Although there is a strong rivalry between smartphone manufacturers, companies generally negotiate much better with their suppliers. But in the last two years, the relationship between Apple and Qualcomm has been anything but friendly. The two companies are engaged in an intense legal battle pitting one of the world's largest smartphone vendors, Apple, with one of the largest designers of smartphones processors and modems, Qualcomm. The two men continued throughout 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 charged excessive fees for the use of its modems and patents, while Qualcomm claims that Apple uses the legal system to try to make good business with its technology. This is a crucial question for the entire industry: you can not manufacture a modern smartphone without coming into contact with Qualcomm's patents. The outcome of these lawsuits could therefore have a huge impact on all the companies that manufacture phones, as well as on the net results of Qualcomm.
In recent months, the battle has intensified. Qualcomm claimed that Apple had stolen "vast expanses" of its "confidential information and trade secrets," and that it had chipped Apple with modest but significant victories in court, which had led to partial iPhone bans in Germany and China.
Now, the main event has finally arrived. Monday, Apple and Qualcomm will face the San Diego federal court. Qualcomm will be forced to respond to Apple's accusations that the costs of its patents are unreasonable and its licensing conditions unfair. If this is not the case, Qualcomm risks losing some of the billions of dollars it currently earns through patent licensing.
The lawsuit filed by Apple focuses on patents, especially patents covering the design and functionality of a phone's modem. You can not create a smartphone that does not connect to the Internet wirelessly, which means you can not create a phone without contacting these patents – and many of them are owned by Qualcomm.
According to Qualcomm, these patents are a hard-earned product worth billions of dollars in research and development, and it is reasonable to rely on them to generate billions of dollars in revenue. When Qualcomm sells its modems, it's not just hardware. It also sells a license related to this material, under a so-called "no license, no bullet" policy. But Apple claims that Qualcomm was able to charge more for these patents than it should have, because the company is also the leading provider of smartphone modems. If a manufacturer does not accept license fees, Qualcomm also has the power to cut them from modems.
Since Apple filed these complaints in its initial lawsuit against Qualcomm, the fight between the two companies has turned into a global showdown. At first, Apple seemed to have the upper hand. Regulators around the world, including the United States, South Korea, Taiwan, the EU, and China, have all tried, with varying degrees of success, to condemn Qualcomm to practices similar to those of which Apple complains. Qualcomm paid $ 975 million for the settlement of an investigation in China, $ 853 million for antitrust violation in South Korea and $ 93 million for a dispute in Taiwan.
More recently, Qualcomm has been skinned to Apple. The company was able to convince the judges to ban iPhones in China and Germany, forcing Apple to temporarily remove the iPhone 7 and 8 models. In the United States, a jury recently ruled that Apple violated three Qualcomm patents.
As dramatic as some of these results are, they have all been set aside in a primary trial. This trial, in court on Monday, is the one that triggered all this. In January 2017, Apple filed lawsuits in the United States, the United Kingdom and China, accusing Qualcomm of imposing "disproportionate" fees on phone manufacturers for access to their patents. Apple has stated that Qualcomm "used the law twice" by forcing companies to license its patents, in addition to the purchase of its equipment, and alleged that Qualcomm would only agree to reduce its royalties "in exchange for additional anti-competitive benefits." Relentless extortion regime. "
Paying patents according to Qualcomm is a problem, says Apple, because you can not make a modern smartphone without them. They are essential to industry standards and must therefore be authorized under the terms "FRAND" (short for "fair, reasonable and non-discriminatory"). Apple stated that Qualcomm had accepted these conditions in its filings with the ETSI (European Telecommunications Standards Institute), but did not meet these commitments.
Both companies have been discussing these conditions for years outside the courts, from the moment that Apple started using Qualcomm modems in 2011 on the iPhone 4. From this phone, Apple states that Qualcomm has agreed to refund a portion of Apple's royalty payments, but only if Apple has agreed to exclusively use its modems. Apple claimed that to reduce its "burden of exorbitant royalties", it had "no other choice" than to make that promise. "Qualcomm used unreasonable terms to get even more unreasonable terms," Apple said in a document filed in court.
Qualcomm claims that these events went in the opposite direction and that Apple first required the reimbursement of patents. In return, Qualcomm said it asked Apple to use its modems exclusively, so that it could guarantee that it would sell enough modems to make the deal worthwhile.
