Samsung Unable to Smile Even as Broadcom Faces Fine

Fair Trade Commission imposes 19.1 billion KRW fine on Broadcom
Calls to strengthen fabless competitiveness

Samsung Electronics achieved a 'half victory' in its power abuse dispute with the U.S. semiconductor company Broadcom. While it was acknowledged that Samsung suffered damages due to Broadcom's demand for a long-term exclusive contract, the imposed fine was far too small. Samsung plans to file a damages lawsuit against Broadcom, but it is expected to be difficult to receive compensation commensurate with the scale of the damage. There are even painful criticisms that this situation arose due to Samsung Electronics' lacking fabless competitiveness.

On the 21st, the Korea Fair Trade Commission (KFTC) decided to impose a fine of 19.1 billion KRW on Broadcom, the U.S. semiconductor company that forced Samsung Electronics into a long-term contract for smartphone components.

Photo by Yonhap News

Broadcom is a semiconductor company with an overwhelming market share in cutting-edge, high-performance wireless communication components used in smart devices such as smartphones and tablet PCs.

The incident began when Broadcom demanded Samsung Electronics, which relied on Broadcom for components used in smartphones and tablet PCs, to sign a long-term agreement (LTA) for component supply to prevent Samsung from switching to competitors. When Samsung refused the LTA, Broadcom retaliated from February 2020 by halting component shipments and refusing purchase orders. These measures, likened by Broadcom to 'bomb drops' and 'nuclear bombs,' threatened the production of Samsung's flagship smartphone at the time, the Galaxy S20. Consequently, in March 2020, Samsung signed an LTA committing to purchase at least $760 million (approximately 1.0172 trillion KRW) worth of Broadcom components annually for three years, compensating for any shortfall.

It took about three years and three months for the KFTC to recognize and sanction Broadcom's misconduct. After two rounds of deliberation, the KFTC decided in January this year to initiate a consent decree procedure, but found Broadcom's voluntary corrective measures insufficient and halted the process when Broadcom refused to comply with improvement demands. Subsequently, the KFTC resumed the main case review and finalized the imposition of a 19.1 billion KRW fine.

Fair Trade Commission Chairman Han Ki-jung is briefing on the sanctions against the abuse of trading position by four companies, including the American semiconductor company Broadcom, at the Government Sejong Complex in Sejong City on the morning of the 21st.
[Photo by Yonhap News]

Although Samsung Electronics secured a delayed victory, the outcome was unsatisfactory. The KFTC's fine was significantly lower than the damages Samsung claimed.

Samsung asserts that it suffered damages worth approximately $326.3 million (about 437.5 billion KRW) due to Broadcom's LTA coercion, including additional costs. Samsung had to cancel some component contracts with other suppliers, bear useless inventory, and purchase unnecessary components for low-end smartphones to meet the minimum purchase requirements.

The KFTC calculated the fine by considering the entire $800 million worth of components Samsung purchased to fulfill the LTA until August 2021 as related sales and applied the maximum penalty rate of 2%. However, since the LTA between Broadcom and Samsung ended early in August 2021 after the KFTC began its investigation, the fine was less than 20 billion KRW.

Moreover, instead of applying the abuse of market dominance charge?which allows fines up to 3% (currently 6%) of related sales?the KFTC applied the abuse of superior bargaining position charge, which limits fines to 2% of total sales. If the KFTC had applied Article 5 of the Monopoly Regulation and Fair Trade Act concerning abuse of market dominance, the fine would have been estimated at around 30 billion KRW.

This case is also compared to the past precedent where the KFTC imposed a fine of 273.2 billion KRW on Qualcomm, a U.S. semiconductor and telecommunications equipment company, for charging higher royalties when domestic mobile phone manufacturers like Samsung used competitors' products while providing mobile communication patent technology. Considering only the related sales Broadcom earned during the long-term contract period with Samsung, the current fine amount is far insufficient.

Samsung Electronics is expected to file a civil damages lawsuit against Broadcom. While the evidence secured by the KFTC this time may be advantageous in the lawsuit, it remains uncertain how much compensation Samsung will receive for the damages incurred. Broadcom is also expected to file an administrative lawsuit seeking to cancel the KFTC's corrective orders and fine imposition, making a legal battle between the two companies inevitable.

Some argue that Samsung Electronics needs to strengthen its fabless (semiconductor design) competitiveness to prevent such incidents in the future.

This content was produced with the assistance of AI translation services.