Broadcom Settles with FTC in Antitrust Case Over Chips for TV Set-Top Boxes and Broadband Modems
Back in June 2021, the Federal Trade Commission (“FTC”) issued a complaint against Broadcom Incorporated (“Broadcom”) over possible violation of antitrust laws.[1] The FTC accused Broadcom of abusing its dominance in the market for semiconductor components used in television set-top boxes and broadband modems.[2]
Broadcom has long been the dominant supplier of Systems-on-a-Chip (“SoCs”) used in devices that deliver television and broadband internet services.[3] These integrated circuits serve as the core component within traditional broadcast set-top boxes, digital subscriber line (“DSL”), broadband devices, and fiber broadband devices.[4] Broadcom is also one of the few significant suppliers of other related types of chips that convert incoming analog signals to digital signals or enable a device to connect to a wireless network.[5]
The FTC alleged Broadcom maintained its dominance by entering into long-term contracts that require customers, including original equipment manufacturers (“OEMs”) and service providers, to source these chips from Broadcom on an exclusive or near-exclusive basis.[6] The FTC also alleged Broadcom secured favorable contract terms and threatened to punish “disloyal” customers by withholding supplies, charging higher prices, or refusing support.[7]
According to the FTC’s complaint, these unfair practices began as early as 2016, when Broadcom faced competitive threats from “low-priced, nascent rivals.”[8] Another factor threatening Broadcom’s monopoly positions was the decline of demand for traditional broadcast set-top boxes.[9] The FTC alleged Broadcom recognized that customers began to access television and other video content via a “streaming” internet service where its chips were not dominant.[10]
On July 2, 2021, Broadcom agreed to settle the case with the FTC.[11] Broadcom said it disagreed with the FTC’s allegations, but it looked forward to putting this dispute behind and continued focus on supporting its customers.[12]
The consent agreement contains a proposed order that addresses allegations in the complaint and has been published in the Federal Register in order to receive comments from interested parties.[13] The FTC finalized the order on November 4, 2021.[14]
Under the final order, Broadcom is prohibited from engaging in the following practices: (1) entering into agreements that requires a customer to purchase more than 50 percent of its requirements for a given product from Broadcom, (2) conditioning the sale of a given product on a customer’s committing to purchase more than 50 percent of its requirement for other related products from Broadcom, and (3) retaliating against a customer that purchases products from competitors.[15]
Broadcom reached a settlement over similar allegations with the European Commission (“EC”) last year.[16] In June 2019, the EC opened a formal antitrust investigation into the alleged unfair practices by Broadcom for the same chips used in set-top boxes and broadband devices.[17] The EC also issued an interim order requesting Broadcom to stop using anticompetitive provisions in its agreements with customers.[18]
In October 2020, the EC accepted Broadcom’s settlement.[19] Broadcom committed to suspending all existing contracts that contain exclusivity or quasi-exclusivity agreements for the given chips, and will not enter into new agreements with similar terms.[20]
Antitrust authorities in the U.S. and other countries have been focusing on monopolists in high-technology industries, including the semiconductor sector. Following EC’s ambitious approach to antitrust enforcement, the new FTC Chair Lina Khan also signaled that the FTC would take on a much more proactive role.[21] Antitrust investigations can last for years and actually change how companies do business. Therefore, it is suggested that companies in the industries not underestimate the risk and take it into consideration in the early stage of transaction negotiation.
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