This deal was maintained until 2016, when Apple says that Qualcomm has finally withheld up to $ 1 billion in payments. This prompted Apple to sue Qualcomm in January 2017. According to Apple, Qualcomm did so because it sincerely testified to the Korean Fair Trade Commission in South Korea about licensing of Qualcomm.
In a preliminary ruling, a judge took sides with Apple in this part of the dispute. Although the agreement between the two companies indicates that Apple can not attack Qualcomm in court nor with the regulators, the judge said that Apple's shares had not given to Qualcomm the right to terminate payments and that she owed Apple up to $ 1 billion unpaid royalties.
Apple's remittance lawsuit began the same month that the US Federal Trade Commission announced a lawsuit against its patent practices. This trial, which took place in January, is pending the judge's decision.
Apple has kept up the pressure on Qualcomm since the beginning of the legal skirmish. In 2017, Apple asked suppliers such as Foxconn and Compal to suspend all royalty payments to Qualcomm during the conflict. Qualcomm responded by suing Apple's suppliers, who then decided to join Apple's fight against the chip maker. Qualcomm opposed Apple to ask its suppliers to stop paying in order to recover additional damages if it wins this case.
Qualcomm did not let go of Apple's aggression. Over the past two years, he has accused Apple of infringing its patents by filing complaints in the US, Germany, and China with some success. German and Chinese judges found that Apple had infringed some Qualcomm patents and had reacted by banning the sale of some iPhones – although Reuters notes that the ban in China never seems to have been seriously applied. Apple also played its own role in the fight for patent protection, claiming that Qualcomm had forged patents relating to the use of energy.
Qualcomm hopes to prove that its patent portfolio has a value equal to or greater than what it has charged. This would not rebut Apple's claims – Qualcomm would force it to accept expensive licenses – but that could encourage the company to resign if the legal battle seemed to drive up costs.
In a recent lawsuit in San Diego, Qualcomm successfully argued that Apple was violating three of its patents to the tune of 1.41 USD per iPhone. This is only a small part of the $ 7.50 that Apple pays in total per iPhone for Qualcomm's patents, but if the courts deem that other Qualcomm patents have the same value, then Qualcomm could to be encouraged to increase its prices further, by charging Apple a heavy bill. .
Qualcomm also countered by stating that Apple had stolen the company's confidential modem technology and entrusted it to its fierce rival Intel. According to Qualcomm, Apple stole "vast expanses of confidential information and trade secrets from Qualcomm" and used them to improve Intel's chips. Qualcomm is currently suing Apple separately for these claims. In a recent court case with the FTC, Qualcomm also argued that Apple's ability to exclusively use Intel chips proved that there was still healthy competition in the industry.
Apple says Monday's case is essentially aimed at ending Qualcomm's monopolistic and anti-competitive practices. Apple wants to be able to buy modem chips at whatever they want (or even do their own) without having to take into account large patent royalty payments. The transition from 4G to 5G is a key moment for the mobile phone industry. If current trends continue, Qualcomm could end up dominating the sector over the next 10 years.
Qualcomm's fight is a little more existential. In 2016, while his license agreement with Apple was still pending, three-quarters of Qualcomm's profits came from its license division. Apple alone has generated approximately $ 1.7 billion in revenue in the first six months of 2017. If a jury agrees with Apple, then Qualcomm may be forced to cut the price patents, which would potentially reduce the largest source of profits. This could also open the market further to competing chip makers, while making the construction of a phone cheaper.
When asked to comment, a Qualcomm representative referred us to remarks during a recent call for results, where Qualcomm's general manager, Steve Mollenkopf, defended the company's licensing strategy. society. He stated that it was "essential" that Qualcomm protect its intellectual property and ensure that the company is "appropriately compensated for [its] inventions and investments. "
A representative from Apple also referred to earlier comments, in which the company described Qualcomm's practices as "harming Apple and the industry as a whole" and claiming that the lawsuits against Apple were simply aimed at "Divert the big problems they face" from regulators around the world.
The Apple and Qualcomm lawsuit must finally begin Monday, starting with the selection of the jury. In the coming weeks, lawyers expect lawyers to look closely at the leaders of two of the world's largest technology companies. The revelations and results of this legal battle will not only make headlines, they will also touch the smartphone market for years to come.