Although there is a fierce rivalry between smart phone manufacturers, companies tend to be in better shape with their suppliers. But in the last two years, the relationship between Apple and Qualcomm has been anything but friendly. The two companies have been involved in an intense legal fight that confronts one of the largest smartphone vendors in the world, Apple, against one of the largest designers of processors and modems for smartphones, Qualcomm. The two have sued all over the world, alleging monopolistic practices, patent infringement and even theft.
At the heart of the conflict is a central question: how much is Qualcomm's technology worth? Apple claims that Qualcomm has demanded excessive fees to use its modems and patents, while Qualcomm claims that Apple is using the legal system to try to get a good deal with its technology. It's a critical question for the entire industry: you can not manufacture a modern smartphone without coming into contact with Qualcomm's patents, so the outcome of these lawsuits could have a huge effect on all companies that manufacture phones, as well as in the results of Qualcomm.
In recent months, the battle has intensified. Qualcomm claimed that Apple stole "vast swaths" of its "confidential information and trade secrets," and that it is mocking Apple with small but significant court victories, leading to partial iPhone bans in Germany and China.
Now, the main event has finally arrived. On Monday, Apple and Qualcomm will face off in federal court in San Diego, and Qualcomm will be forced to respond to Apple's allegations that the costs of its patents are unreasonable and its license terms are unfair. If it can not, then Qualcomm runs the risk of losing part of the billions of dollars it currently earns with patent licenses.
In essence, Apple's lawsuit concerns patents, specifically patents that cover the design and functionality of a phone. modem. You can not make a smartphone that does not connect wirelessly to the Internet, which means you can not make a phone not come into contact with these patents, and Qualcomm owns a large number of them.
As Qualcomm sees it, these patents are a product earned with billions of dollars of effort in research and development, and it is reasonable to rely on them to get billions in revenue. When Qualcomm sells its modems, it's not just about selling hardware. It is also selling a license that is linked to that hardware, part of a supposed "no license, no chips" policy. But Apple says Qualcomm has been able to charge more for these patents than it should because the company is also the dominant provider of modems for smartphones. If a manufacturer does not agree with the license fees, Qualcomm also has the power to disconnect them from modems.
Since Apple filed these complaints in its initial filing with Qualcomm, the fight between the two companies has exploded. A global confrontation. Initially, Apple seemed to have the advantage. Regulators around the world, including the US UU., South Korea, Taiwan, the EU and China have tried, with different levels of success, to fine Qualcomm for practices similar to those that Apple has denounced. Qualcomm paid $ 975 million to settle an investigation in China, $ 853 million for violating antitrust laws in South Korea and $ 93 million for an antitrust dispute in Taiwan.
More recently, Qualcomm has cut Apple. The company managed to get judges to agree to ban iPhones in China and Germany, forcing Apple to temporarily remove iPhone 7 and 8 models. UU., A jury recently agreed that Apple violated three of Qualcomm's patents.
However dramatic some of these results may have been, they have all been part of a main demand. That lawsuit, in court on Monday, is what started all this. In January 2017, Apple filed lawsuits in the US. The United Kingdom and China accusing Qualcomm of charging telephone manufacturers "disproportionately high" rates for access to their patents. Apple said Qualcomm "illegally breaks" when it forces companies to license their patents in addition to buying their hardware and alleges that Qualcomm only agrees to reduce its tariffs "in exchange for additional anti-competitive advantages." Apple described it as a "Relentless Extinction Argument"
Qualcomm's overload for its patents is a problem, Apple argues, because you can not make a modern smartphone without them. They are essential to industry-wide standards and, therefore, must have a license in what is known as "FRAND" (abbreviation of "fair, reasonable and non-discriminatory"). Apple says that Qualcomm accepted these terms in the presentations made to the European Telecommunications Standards Institute (ETSI), but that it does not comply with these commitments.
The two companies have discussed these terms for years outside the court, beginning when Apple started using Qualcomm modems in 2011 on the iPhone 4. Starting from that phone, Apple says that Qualcomm agreed to reimburse part of Apple's royalty payments, but only if Apple agreed to exclusively use its modems. Apple said that to reduce its "exorbitant royalty load" it had "no other option" but to make this promise. "Qualcomm used unreasonable terms to get even more unreasonable terms," Apple said in a court filing.
Qualcomm says that these events happened backwards, and that Apple first demanded patent reimbursements. In return, Qualcomm says it requested that Apple use its modems exclusively, in order to guarantee that it would sell enough modems to make the deal worthwhile.
This agreement continued until 2016, when Apple says that Qualcomm finally withheld up to $ 1 billion in payments. This was the catalyst that led Apple to sue Qualcomm in January 2017. According to Apple, Qualcomm did this because it had sincerely testified before the Korea Fair Trade Commission in South Korea about Qualcomm's licensing practices.
In a preliminary ruling, a judge sided with Apple in this part of the dispute, although the agreement between the two companies said Apple could not Attacking Qualcomm in court or with regulators, the judge said that Apple's actions had not given Qualcomm the right to suspend payments, and that it owed Apple up to $ 1 billion in cash, unpaid royalties.  Apple's demand for remittances began the same month the Federal Trade Commission of the United States announced a lawsuit against Qualcomm's patent practices, which was brought to trial in January and is currently pending. of a judge's decision.
Apple has maintained pressure on Qualcomm since the legal skirmish began, and in 2017, Apple instructed vendors such as Foxconn and Compal to retain all of them. payment of royalties to Qualcomm while the dispute continues. Qualcomm responded by suing Apple's suppliers, who then decided to join Apple's fight against the chip maker. Qualcomm has antagonized Apple for telling its suppliers to stop paying, so that it can recover additional damages if it wins this case.
Qualcomm has not taken Apple's aggressions lying down. He has spent the last two years accusing Apple of infringing his patents, filing complaints in the United States, Germany and China with some success. The judges of Germany and China discovered that Apple had infringed some of Qualcomm's patents and responded by prohibiting the sale of certain iPhones, although Reuters notes that China's ban never seems to have been applied seriously. Apple has also played its own hand in the patent fight, claiming that Qualcomm violated patents related to the use of energy.
By discarding patents, Qualcomm hopes to demonstrate that its patent portfolio is as or more valuable than it has been. loading This would not disprove Apple's allegations (that Qualcomm is inappropriately forcing it to accept onerous licenses), but it could encourage the company to resign, if it appears that the legal battle could ultimately increase costs.
At a recent trial in San Diego, Qualcomm successfully argued that Apple was infringing three of its patents in the amount of $ 1.41 per iPhone. That's only a small part of the $ 7.50 that Apple pays in total for iPhone for Qualcomm patents, but if the courts judge that Qualcomm's other patents are equally valuable, then Qualcomm could be encouraged to further raise its prices, passing a considerable bill to Apple.
Qualcomm also responded with claims that Apple stole the company's confidential modem technology and handed it over to its fierce rival Intel. According to Qualcomm, Apple stole "vast swaths of confidential information and trade secrets from Qualcomm" and used it to upgrade Intel's chips. Qualcomm is currently in the process of suing Apple separately on these claims. In a recent court case with the FTC, Qualcomm also argued that Apple's ability to exclusively use Intel chips demonstrates that there is still a lot of competition in the industry.
Apple says that Monday's case is about putting an end to Qualcomm's monopolistic and anti-competitive practices. Apple wants to be able to buy modem chips from whomever it pleases (or even make their own) without having to consider the large royalty payments of patents. The transition from 4G to 5G is a key moment for the mobile industry, and if current trends continue, Qualcomm could end up dominating the industry for the next 10 years.