined to comment. The NDRC's press office did not respond to a request for comment.

Qualcomm has argued that its licensing strategy, under which patents are grouped together in blanket deals, benefits the industry by protecting customers from infringement suits. The NDRC wants to end Qualcomm's practice of forcing clients into cross-licensing deals that curb royalty payments from other Qualcomm customers.

The company was holding "difficult discussions" with the Chinese authorities and was working to find a "win-win solution", chairman Paul Jacobs said last month. The US Federal Trade Commission and European Commission are also conducting inquiries related to its licensing and chip businesses, Qualcomm said in a filing last month.

This article appeared in the South China Morning Post print edition as: China pressures Qualcomm to cut patent fees
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