Broadcom slapped with W19.1b fine for abusing market power in Korea

South Korea’s antitrust regulator said Thursday it is imposing a fine of 19.1 billion won ($14.2 million) on US chipmaker Broadcom, along with a corrective order, for its unfair business activities against Samsung Electronics.

The move came after the US chipmaker forced Samsung to sign a long-term contract to use its telecommunications components in 2020 by abusing its market dominance and using unlawful tactics, including cutting off its supply and technical support, the Fair Trade Commission said.

“It was confirmed that Broadcom used a series of unfair means to pressure Samsung Electronics into signing an unfavorable long-term agreement, including the suspension of parts purchase order approvals, suspension of shipments and suspension of technical support,” Fair Trade Commission Chair Han Ki-jeong said in a press briefing earlier in the day.

According to the deal, Samsung was required to purchase annually from 2021 to 2023 a minimum of $760 million worth of Broadcom’s radio frequency front end (RFFE), an essential component in wireless communication systems, and other components related to WiFi and Bluetooth. If the annual amounts it purchased totaled less than $760 million, the Korean tech giant was still required to pay the full $760 million in the agreement.

Until regulators' intervention prematurely ended the deal in August 2021, Samsung had no choice but to comply with Broadcom’s unilateral requests in order to prevent a disruption in the production of its smartphone devices, including the Galaxy S20 series, since the US chipmaker was the world’s No. 1 operator in the RFFE market.

Samsung, which was limited in its options for parts, had to purchase more parts than necessary and incurred additional costs of at least $160 million due to the inability to use cheaper parts from other competitors such as Qualcomm and Kobo for its smartphones.

Broadcom argued during the deliberation process that the contract was signed voluntarily by Samsung and that it had been mutually beneficial. However, Korea's FTC rejected the US company’s argument.

Broadcom also claimed that it had to sign the contract to maintain a strategic partnership with Samsung, as the Korean firm broke verbal promises several times regarding its component purchases.

The FTC said it calculated its fine on Broadcom -- 19.1 billion won -- based on the amount Samsung paid for parts purchased under the agreement according to sales through August 2021 -- $800 million -- plus the upper penalty surcharge rate of 2 percent.

“This measure is significant in that it establishes a fair trading order and creates competitive conditions in the semiconductor market, which is a key industry for technological innovation and has a large ripple effect on related markets,” the Korean antitrust regulator chief said.

Samsung previously claimed that it suffered damages worth $326.3 million, and had reportedly sought to file a lawsuit against Broadcom, but decided to resolve the case with the FTC to improve efficiency.

Some industry sources criticized the ruling, saying that the FTC should not have accepted Broadcom’s application for consent resolution in the first place.

In August last year, the FTC had accepted Broadcom’s request to submit to voluntary corrective measures. These measures included providing a fund of 20 billion won to support the domestic chip industry amid the antitrust probe in January.

But Broadcom had opposed these corrective measures so the antitrust regulator resumed its review to put sanctions on the company.

Sources forecast that the legal battle between Samsung and Broadcom is likely to continue, with the Korean tech giant expected to sue the US firm for damages, according to industry sources.

Meanwhile, Broadcom is reportedly disappointed with the FTC's decision and intends to appeal the sanction in the Seoul High Court, as the ruling has the same effect as a first trial ruling here.

"For decades, Broadcom has been working closely with Korean customers in a fair and lawful manner and has made significant contributions to the innovation and success of the Korean economy and some of its largest technology organizations," a Broadcom official said.

"In this matter, Broadcom worked very closely with the staff of the Korean Fair Trade Commission to reach a mutually beneficial outcome that is fair and reasonable for all parties involved and unfortunately, as a result of the unprecedented intervention of some third parties, the joint recommendation of Broadcom and the KFTC staff was not adopted by the commission itself," the official added.