Apple and Global Fight Qualcomm go to court in San Diego

SAN FRANCISCO – Bad legal battles are not new in the tech sector. But the conflict between Apple and wireless chip maker Qualcomm, which is preparing for a crucial confrontation in court next week, is particularly intense.

The two companies, formerly partners, are no longer in agreement with each other, including the one that deserves the most credit for the evolution of smartphones.

Their formidable legal teams are at war on three continents, in a fight that could affect the distribution of billions of dollars in profits from smartphones and even perhaps the price consumers pay for their phones.

The action is now taking place in a federal courtroom in San Diego, where jury selection is to begin Monday for a lawsuit over Apple's lawsuit and Qualcomm's counterclaims. The directors general of both companies are likely to take the floor.

The issues are reflected in the claims of damage that are obvious. Four Asian-based contract manufacturers who assemble iPhones and iPads, whose combinations have been merged with Apple's, claim to have collectively overpaid to Qualcomm about $ 9 billion in royalties over the years, a figure that could be tripled under antitrust laws up to 27 billion.

According to Apple, Qualcomm is also expected to repay $ 3.1 billion of patents whose rights, according to Apple, are exhausted. He has already been successful in a preliminary ruling that Qualcomm should pay almost $ 1 billion in rebates.

In return, Qualcomm estimates that Apple's partners – Foxconn, Pegatron, Wistron and Compal Electronics – owe more than $ 7.5 billion in unpaid royalties. And he says that Apple, which repays the royalties paid by manufacturers, should be subject to a doubled penalty that would bring the total to $ 15 billion or more.

Qualcomm's business practices have also attracted the attention of regulators in many countries, including China and South Korea. A high-level legal action before the Federal Trade Commission is awaiting a judge's verdict after a trial in San Jose, California.

The global legal battle between Apple and Qualcomm touches on two crucial issues for the technology sector: what is the right balance between patent rights and competition? And what is the role of government in regulating technology giants?

"It's more than just a legal case," said Michael Wolf, who outlined the issues for his Activate management consulting firm.

The struggle is existential for Qualcomm, at least for nearly 34 years of operation. The company, based in San Diego, has developed a type of cellular communication in the 90s that then became the mainstay of mobile devices. This innovation has enabled Qualcomm to collect patent royalties on almost all smartphones sold, which generates the bulk of its profits.

Qualcomm has always charged about 5% of the wholesale price of a mobile phone. Due to Qualcomm's various patents, companies that build phones that would connect to cellular networks must pay these fees for each phone, even if the phone does not actually use Qualcomm chips.

Phone manufacturers have little effect in negotiating lower rates, the F.T.C. pleaded in his complaint, filed in January 2017, which relies in part on Apple's claims.

Because Qualcomm holds monopoly positions on two types of wireless chips, the F.T.C. stated that handset manufacturers feared that Qualcomm could cut shipments if it was reluctant to pay royalties. Qualcomm insists that he has never used this tactic. Rival chip manufacturers, to whom Qualcomm's patent licenses were denied, fled the market as suppliers like Intel struggled, the F.T.C. I said.

Apple, which filed a lawsuit against Qualcomm shortly after the action of F.T.C, opposes in particular that the royalties are based on the total price of the phone. With this formula, Qualcomm earns more money because handset manufacturers add innovations such as screens, touch sensors and data storage, unrelated to wireless technology.

Qualcomm insists that its business model has benefited consumers by helping fund new innovations such as the latest 5G wireless technology. He responded with counter-claims that Apple and its manufacturing partners had breached the license agreements. Qualcomm has added a series of other lawsuits, including patent infringement suits against Apple in the United States, China and Germany.

Until now, Qualcomm has persuaded the courts of some countries, including China, to ban the sale of certain iPhones in this country, although Apple has avoided, in part, a lack of privacy. avoid transportation interruptions. tweaking some of its software.

The fight has also migrated to Washington. A little over a year ago, Qualcom had escaped Broadcom 's hostile takeover bid after the Trump administration blocked the deal for reasons of national security. Qualcomm raised the possibility that any court-ordered change in its practices would pose a threat to investments in wireless technology essential for the US military and intelligence gathering. The chip maker also hired opposition research firm Definers Public Affairs, which leaked anti-Apple research to the press.

Many Qualcomm customers, partners and rivals are involved in the trial that starts on Monday. Tim Cook, general manager of Apple; Philip Schiller, senior vice president of global marketing for the company; Qualcomm's general manager Steven Mollenkopf and co-founder Irwin Jacobs could all be called to testify.

One of the most difficult issues is whether Qualcomm's royalty rates have hurt consumers by raising smartphone prices. F.T.C. argues that they do, although this has not quantified the impact. The awards are also at the heart of a separate private action brought against Qualcomm on behalf of smartphone buyers, claiming $ 5 billion in global damages.

Qualcomm insists that its fees have a negligible impact on the mobile market, as competition significantly reduces the prices of many phones and new features have simultaneously pushed the flagship models above $ 1,000. He is appealing a judge's decision to grant class action status in a consumer matter.

"It's a lot easier to show the damage in a shrinking market," said David Reichenberg, Cozen O & # 39; Connor's antitrust attorney, specializing in technology affairs. "It's not easy here."

The 11-day trial in January at the F.T.C. case presented the testimony of several Apple executives and many internal emails companies.

Apple, which avoided the Qualcomm chips for the first iPhones, planned in 2006 to pay between $ 12 and $ 20 per handset, said Jeff Williams, director of operations at Apple, at the trial. He ended up accepting a Qualcomm discount that would reduce the price to $ 7.50 per device, provided that Apple agrees not to adopt a competing wireless technology, called WiMax, offered by Intel, he said. declared.

Apple began using Qualcomm chips for the iPhone from 2011 after tense negotiations, Williams said. Apple managed to retain the $ 7.50 royalty rate under the agreements reached in 2011 and 2013, but the smartphone maker was facing hefty financial penalties when it began to use other chip suppliers.

"We envisioned an increase in licenses of more than $ 1 billion a year," Williams said under the 2013 agreement. "We had a gun in our heads."

Another Apple executive, Tony Blevins, said he had begun seriously looking for alternative providers in 2013. But Intel failed to gain a share of Apple chip purchases before 2016.

After the start of legal hostilities with Qualcomm the following year, Apple stopped paying patent royalties and Qualcomm stopped supplying chips for Apple's latest iPhones, forcing Apple to ask Intel for an increase surprise of his production, said Mr. Williams.

Qualcomm emphasized that its royalty rates, discounts, and exclusivity provisions were standard practices in the industry and had no effect on the limitation of competition.

Companies like Nvidia, Texas Instruments, Broadcom and Marvell have stopped selling wireless modem chips. Qualcomm noted, however, that Intel and MediaTek are important suppliers to phone manufacturers, while Samsung and Huawei provide chips for their own phones.

"The F.T.C. at the closing of the trial at trial, Robert Van Nest, senior trial attorney of Qualcomm, said. "The evidence is simply overwhelming that Qualcomm has earned its position and success through superior innovation and better products."

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