Apple and Qualcomm embark on latest legal battle, with billions at stake



Regarding Apple vs. Qualcomm, the January test of the Federal Trade Commission was just a dress rehearsal. It's time to go to the real show.

The two tech giants meet Monday in an audience hall in San Diego to launch a $ 27 billion five-week trial, which will determine whether Qualcomm operates a smartphone modem chip monopoly and imposes excessive licensing fees. Apple has accused Qualcomm of anti-competitive practices that have had the effect of increasing token prices, limiting competition and harming customer choice.

Apple, which initially filed a lawsuit against Qualcomm in January 2017, claims to have essentially paid Qualcomm twice, first by buying processors and then paying royalties. The tech giant says that he should pay fees based solely on the cost of the wireless chip inside his iPhones. Apple's partners, Foxconn and Pegatron, who assemble its devices, accept and join the trial. Qualcomm retorts that it is not a monopoly and claims that its technology is more than modems. It should therefore be compensated based on the selling price of the phone itself.

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Apple and Qualcomm battle – with billions at stake


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The parties can not hear, so it is up to a court to decide. The jury trial will be discussed before Judge Gonzalo P. Curiel of the Southern District of California in San Diego, Judge at the US District Court. The issue could affect the wireless networks to which your phone is connected.

The trial will start on Monday with the selection of the jury. On Tuesday, both parties presented their arguments and Apple called its first witnesses. The list could even include Apple's chief executive, Tim Cook, who is expected to appear during the first week. Jeff Williams, chief operating officer of Apple, is another great witness. its marketing manager, Phil Schiller; Qualcomm General Manager Steve Mollenkopf; and the president of Qualcomm, Cristiano Amon. After the first week, the hearings will take place from Monday to Wednesday, and final arguments and jury deliberations are expected for the week of May 13.

Tens of billions of dollars are at stake in this case. Apple's manufacturing partners want a $ 9 billion refund for alleged royalty overpayments since 2013. Under antitrust law, this amount could be tripled. Qualcomm itself claims damages for breach of contract, without specifying the amount. An even greater concern for Qualcomm: if it will have to change its entire business model, by charging much lower fees based on the price of its chips, and not on the phones in which they are installed

For consumers, this ongoing battle could result in iPhone connectivity speeds that are second to none with Android devices. Apple's current provider of modems, Intel, does not have a ready 5G chip yet. Qualcomm is the only option for handset manufacturers who want to run the ultra-fast wireless network this year. We may not see an iPhone 5G before 2020 or even 2021. And if Qualcomm and Apple can not solve their problems, it's unlikely that Apple will have any new Qualcomm modems in its iPhone.

Apple referred CNET to the comments it made when filing its original complaint. "Qualcomm's illegal business practices hurt Apple and the entire industry, providing us with a unique connectivity component, but we've been asking for a percentage of the total cost of our products for years, which is actually hurting to Apple's innovation, "commented the comments. "We believe deeply in the value of intellectual property, but we should not pay for the technological advances to which they have nothing to do."

Foxconn declined to comment. In a statement, the company and other contract manufacturers said their "antitrust claims against Apple Qualcomm constitute an attempt to end Qualcomm's unfair and monopolistic practices."

Qualcomm reiterated a statement made by CEO Mollenkopf during the company's earnings report in January: "We are one of the leading architects in the wireless ecosystem, and our major investments in R & D have positioned the company at the forefront of 2G, 3G, 4G and now 5G technologies, "he said. "We have one of the largest patent portfolios in the industry, with more than 130,000 pending patents and patent applications worldwide. [intellectual property] and to ensure that we are properly remunerated for our inventions and investments. "

Battle of the frenemies

Apple has long been manufacturing the processors that make up the brain of its iPhones, but the company has relied on the modems of Qualcomm to connect its devices to networks of cells. From the iPhone 4S in 2011 to the iPhone X in 2017, Qualcomm was the only 4G chip provider allowing Apple devices to access Verizon, AT & T and other services wireless.

The close relationship has collapsed. Apple began buying modems from Intel, starting with the iPhone 7 in 2016. This fueled a nascent disagreement over license fees. The recent iPhone XS, XS Max and XR only contain Intel modems.

Qualcomm is the world's leading supplier of mobile chips and has created an essential technology for connecting phones to cellular networks. The company derives a significant portion of its revenues from licensing these inventions to more than 300 device manufacturers, mainly handset manufacturers. Some patent owners license their intellectual property on an individual basis; Qualcomm licenses all of its patents as a group. For a fixed price, a device manufacturer uses all of Qualcomm's technologies.

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Apple's chief operating officer, Jeff Williams, testified at the FTC trial against Qualcomm. In the Apple case against Qualcomm, he will take the floor again.

Vicki Behringer

Qualcomm holds patents for 3G, 4G and 5G phones, as well as other features such as software, any handset manufacturer who builds a device that connects to a network must pay a license fee, even if it is It does not use Qualcomm. chips. The company will not license its patents to competing chip makers, which has raised concerns from the United States and other governments. Qualcomm claims that chip makers do not need licenses because handset manufacturers already cover the costs of using its technology.

Apple licenses Qualcomm's technology through its manufacturers, such as Foxconn, rather than buying its own license. At the January trial, Apple had said it had attempted for five years to negotiate a direct license with Qualcomm, but that the proposed terms, such as cross-licensing Apple's technology, would not be the same. were not fair. Contract manufacturers pay Qualcomm billions of royalties each year, an amount Apple will pay back. As long as Apple does not fight Qualcomm in court or assist regulatory authorities, Qualcomm will grant Qualcomm discounts on license fees.

Qualcomm calculates its royalties on the value of the phone and not on its components. Apple, the FTC and other regulators have challenged this practice. Apple claims that Qualcomm should not be paid for the value created by Apple with its iPhone brand.

