BEIJING/SEOUL (Reuters) - Chinese antitrust officials have met with their South Korean counterparts to discuss violations by U.S. chipmaker Qualcomm Inc (QCOM.O), sources said, as Beijing reaches out to regulators overseas to complete a case that could result in record fines at home.
Qualcomm is one of at least thirty foreign firms to come under scrutiny as China seeks to enforce a 2008 anti-monopoly law - efforts some critics say have unfairly targeted overseas businesses, raising protectionism concerns.
The Korea Fair Trade Commission (KFTC) fined San Diego-based Qualcomm more than $200 million in 2009 for abusing its dominant market position, but the stakes are bigger in China, where an investigation by the National Development and Reform Commission (NDRC) could trigger changes to Qualcomm's licensing deals and fines of as much as a tenth of a company's annual revenue.
Qualcomm had total revenue of almost $25 billion in the year to Sept. 29, 2013, about half of it in China.
"The Chinese authorities were very interested in how South Korea handled such issues and asked a lot of questions about South Korea's experiences," said a person who was present at meetings in May and June between the KFTC and the NDRC's price supervision and anti-monopoly bureau.
It's unlikely the NDRC could use exactly the same rationale as South Korea against Qualcomm, added the person, who didn't want to be named because of the sensitivity of the case.
"What China takes most exception to is that royalties on intellectual properties are comparatively higher in China. But high price itself shouldn't be an antitrust matter. It's only a problem when there are elements like discriminatory practices," the person said.
Qualcomm has been under investigation by the NDRC, one of China's three antitrust regulators, since November last year over how it licenses its patents and prices its chipsets.
Exchanges between regulators are not uncommon, but some experts say the NDRC has relied on pressure tactics instead of detailed economic analysis to drive its cases. That the NDRC went to the KFTC months after the case was announced, they say, could indicate the bureau is looking for a legal justification for a case it had already launched.
There are concerns that a central aim of the meetings between China and South Korea was to "solicit advice in an economic argument against Qualcomm," a person in the U.S. business community familiar with the case said. "It's putting the cart before the horse. They have reached a conclusion and attempted to get the facts later," the person said.
In a statement about the meeting that took place in South Korea, the KFTC said: "China's NDRC, seeking to advance its regulatory enforcement, requested that the Fair Trade Commission share economic analysis techniques used to deal with actual cases." A KFTC official declined to comment further on the meetings when contacted by Reuters.
The NDRC antitrust bureau, its delegation led by Director General Xu Kunlin, said in statements issued after the meetings that the two sides held "thorough exchanges". The NDRC did not respond to a Reuters request for comment.
None of the statements specifically mentioned Qualcomm.
Xu, an outspoken advocate of expanding the use of China's anti-monopoly law, has publicly stated that his bureau is hamstrung by under-staffing. That, lawyers say, is one likely element behind the bureau's reputation of employing less rigorous analysis in its investigations.
At a conference in May, Xu said that because he had only around 40 staff - compared to hundreds at U.S. and European agencies - he had to rely on tip-offs of violations when pursuing cases. "If you increased my staff by 100 workers, perhaps then I could actively investigate," he said.
"I think everybody would agree they are understaffed – they don't have enough people – and they are very new at this," said Peter Wang, an antitrust expert and Shanghai-based partner for law firm Jones Day. "It's often easy to find theories for possible antitrust problems, but it takes an extensive amount of experience to be in a position to make good decisions about when something is likely to be a real problem and, just as important, when it's not."
Nonetheless, a slew of recent high-profile probes into overseas firms has rekindled concerns that Beijing may be using the investigations to support domestic industry.
The NDRC this week fined Japanese auto parts makers a record 1.235 billion yuan ($201 million) for manipulating prices in China. The agency has also said it would punish Audi (NSUG.DE) and Fiat SpA's FIA.MI Chrysler for monopoly practices, and last year hit foreign milk powder makers with hefty fines.
The U.S. Chamber of Commerce in April sent a private letter to Secretary of State John Kerry and Treasury Secretary Jacob Lew urging Washington to get tough with Beijing on its use of the Anti-Monopoly Law to pursue "China's industrial policy goals".
The issue was raised at high-level strategic talks between Washington and Beijing in July.
The NDRC's Xu told Reuters recently his agency gives equal treatment to all market participants.
Additional reporting by Matthew Miller in Beijing; Editing by Ian Geoghegan