Qualcomm lawsuit is test of its China standing

Hiccup: Qualcomm's agreements with two major Chinese customers are taking longer than anticipated, chief executive Steve Mollenkopf said on a conference call.

HONG KONG: Qualcomm's latest legal spat is a test of its standing in China. 

Less than two years after its record antitrust settlement with Beijing, the US chip giant is suing a local handset maker for patent infringements. It's a big gamble on China's legal system. 

The outcome will set the tone for the market where Qualcomm earns more than half its revenue. 

The San Diego-based group said on June 24 that talks to reach a licensing agreement with Meizu Technology have broken down, and that it has filed a complaint with a Beijing court. 

Qualcomm says Meizu is using its technologies without paying. 

The US company is seeking 520mil yuan (RM320.67mil) in damages, according to Chinese media. 

Collecting royalties on mobile technology patents is the US$77bil (RM315.49bil) chipmaker's main business, bringing in 87% of pre-tax profit in the last fiscal year. Its dominance has already attracted the ire of Chinese antitrust regulators, which hit the company with a US$975mil (RM3.99bil) fine in February last year – the largest such penalty in Chinese corporate history. 

Restrictions on Qualcomm's business imposed even greater financial pain. As part of its settlement with regulators, the group agreed to lower the royalty rates for Chinese mobile phone makers selling devices in the country. 

Analysts previously estimated that Qualcomm charged Chinese handset manufacturers roughly 5% of the phone's retail value. Recent regulatory filings show it now demands just 3.5% of 65% of the phone's retail price for certain technologies. Failing to collect some of those payments would compound the damage. 

It's possible that the Chinese court will rule in Qualcomm's favour: failure to do so would undermine China's efforts to boost intellectual property and could hurt other companies in the People's Republic. 

But by waging a public battle with Meizu, Qualcomm risks straining the already-bruised ties with Chinese regulators. The outcome of the case will say a lot about where the company stands in its most important market. — Reuters