Thursday, January 26, 2017

Apple Sues Qualcomm

Apple (PDF):

Qualcomm was one among many companies that contributed to the development of standards related to how cellular phones connect to voice and data networks. As a contributor, Qualcomm is entitled to a fair royalty based on the value of its particular contribution. Qualcomm is not entitled to collect royalties based on the contribution of others to the standard, or unrelated innovation by companies that utilize the standard—but this is precisely the business model that Qualcomm has established and that it protects through monopoly power and unlawful licenses. In order to purchase Qualcomm chips or obtain access to patents pledged to a cellular standard, Qualcomm demands that third parties pay Qualcomm a royalty much greater than the value of Qualcomm’s contribution to the standard— a value based on the entire price of the innovative products that only incidentally incorporate the standard.


Apple, which has been overcharged billions of dollars on Qualcomm’s illegal scheme, brings this action to recover its damages, enjoin Qualcomm from further violations of the law, and request declaratory relief. Among Apple’s damages are nearly $1 billion that Qualcomm owes to Apple under an agreement between the two companies. Qualcomm claims that Apple has forfeited those amounts by responding to requests in the course of an investigation by the Korea Fair Trade Commission (“KFTC”), which recently levied the largest fine in its history against Qualcomm. Qualcomm has withheld the required contractual payments from Apple even though the agreement clearly permits Apple to respond to the KFTC’s lawful investigation and requests for information. If that were not enough, Qualcomm then attempted to extort Apple into changing its responses and providing false information to the KFTC in exchange for Qualcomm’s release of those payments to Apple. Apple refused.


“While we are still in the process of reviewing the complaint in detail, it is quite clear that Apple’s claims are baseless. Apple has intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed and shared with all mobile device makers through our licensing program. Apple has been actively encouraging regulatory attacks on Qualcomm’s business in various jurisdictions around the world, as reflected in the recent KFTC decision and FTC complaint, by misrepresenting facts and withholding information. We welcome the opportunity to have these meritless claims heard in court where we will be entitled to full discovery of Apple’s practices and a robust examination of the merits,” said Don Rosenberg, executive vice president and general counsel, Qualcomm Incorporated.

There are some good comments on Hacker News.

Update (2019-01-15): Juli Clover:

Williams also detailed many of Apple’s past interactions with Qualcomm. In 2011, when Apple negotiated a contract to use Qualcomm as a supplier for modems instead of Infineon because of Apple’s need for CDMA-compatible chips, Qualcomm demanded a percentage of the iPhone’s cost.

The two companies ultimately negotiated a rebate that brought the total royalty fee down to $7.50 per iPhone, though Apple had wanted to pay $1.50 per phone, equivalent to 5 percent of the value of the baseband chip, which was $30. Under the terms of that deal, though, Apple had to agree to a “marketing incentives agreement” to speak out against the WiMax standard that was popular at that time.

Update (2019-01-23): Juli Clover:

Apple has been ordered to stop using a part of a recent press release that claimed the iPhone 7 and iPhone 8 would still be available in Germany through carriers and resellers, reports Bloomberg.

Apple released the statement following a preliminary injunction in December that prevented the company from selling older iPhones in Germany. Apple at the time said that while it would stop selling the devices at its own retail stores, they would remain available via other means.

Juli Clover:

Williams wanted to continue to work with Qualcomm despite the legal battle, but Qualcomm accused Apple of leaking Qualcomm computer code needed to customize mobile chips. Williams offered to “firewall” the Apple engineers using the Qualcomm software and said nothing of value could be obtained from the code anyway.


Qualcomm in September 2018 accused Apple of stealing confidential information and trade secrets and passing it on to rival chipmaker Intel.

Update (2019-01-29): Rob Enderle:

In reading through the testimony, it appears clear that even the basis of this case is in question. It is presented as a pricing dispute over a $7.50 licensing charge Qualcomm levies on iPhones, which they argue should be closer to $6 (most pay $13 and get less service, by the way). This disputed amount is about .15 percent of the cost of a $1,000 iPhone. Even if Apple passed the saving through to consumers, which it likely would never do, given its focus on increasing margins, this would save you $1.50 on your next iPhone purchase. The seeming misdirection is that while this would result in billions to Apple, it likely should be paying a premium over the $13 other firms pay because it requires a massive amount of special services also identified in the trial. So, ironically, Qualcomm shouldn’t have given the firm a discount and likely wouldn’t be in this position if it hadn’t. (Typically, Qualcomm licenses the manufacturers of the phones, not the brand owner, but made a regrettable exception for Apple.)

What became clear in testimony this week was that Apple just wants Qualcomm’s IP, but doesn’t want to pay for it. An Apple executive witness testified that Qualcomm refused to sell Apple modems to support the FTC contention that Qualcomm punitively punished firms that didn’t license its technology. While true, this was an interesting deception that avoided the nuance. What happened was that Apple wanted access to source code as part of the deal, but since it had been allegedly providing this source code to Intel to help it catch Qualcomm, Qualcomm demurred and provided three choices.

Apple could get the modems without the source code (since Qualcomm does much of the integration work, Apple doesn’t really need it); it could get the last generation of Qualcomm modems, which it had the source code for and had been crippling to cover up the fact that the Intel modems weren’t competitive; or it could get the new modems and the source code if Apple committed to using them for at least 50 percent of its phones. On this last, Qualcomm wanted to make sure it didn’t provide Intel the source code through Apple and then not actually sell any of its own modems.

Update (2019-03-21): Juli Clover:

Apple and Qualcomm this week wrapped up a patent trial where Apple was accused of infringing on three of Qualcomm’s patents, and the verdict from the jury is in -- Apple violated Qualcomm’s patents in its iPhones.

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