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Licensing patents is a key source of revenue for Qualcomm. Patent licensing fees accounted for only 23% of Qualcomm's revenues in its 2018 fiscal year, but constituted the majority of Qualcomm's operating profit.
In particular, the QCT division of Qualcomm's chips division had sales of more than $ 17 billion, but only operating profit of $ 3 billion. Qualcomm's licensing division, QTL, recorded a business turnover of $ 5.1 billion with an operating margin of 68%, which represents a profit of $ 3.5 billion.
A United Nations specialized agency called the International Telecommunication Union defines what industry professionals call "standards" – or the official technical specifications of telecommunication networks, so that devices can operate across borders and operators. Qualcomm has many patents that meet these standards.
"The standards bodies have been informed that we have patents that could be essential for all CDMA-based 3G standards," Qualcomm wrote in a document filed with the SEC last November.
Through these patents, Qualcomm has entered into licensing agreements with more than 300 companies.
Patent holders are supposed to grant everyone the necessary licenses at a reasonable price, on equal terms for all, or what is sometimes called fair, reasonable and non-discriminatory licenses (FRAND).
But technology companies and governments often have different ideas about what is fair and reasonable.
Apple's main objection was that Qualcomm had forced it to license these patents, even though it was already a major customer for Qualcomm's chips.
"The problem we have with Qualcomm is that they have a no-license policy, no chips – it's, in our opinion, illegal," said Apple CEO Tim. Cook, in January.
Apple also objected to the pricing system of Qualcomm, which used the total selling price of an entire device to determine the amount to be charged, instead of the selling price of a modem chip . In the end, both companies opted for a fee of $ 7.50 per device, which, according to Apple, was still too high.
As Cook says: "They have an obligation to offer their patent portfolio in a fair, reasonable and non-discriminatory way, and they do not, and they charge exorbitant prices."
Apple is not the only party to have had problems with Qualcomm's business practices.
In 2009, the South Korean antitrust agency, which protects local businesses such as Samsung and LG, was fined $ 200 million to Qualcomm. for abusing its position in the radio frequency chip market, recently claiming in a statement that "the abuse of a monopoly firm on its market position can not be tolerated". The KFTC subsequently imposed a new $ 854 million fine on Qualcomm in 2016 for its unfair business practices.
In 2015, Qualcomm paid a $ 975 million fine in China to solve another complex antitrust dispute. As part of the deal, Qualcomm was to lower its royalty rates in China for handset manufacturers such as Xiaomi and Huawei.
The biggest threat to Qualcomm is perhaps a battle with the US Federal Trade Commission, which ended with a lawsuit earlier this year. The verdict has not been published yet.
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