Qualcomm also caps the sales price of the phone, the basis of its license fee, to $ 400, even if a device was sold three times more expensive. The chip maker says that means it does not bill contributions made by Apple, such as adding flash storage. Apple's ultra-premium iPhone XS Max costs between $ 1,099 and $ 1,449, depending on how much storage it has. But with the cap of Qualcomm, Apple would pay a royalty rate equivalent to that of a $ 400 phone.

Qualcomm earns $ 7.50 per iPhone, Apple announced in January. Apple claims to pay only $ 1.50 per device, or 5% of the cost of each $ 30 modem used in an iPhone.

Battle history

In its lawsuit two years ago, Apple asked the court to reduce the amount it paid to Qualcomm in license fees. Apple also said that Qualcomm had tried to punish him for cooperating with a South Korean investigation into the chip maker's licensing practices by suspending a $ 1 billion rebate.

In March, Judge Curiel ruled that Apple could retain the billions of dollars in rebates granted by Qualcomm under a contract made in 2013. And Qualcomm is still looking for a rebate about one billion dollars. The chip maker had stopped paying in 2016, saying Apple had broken its contract by helping governments like Korea investigate Qualcomm. Curiel's decision is final only after the trial.

Judge Lucy Koh, who oversaw the FTC's January battle, also announced that Qualcomm was to license its wireless chip to competitors.

Qualcomm says that no modern phone, including the iPhone, would have been possible "without relying on Qualcomm's fundamental cellular technologies." In its response to Apple's filing, the company filed certain counterclaims, including breach of contract and unfair competition.

In May 2017, Qualcomm filed a lawsuit against Apple's iPhone makers, alleging breach of contract. The lawsuit comes less than a month after Apple and its manufacturers stopped paying patent royalties for Qualcomm technology. In October 2018, Qualcomm declared that Apple and its partners owed him $ 7 billion in royalties.

In July 2017, Apple's subcontractors also sued Qualcomm, alleging that it had used its market position to charge excessive royalties. The four companies are Foxconn's parent company, Hon Hai Precision Industry, Wistron, Compal Electronics and Pegatron.

The US Federal Trade Commission sided with Apple and filed an antitrust lawsuit two years ago, accusing Qualcomm of having a monopoly, demanding exclusive agreements and imposing excessive license fees for its technology. The two men met at a court in San Jose, California, in January. The judge in charge of the case has not yet delivered his verdict.

Monopoly battle, take two

The next trial will in many ways reflect the antitrust case of the FTC against Qualcomm. Apple will argue that Qualcomm's "no license, no chip" policy forces handset manufacturers to sign abusive licenses. According to the lawsuit filed against Qualcomm, it also hurts Qualcomm's competitors in processors, which makes it expensive to monitor modern development.

"This trial is about Qualcomm's illegal and self-proclaimed" unique "business model that stifles competition, inhibits innovation and deprives customers and licensees, said Apple and its contractors in a briefing filed end of March. They said they feared that Qualcomm's dominance will continue in 5G chipsets.

Qualcomm will argue that its licensing practices are reasonable and that it has fulfilled its responsibilities for fair conditions of license for standard essential patents. The company will also remind the judge that Apple and its subcontractors are not paying it now. And Qualcomm will say that it does not stifle competition and does not harm Apple or its manufacturers.

"Although this case involves a large number of claims and counterclaims, it essentially concerns the refusal of Apple and its subcontractors to pay what they owe for their continued use of the intellectual property of Qualcomm, "said Qualcomm in his brief on trial. "The Qualcomm IP license licensed to contract manufacturers is the core of modern cellular technology without which the iPhone could not exist."

Some twists

The trial will likely offer surprises. Apple's subcontractors are closely associated. Some of them appeared in the previous FTC trial via recorded evidence, but many leaders will appear in court this time. Instead of supporting the players, they will be major players. After all, it's the manufacturers who are claiming nearly $ 27 billion from Qualcomm.

Because Qualcomm has already experienced this before, he will be able to refine his defense to better appeal to a jury. It has to deal with how it worked with Apple and its subcontractors, not how it dealt with the entire mobile industry, as in the case of the FTC.

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Irwin Jacobs, co-founder of Qualcomm, defended his company during the FTC trial. He is on the witness list of Qualcomm's defense against Apple.

Vicki Behringer

Qualcomm will probably try to better justify its policy "no license, no chips". The chip maker will not let a handset manufacturer buy its modems until that company has signed a license agreement. Qualcomm says that the practice of offering a license before selling chips is better for the industry because its licenses cover more than just modems.

But during the January trial, Apple said it had no choice but to negotiate Qualcomm's license fees.

Apple, which in August became the first US company worth trillions of dollars, must prove that Qualcomm's business practices have hurt it. Apple will achieve this in part by demonstrating that it pays more to Qualcomm than to all other mobile patent owners combined. Apple also thinks that she should not have to pay Qualcomm a separate license fee in addition to the price of chips.

Both companies will also be able to use more recent evidence in the current trial, including new iPhone crop data that does not use Qualcomm modems. This could help Qualcomm to compete in the mobile chip market, both for 4G and the nascent 5G standard.

One thing that will not be addressed in the lawsuit is the evidence of other antitrust investigations. Curiel ruled that the FTC case and the other regulatory issues facing Qualcomm could not be discussed. It is unclear what would happen if Koh released his decision regarding the January battle against the FTC before the end of the Apple-Qualcomm lawsuit.

Whatever happens, the lawsuit will be closely watched by the entire mobile phone industry.

CNET will be on site to provide you with updates on the ongoing court battle. For more information, check out our FAQ on the fight between Apple and Qualcomm.


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