Qualcomm 2014 Annual Report Download - page 80

QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
China National Development and Reform Commission (NDRC) Investigation : In November 2013, the NDRC notified the Company that it
had commenced an investigation of the Company relating to the Chinese Anti-Monopoly Law (AML). The Company understands that the
investigation concerns primarily the Company’s licensing business and certain interactions between the Company’s licensing business and its
chipset business, including how royalties are calculated in the Company’s patent licenses, the value exchanged for cross-licenses to patents of
the Company’s licensees, whether the Company will offer license agreements limited to patents essential to certain standards, whether royalties
are sought for the Company’s expired patents, the Company’s policy of selling chipsets only to the Company’s patent licensees, the alleged
refusal of the Company to grant patent licenses to chipset manufacturers, and certain other terms and conditions in the Company’s 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. The Company continues to cooperate with the NDRC as it conducts its investigation.
Federal Trade Commission (FTC) Investigation : On September 17, 2014, the FTC notified the Company that it is conducting an
investigation of the Company relating to Section 5 of the Federal Trade Commission Act. The Company understands that the investigation
concerns primarily the Company’s licensing business, including potential breach of FRAND commitments. If a violation of Section 5 is found, a
broad range of remedies is potentially available to the FTC, including imposing a fine or requiring modifications to the Company’s licensing
practices. Given that this investigation is in its early stages, it is difficult to predict the outcome of this matter or what remedies, if any, may be
imposed by the FTC. The Company continues to cooperate with the FTC as it conducts its investigation.
The Company will continue to vigorously defend itself in the foregoing matters. However, litigation and investigations are inherently
uncertain. Accordingly, the Company cannot predict the outcome of these matters. The Company has not recorded any accrual at September 28,
2014 for contingent losses associated with these matters based on its belief that, with the exception of the NDRC matter, losses, while possible,
are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. Regarding the NDRC matter, the Company
believes that a loss is probable but that any possible range of loss cannot be reasonably estimated at this time. The unfavorable resolution of one
or more of these matters could have a material adverse effect on the Company’
s business, results of operations, financial condition or cash flows.
The Company is engaged in numerous other legal actions not described above arising in the ordinary course of its business and, while there can
be no assurance, believes that the ultimate outcome of these other legal actions will not have a material adverse effect on its business, results of
operations, financial condition or cash flows.
Loans and Debentures. The Company’
s former BWA subsidiaries (Note 10) had loan and debenture liabilities in connection with the BWA
spectrum won in India in fiscal 2010. The subsidiaries were merged into one remaining former BWA subsidiary in August 2013, and that
subsidiary had a loan from a bank related to payment of $81 million to the India Government’s Department of Telecommunications in March
2012 (the DoT loan), which was recorded by the Company as a charge to other expenses in fiscal 2012. On June 25, 2013, all outstanding
debentures ( $492 million , including accrued interest) were redeemed, and on August 30, 2013, all outstanding loans, excluding the DoT loan,
( $368 million ) were repaid in full using funding provided by Bharti, and the Company’
s related guarantee and indemnification agreements were
terminated. Prior to the deconsolidation of the BWA subsidiaries on June 25, 2013, cash paid for interest on the loans and debentures was $92
million and $88 million for fiscal 2013 and 2012 , respectively.
The DoT loan was guaranteed by QUALCOMM Incorporated and one of its wholly owned subsidiaries and was denominated in Indian
rupees. The fair value of the guarantee was recorded as a liability when the Company deconsolidated the BWA subsidiaries (Note 10). The DoT
loan was repaid in full on October 15, 2013 ( $67 million ) using funding provided by Bharti as a condition to Bharti’s acquisition of all of the
Company’s interest in the remaining former BWA subsidiary, which occurred on October 17, 2013.
Indemnifications. The Company generally does not indemnify its customers and licensees for losses sustained from infringement of third-
party intellectual property rights. However, the Company is contingently liable under certain product sales, services, license and other
agreements to indemnify certain customers against certain types of liability and/or damages arising from qualifying claims of patent, copyright,
trademark or trade secret infringement by products or services sold or provided by the Company. The Company’s obligations under these
agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for
certain payments made by the Company. Through September 28, 2014 , the Company has received a number of claims from its direct and
indirect customers and other third parties for indemnification under such agreements with respect to alleged infringement of third-party
intellectual property rights by its products.
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