Apple-Qualcomm fight expands as Taiwanese contractors join antitrust fray

21 July 2017 10:02am
Gold iPhone

19 July 2017. By Joshua Sisco.

A long-simmering patent and antitrust dispute between Apple and Qualcomm broadened this week with increasingly hostile language and even more litigation around the world.

In the latest development, Foxconn, Pegatron, Wistron, and Compal — Apple's contract manufacturers responsible for assembling the iPhone and iPad — accused Qualcomm of using anticompetitive licensing practices to control the market for its chips.

Apple fired the opening shot, suing Qualcomm in January. Since then Qualcomm has countersued, filed a lawsuit against Apple's Taiwanese contractors and sought to block iPhone imports into the US.

Within days of suing Qualcomm in the US, Apple brought cases in the UK, Taiwan, Japan and China. On Wednesday, Qualcomm expanded the fight, suing Apple for patent infringement in Germany.

Apple alleges Qualcomm has abused its monopoly in the baseband processors that power the iPhone and the iPad by refusing to honor its promise to license its patents essential to industry standards on those chips at fair, reasonable and non-discriminatory, or Frand, rates.

Both Apple and its contractors allege that Qualcomm employs a "no license, no chips" policy, withholding its processors unless a customer agrees to licensing terms favorable to Qualcomm.

Furthermore, Apple says Qualcomm is withholding billions of dollars in rebates because of its cooperation against the chipmaker with antitrust authorities in jurisdictions around the world.

Qualcomm counters that Apple is merely engaging in an expensive and protracted fight just to avoid paying a fair price for its technology. Without Qualcomm's processing capabilities, none of the iPhone's most popular features would work, the company says.

In April, Apple said it would withhold patent royalties pending the outcome in court, a strategy Qualcomm has described as "commercial ransom."

The litigation has grown out of years of contentious business dealings between the two companies and also stems from antitrust investigations into Qualcomm's licensing practices around the world, including by the US Federal Trade Commission, the Korea Fair Trade Commission and the European Commission. Apple provided evidence in several probes, and the iPhone maker claims that as retribution, Qualcomm has withheld about $1 billion.

The stakes are incredibly high for both companies. While the bulk of Qualcomm's revenues come from the sale of chips, the bulk of its profits come from royalties on its intellectual property, much of which is standard essential patents. It has committed to license those on Frand terms, and the lawsuits will determine just what those rates are.

Apple doesn't have a direct license for Qualcomm's patents, instead relying on the agreements Qualcomm has with the companies making its products. Apple reimburses the contractors for their royalty payments.

When Apple said it would stop paying royalties to Qualcomm, it stopped making payments to its contractors, who in turn cut off payments to Qualcomm.

Foxconn and the others manufacturers filed their own antitrust allegations on Tuesday. Apple has sought to join in that suit and asked US District Judge Gonzalo Curiel to consolidate it with the earlier litigation between itself and Qualcomm. Curiel is also overseeing that case.

The contractors are "joining a growing chorus of lawsuits and regulatory proceedings brought by the U.S. Federal Trade Commission, consumers, Apple, and competition authorities around the world, challenging this illegal – and anticompetitive -- Qualcomm business model," Ted Boutrous, an attorney for the contractors said in a statement.

On Aug. 15, Curiel will hold the first hearing in all of the cases, where he will be asked to force the contractors — who are indemnified by Apple — to continue making royalty payments until the litigation is resolved.

Apple's involvement in the contractor case proves that Apple is interfering with Qualcomm's licensing agreements, Qualcomm President Derek Aberle said on the company's earnings call Wednesday. "It is clear that Apple is controlling all of the contract manufacturers statements and actions in the litigation. If Apple hadn't interfered with the licenses and instructed the contract manufacturers to take these actions, the contract manufacturers would not be contesting the licenses now."

An Apple spokesperson reiterated the company's comment from June. "We believe deeply in the value of intellectual property but we shouldn't have to pay them for technology breakthroughs they have nothing to do with. We've always been willing to pay a fair rate for standard technology used in our products and since they've refused to negotiate reasonable terms we're asking the courts for help."

Meanwhile, as the legal mudslinging escalates, the chief executives of the two companies seem to at least acknowledge an untenable situation. Apple leader Tim Cook has said he views litigation as a "last resort" and would much prefer a different solution.

According to press reports, at a conference in Aspen, Colorado, on Monday, Qualcomm CEO Steve Mollenkopf said these disputes "tend to get to resolved out of court and there's no reason why I wouldn't expect that to be the case here."

On the company's earnings call, Mollenkopf said Qualcomm believes it has the "high ground" with Apple, but will "continue to work to reach resolutions as we have done in the past" in disputes with other companies.

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