"China's restructuring needs technical innovation, but innovation is not relying on policies or financial allocation," Xu said. "Fundamentally, it needs an environment of fair competition, so anti-monopoly law enforcement is very important for China, and it will definitely strengthen in the future."

Rectification plan

Qualcomm's press release confirmed that the company will implement a rectification plan.

"Qualcomm has agreed to implement a rectification plan that modifies certain of its business practices in China and that fully satisfies the requirements of the NDRC's order," said the company's press release. "Although Qualcomm is disappointed with the results of the investigation, it is pleased that the NDRC has reviewed and approved the company's rectification plan."

According to Qualcomm, it will offer licenses to its current 3G and 4G essential Chinese patents separately from licenses to its other patents, and it will provide patent lists during the negotiation process. If Qualcomm seeks a cross license from a Chinese licensee as part of such an offer, it will negotiate with the licensee in good faith and provide fair consideration for such rights.

For licenses of Qualcomm's 3G and 4G essential Chinese patents for branded devices sold for use in China, Qualcomm will charge royalties of 5 percent for 3G devices (including multimode 3G and 4G devices) and 3.5 percent for 4G devices (including three-mode LTE-TDD devices) that do not implement CDMA or WCDMA, in each case using a royalty base of 65 percent of the net selling price of the device.

Qualcomm will give its existing licensees an opportunity to elect to take the new terms for sales of branded devices for use in China as of January 1, 2015.

Qualcomm will not condition the sale of baseband chips on the chip customer signing a license agreement with terms that the NDRC found to be unreasonable or on the chip customer not challenging unreasonable terms in Qualcomm's license agreement.

Problems remaining

The NDRC's decision doesn't change Qualcomm's profit model, which collects royalties based on the prices of whole devices, instead of certain components of smartphones.

Wang Xiaoye, a research fellow at the Institute of Law of the Chinese Academy of Social Sciences, said that Qualcomm's calculation of royalties based on the price of whole devices instead of single chips is unfair and unreasonable, charging on the components that are not related to Qualcomm's patents.

"Qualcomm's standard-essential patents for cellular communications can only realize communications function via baseband chips, while baseband chips are only part of cell phones. With the development of smartphones, the communications function is less important," said Huang Wei, a partner of Beijing Tianyuan Law Firm. "Calculating royalties based on the selling prices of whole devices cannot reflect the true value of Qualcomm's patents, and consumers will have to suffer unreasonably high prices."

He said that, for similar cases in foreign countries, the courts are increasingly inclined to calculate royalties by considering the percentage of a patent in whole devices.

Meanwhile, the NDRC's penalty didn't involve confiscating the illegal gains.

According to Article 47 of China's Anti-Monopoly Law, where the business operators abuse their dominant market position in violation of this law, the anti-monopoly law enforcement agency shall order them to stop such violations, confiscate the illegal gains and impose a fine of 1 percent up to 10 percent of the total sales volume made in the previous year.

"In fact, the penalty of confiscating illegal gains has been seldom implemented since China's anti-monopoly law came into effect," said Sheng Jiemin, head of the Institute of Economic Law at the Peking University. "That is because it will be very complicated to determine the amount of illegal gains. Technical difficulties include how to determine the starting time of illegal gains, how to determine what gains are illegal among the total sales revenue and profits, and whether costs should be deducted from illegal gains."

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