Qualcomm denies direct financial links with Chinese antitrust expert

BEIJING Thu Aug 14, 2014 6:43am EDT

Visitors walk past the Qualcomm stand at the Mobile World Congress in Barcelona, February 24, 2014. REUTERS/Albert Gea

Visitors walk past the Qualcomm stand at the Mobile World Congress in Barcelona, February 24, 2014.

Credit: Reuters/Albert Gea

BEIJING (Reuters) - Qualcomm Inc, under investigation for possible monopolistic practices in China, said it had no direct financial links with an antitrust expert sacked from a government advisory post after state media reported he had received payments from the firm.

The San Diego-based company has been under investigation since November by the National Development and Reform Commission (NDRC), one of China's three antitrust regulators, over how the company licenses its patents and prices its chipsets.

Qualcomm is among an array of foreign firms that have been scrutinized by the government as China intensifies efforts to bring companies into compliance with its 2008 anti-monopoly law. At stake are financial penalties equivalent to as much as 10 percent of a company's annual revenue.

As part of the NDRC probe, Qualcomm hired Global Economics Group to produce an economic analysis for submission to the regulator, Christine Trimble, a spokeswoman at the chipset maker, told Reuters on Thursday.

She said the Chicago-based consultancy employed Zhang Xinzhu, a member of the Chinese Academy of Social Sciences (CASS) and one of China's leading antitrust experts, to co-write the report.

Zhang was dismissed from the State Council's expert commission on competition issues for taking "huge rewards" from Qualcomm, the official Xinhua News Agency reported on Wednesday.

"Qualcomm paid Global Economics its standard rates for the firm's services," Trimble said, and did not have "any financial dealings" with Zhang directly.

David Evans, chairman of Global Economics Group, declined to comment.

The Qualcomm analysis was submitted to the NDRC in May and had three principal authors, including Zhang. Earlier, the 40-year-old professor also provided expert analysis for several domestic conglomerates including China Mobile, China Telecom and China Unionpay, as well as foreign firms involved in antitrust investigations such as Yum! Brands Inc.

"Hiring economists to provide such economic analysis to antitrust authorities is routine practice in government investigations in China and around the world," Trimble said.

The NDRC said in February that the chipmaker was suspected of overcharging and abusing its market position in wireless communication standards, allegations which could see it hit with record fines of more than $1 billion.

Under the six-year-old anti-monopoly law, the NDRC can impose fines of between 1 and 10 percent of a company's revenues for the previous year.

ONLY SILENCE

Zhang had "contravened work discipline" and been removed from his position on the anti-monopoly committee, reported Xinhua.

The news agency said "certain multinational companies" had been attempting to delay antitrust probes, including spending money to gain support on experts groups and complaining of being picked on for being foreign.

"Against this backdrop, hiring relevant 'experts' from government departments to 'speak on behalf of foreign companies' is a violation of discipline ... This matter should be gotten to the bottom of and bought to light," Xinhua said.

In a short, emailed response to questions from Reuters, Zhang wrote on Wednesday: "(My) individual strength is too insignificant, and the machine of state too powerful. There can only be silence."

The 21-member anti-monopoly academic experts group from which Zhang was dismissed was established in 2011. The group is seen to serve the principal role of providing the bureaucracy with the supporting arguments needed to justify its industrial policy aims, a source in the U.S. business community familiar with the Qualcomm case told Reuters.

Zhang also has been critical of the NDRC in numerous articles published in Chinese media in recent years, which may have put him at odds with individuals at the regulator, said a Beijing-based industry person who is familiar with the workings of the advisory group.

Zhang argued that at times the regulator had acted outside of its jurisdiction and misused antitrust principles.

"Any enforcement should be based on the law and facts and not rely on public sentiment for judgment," Zhang wrote in a 2012 commentary published on the Ministry of Industry and Information Technology news website.

EU CONCERN

The latest development comes amid a local newspaper report that China would fine German premium auto brand Audi around 250 million yuan ($40.63 million) for violating anti-monopoly laws.

That followed a statement from Audi late on Wednesday that said it would accept a penalty and change management processes at one of its China units after a regional authority said it had found violations of antitrust laws.

The European Union Chamber of Commerce in China on Wednesday expressed its concern over the series of antitrust investigations, saying China was using strong-arm tactics and appeared to be unfairly targeting foreign firms.

The auto sector has been under particular scrutiny, and the NDRC, China's state economic planner, has been investigating it amid accusations by state media that global car makers are overcharging consumers.

European car brands including Volkswagen AG's Audi, BMW and Mercedes-Benz are scrambling to lower prices for new cars and spare parts in an effort to appease Chinese regulators who have accused some of them of anti-competitive behavior.

Chinese authorities say the law is applied to both domestic and foreign firms, with the aim of protecting consumers. The NDRC has said it has targeted domestic telecoms companies, including China Unicom and China Telecom Corp, and domestic financial institutions for anti-trust practices.

U.S. companies aside from Qualcomm have also been caught up in the investigations, including software giant Microsoft Corp. Such probes have rekindled concerns that the Chinese government may be using the anti-monopoly law to support domestic firms at the expense of foreign companies.

(Reporting by Ben Blanchard; Additional reporting by Michael Martina and Beijing newsroom; Editing by David Clarke and Ryan Woo)

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Comments (4)
That’s absolutely impossible that a western corporation would try to avoid or minimize competition through unethical practices. That’s absolutely unheard of…

Aug 14, 2014 10:09am EDT  --  Report as abuse
MorganQuinn wrote:
This situation is complicated, which you have nicely illustrated, requires the best expert witnesses in the world to have a shot at winning. I have noticed that one of the strongest companies for economic and financial analysis in all phases of commercial litigation and regulatory proceedings is Cornerstone Research. They provide expert witnesses in the most difficult legal situations around the world because they are a trusted and experienced resource.

Aug 14, 2014 6:03pm EDT  --  Report as abuse
Jingan wrote:
It is physically impossible that any US corp would be involved in any unethical or illegal activities.

Aug 15, 2014 8:18am EDT  --  Report as abuse
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