A South Korean court has upheld a record 1.03 trillion won ($863.4 million) fine against U.S. chip giant Qualcomm Inc. for unfair business practices related to mobile chipset sales and patent licensing. Qualcomm immediately decided to appeal the ruling to the higher court.

The Seoul High Court on Wednesday ruled against Qualcomm and its subsidiary Qualcomm Technologies Inc. and Qualcomm CDMA Technologies Asia-Pacific PTE Ltd. that appealed Korea Fair Trade Commission’s (FTC) decision in 2017 to slap a record fine of 1.03 trillion won for abusing dominant position in the country’s mobile communication market to commit unfair business practices.

Judge Noh Tae-ak said in a ruling that Qualcomm’s discrimination against its modem chipset rivals by rejecting to provide mobile communication standard essential patent licenses to them is “an unlawful act that abuses market dominant position.” The court also confirmed that it is illegitimate for Qualcomm to sign a modem chipset patent license contract with smartphone makers while simultaneously signing a contract to supply the chipsets.

The court, however, dismissed the regulator’s claims that it is against the law to sign “comprehensive” licensing deals with smartphone makers that have enabled the company to receive a certain percentage of the phone price as a license fee. Still, the court upheld the massive fine against the American chip giant.

In response to the latest court ruling, Qualcomm immediately announced its decision to appeal to the Korea Supreme Court saying that it disagreed with the court’s decision to side with parts of the FTC’s order.

The Korean antitrust regulator in late 2016 slapped its largest-ever fine of 1.03 trillion won on Qualcomm companies and issued 10 administrative corrective orders for unfair business practices. In opposition to the decision, Qualcomm appealed the FTC’s measures and the amount of the fine to the Seoul High Court in early 2017. Other chip set manufacturers including Intel Corp., Samsung Electronics Co., LG Electronics Inc., and Huawei Technologies Co. assisted FTC in the lawsuit.

The latest court decision would be a setback to the U.S. semiconductor and telecommunications equipment giant as it could affect the company’s renegotiations on licensing fees with smartphone manufacturers across the world.

According to multiple industry sources on Wednesday, Samsung Electronics and LG Electronics have so far paid whopping fees to Qualcomm for particularly premium smartphones with high price tags. Qualcomm received fixed patent licensing fees based on the price of finished smartphone devices.

Less burden on licensing fees as to handset prices would allow lower production costs of Samsung Electronics and LG Electronics smartphones, which could eventually lower the end price on consumers.

By Lee Dong-in, Jung Hee-young, and Lee Eun-joo

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