A court upheld the Korea Fair Trade Commission's imposition of a penalty surcharge of about 19.1 billion won on Broadcom for effectively forcing Samsung Electronics into a long-term parts purchase contract.
The Seoul High Court's Administrative Division 6-1 (High Court Judges Kim Min-gi, Choi Hang-seok and Park Young-ju) on the 13th ruled against the plaintiffs in a suit filed by four Broadcom entities, including its U.S. headquarters and Korea branch, seeking to overturn the corrective order and the order to pay a penalty surcharge issued by the Korea Fair Trade Commission (FTC).
Broadcom is a global semiconductor corporations with a high market share in high-performance wireless communication parts used in smartphones and tablet PCs. The Korea Fair Trade Commission (FTC) determined that Broadcom used its superior position in its transaction relationship with Samsung Electronics to pressure the signing of a long-term contract.
The contract at issue is a three-year long-term contract Broadcom signed with Samsung Electronics in March 2020. Under the deal, Samsung Electronics had to purchase at least $760 million worth of parts each year for three years starting in 2021. If actual purchases fell short, the shortfall had to be compensated to Broadcom.
According to the Korea Fair Trade Commission (FTC)'s investigation, starting in 2018 Broadcom sought to bind its transaction with Samsung Electronics for an extended period as competition with rivals was expected for certain parts. Beginning in Feb. 2020, it pressured Samsung Electronics by indicating it could suspend approval of parts purchase orders and demanded a long-term contract.
Samsung Electronics expressed reluctance to sign the contract, citing opportunity costs and financial losses, but Broadcom, ahead of the long-term contract talks, was found to have given notice of a suspension of transactions and refused to accept purchase orders. Concerned about disruptions to smartphone production, Samsung Electronics ultimately signed the contract with Broadcom.
Afterward, to meet the contractual purchase targets, Samsung Electronics even switched parts it had initially planned to adopt from a rival to Broadcom products. For the Galaxy S21 released in 2021, it had intended to use a competitor's parts but withdrew that plan and used Broadcom parts instead, was found.
The Korea Fair Trade Commission (FTC) found that the long-term contract restricted Samsung Electronics' choice of parts and deprived Broadcom's competitors of opportunities to compete on price and performance. Concluding that Broadcom's conduct constituted an abuse of superior bargaining position in the transaction, it issued a corrective order and imposed a penalty surcharge of 19.1 billion won.
Broadcom filed suit challenging the Korea Fair Trade Commission (FTC)'s action, but the court found the commission's determination was not unlawful.