FTC and Broadcom Settle Semiconductor Monopolization Charges

San Jose, California-based Broadcom Incorporated has been charged with monopolization in markets for three types of semiconductors. In conjunction with the complaint, the Federal Trade Commission (FTC) issued a proposed consent order requiring the chip seller to stop mandating that its customers source components from it on an exclusive or nearly exclusive basis.

In its press release, the FTC explained that semiconductor components or chips sold by Broadcom are utilized in devices that deliver television and broadband internet services. “These chips are the core circuitry that run traditional television broadcast set top boxes, as well as DSL and fiber broadband devices,” the agency said. In addition to its dominance in the three chip markets, the company is also reportedly one of the few major suppliers of five related types of chips.

The main problem with Broadcom’s behavior, the FTC said, was restrictive contract terms it forced its main customers, original equipment manufacturers, or OEMs, to agree to. OEMs sell chips to the nation’s largest broadband and television service providers who, in turn, use them in set top box devices. The filing explained that Broadcom required at least ten OEMs to “purchase, use or bid Broadcom’s chips on an exclusive or near-exclusive basis.”

To secure these agreements, Broadcom reportedly threatened to retaliate against noncooperative customers by withholding needed products, charging higher prices for them, or refusing to support previously purchased products. The FTC also said that Broadcom deterred its clients from switching to competitors. Cumulatively, the FTC contended, the defendant’s behavior prevented its rivals from gaining ground in the relevant product markets and harmed competition therein.

Now, by the parties’ agreement, Broadcom may not “enter into certain types of exclusivity or loyalty agreements with its customers for the supply of key chips for traditional broadcast set top boxes and DSL and fiber broadband internet devices,” among other requirements. The list of prohibited behaviors also includes a ban on customer retaliation.

Though not mentioned in the FTC’s press release, the consent order comes at a time when the world is grappling with a chip shortage. The global supply drought and how to remedy it have recently been the subject of discussion in Congress and among federal agencies like the Federal Communications Commission.

A representative from Broadcom provided the following statement to Law Street:

“We are pleased to move toward resolving this Broadband matter with the FTC on terms that are substantially similar to our previous settlement with the EC involving the same products. While we disagree that our actions violated the law and disagree with the FTC’s characterizations of our business, we look forward to putting this matter behind us and continuing to focus on supporting our customers through an environment of accelerated digital transformation. We are equally pleased that the FTC investigation into our other businesses has been closed without action.”