Qualcomm 2014 Annual Report Download - page 31

to accept a provision under which they agreed not to assert their essential patents against our other licensees who made a similar commitment in
their license agreements with us. The cease and desist order seeks to require us to modify our existing license agreements with Japanese
companies to eliminate these provisions while preserving the license of our patents to those companies. We disagree with the conclusions that
we forced our Japanese licensees to agree to any provision in the parties’ agreements and that those provisions violate the Japanese
Antimonopoly Act. We have invoked our right under Japanese law to an administrative hearing before the JFTC. In February 2010, the Tokyo
High Court granted our motion and issued a stay of the cease and desist order pending the administrative hearing before the JFTC. The JFTC has
held hearings on 24 different dates, with the next hearing scheduled for December 8, 2014.
Securities and Exchange Commission (SEC) Formal Order of Private Investigation and Department of Justice Investigation
: On September
8, 2010, we were notified by the SEC’s Los Angeles Regional office of a formal order of private investigation. We understand that the
investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of our Board of Directors and to the
SEC. In 2010, the audit committee completed an internal review of the allegations with the assistance of independent counsel and independent
forensic accountants. This internal review into the whistleblower’s allegations and related accounting practices did not identify any errors in our
financial statements. On January 27, 2012, we learned that the U.S. Attorney’s Office for the Southern District of California/Department of
Justice (collectively, DOJ) had begun an investigation regarding our compliance with the Foreign Corrupt Practices Act (FCPA). The audit
committee conducted an internal review of our compliance with the FCPA and its related policies and procedures with the assistance of
independent counsel and independent forensic accountants. The audit committee has completed this comprehensive review, made findings
consistent with our findings described below and suggested enhancements to our overall FCPA compliance program. In part as a result of the
audit committee’s review, we have made and continue to make enhancements to our FCPA compliance program, including implementation of
the audit committee’s recommendations.
As previously disclosed, we discovered, and as a part of our cooperation with these investigations informed the SEC and the DOJ of,
instances in which special hiring consideration, gifts or other benefits (collectively, benefits) were provided to several individuals associated
with Chinese state-
owned companies or agencies. Based on the facts currently known, we believe the aggregate monetary value of the benefits in
question to be less than $250,000, excluding employment compensation.
On March 13, 2014, we received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a
preliminary determination to recommend that the SEC file an enforcement action against us for violations of the anti-bribery, books and records
and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese
state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek
remedies that include disgorgement of profits, the retention of an independent compliance monitor to review our FCPA policies and procedures,
an injunction, civil monetary penalties and prejudgment interest.
A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is
to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed
and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On
April 4, 2014 and May 29, 2014, we made Wells submissions to the staff of the Los Angeles Regional Office explaining why we believe we
have not violated the FCPA and therefore enforcement action is not warranted.
We are continuing to cooperate with the SEC and the DOJ, but are unable to predict the outcome of their investigations or any action that
the SEC may decide to file.
China National Development and Reform Commission (NDRC) Investigation : In November 2013, the NDRC notified us that it had
commenced an investigation of us relating to the Chinese Anti-Monopoly Law (AML). We understand that the investigation concerns primarily
our licensing business and certain interactions between our licensing business and our chipset business, including how royalties are calculated in
our patent licenses, the value exchanged for cross-
licenses to patents of our licensees, whether we will offer license agreements limited to patents
essential to certain standards, whether royalties are sought for our expired patents, our policy of selling chipsets only to our patent licensees, the
alleged refusal of us to grant patent licenses to chipset manufacturers, and certain other terms and conditions in our patent license and chipset
sale agreements. A broad range of remedies with respect to business practices deemed to violate the AML is potentially available to the NDRC,
including but not limited to issuing an order to cease conduct deemed illegal, confiscating gains deemed illegally obtained, imposing a fine in the
range of 1% to 10% of the prior year’s revenues and requiring modifications to business practices. Given the limited precedent of enforcement
actions and penalties under the AML, it is difficult to predict the outcome of this matter or what remedies may be imposed by the NDRC. We
continue to cooperate with the NDRC as it conducts its investigation.
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