S.Korea rejects Broadcom’s corrective steps on unfair biz

South Korea’s antitrust body dismissed corrective measures proposed by US chipmaker Broadcom Inc. to avoid penalties over its alleged unfair business practices, paving the way for Samsung Electronics Co. to seek compensation of hundreds of millions of dollars in damages.

The Korea Fair Trade Commission (FTC) said on Tuesday it rejected Broadcom's final corrective measures, including warranties and more technical support, in a plenary session on June 7 as the steps were insufficient to compensate for damages to Samsung, the world’s No. 2 smartphone maker.

The FTC, which has been investigating Broadcom’s unfair deals with domestic tech companies since 2019, is set to go through the process to decide on the penalties against the US firm with an aim to conclude the case by year-end at the latest, an official of the regulator said.

“The expansion of quality guarantees and technical support for Samsung Electronics is not appropriate as damage compensation in terms of content and degree while Samsung Electronics, the only trading partner, is not accepting the corrective measures,” the FTC said in a statement.

Broadcom must consider measures to compensate Samsung for damages to recover the "order of transactions" and "protect other businesses" as the company violated Samsung's rights and interests by abusing its market dominant position, the competition watchdog said.

COMPELLED DEAL

The semiconductor and infrastructure software solutions provider allegedly forced Samsung to ink a three-year deal for components of smart devices including parts for radio frequency (RF) front-end circuitry, Wi-Fi and Bluetooth.

The contract included provisions that the world’s No. 2 smartphone maker had to purchase Broadcom’s parts worth $760 million from January 2021 until the end of 2023 while the South Korean tech giant would make up any difference if it purchased less than that. The deal ended in August 2021 before its expiration.

To avoid punishment, Broadcom applied for a consent order last July. A consent order is a way to wrap up an anti-competition case -- even before determining whether a company under an FTC investigation has breached the law -- if the firm voluntarily proposes appropriate corrective measures.

In January, the US company reached a preliminary agreement with the FTC to provide three-year warranties and technical support for components equipped in products such as Samsung’s smartphones. Broadcom also vowed to establish a fund of 20 billion won ($16.1 million) to support small and medium-sized enterprises in the country’s semiconductor industry while offering measures to cease putting undue pressure on Samsung and other local tech companies.

NO COMPENSATION

Samsung protested against the preliminary agreement, saying those measures were not enough to make up its losses of 360 billion won.

Qualcomm Inc., which initially brought the issue to the FTC, also urged the watchdog to reject the consent order, saying such practices could be repeated unless the regulator judges Broadcom’s illegality.

The FTC advised Broadcom to compensate Samsung’s damages and extend technical support during the regulator’s reviews conducted for final corrective measures after the preliminary agreement, but the US chipmaker refused it.

“Broadcom made it clear that the company was not willing to accept the FTC members’ proposals including compensation for damages to Samsung Electronics during the review process,” said the FTC.

LEGAL BATTLE

The regulator is predicted to impose a fine of some 20 billion won on Broadcom once its business practices on the contract with Samsung are found illegal, industry sources said.

Samsung is likely to file a lawsuit against Broadcom after the FTC’s penalty, the sources said. A civil suit is the only method to get compensation for damages caused by forced purchases of Broadcom’s products, which the South Korean tech giant said have raised inventories.

Samsung is expected to gain the advantage in a potential legal battle if the regulator proves that Broadcom abused its market dominance position, the sources added.

The world’s largest memory chipmaker has yet to make any decision, a company official said.

“We do not have any specific stance on the FTC case,” said a Samsung official. “We will decide on measures based on the results of resolutions in the future.”

Write to Sul-Gi Lee and Jeong-Soo Hwang at surugi@hankyung.com
 
Jongwoo Cheon edited this article.