Apple and Qualcomm settle: Here's what it means for your next iPhone

Frenemiene has made up.

Apple and Qualcomm decided a two-year fight against patent licensing on Tuesday, a reconciliation that ended a trial that had started one day earlier. Companies that had fought in courts in China, Germany and other countries, as well as the United States, will end all worldwide trials.

Cupertino, California-based Apple, will make an unspecified payment to Qualcomm, according to a joint statement. The companies have also reached a six-year license agreement that includes a two-year opportunity to expand and a multi-year chipset supply agreement. The agreement came into force on April 1[ads1], the companies said.

The companies did not say what led to a change of heart. As recently as January, Apple CEO Tim Cook said the iPhone manufacturer was not talking to Qualcomm. Analysts speculated that Apple's 5G chip demand could have spurred the iPhone manufacturer to negotiate, a view supported by a Nikkei report that said the company had tested Qualcomm 5G chips when the companies explored a settlement. Shortly after the settlement was announced, Intel, an Apple provider, said it was to leave the 5G phone modeling business .

Neither Apple did not comment Qualcomm beyond their statement.

The decision put the San Diego courtroom companies were listed in abuzz. Apple and its contract manufacturers had presented their opening arguments and a Qualcomm attorney was almost finished when the announcement was made. One day earlier, the pages had chosen a jury which included a pilot, a retired nurse and a former bullet for the Kansas City Royals.

The settlement is the last twist in a battle that can put your iPhone at risk. San Diego-based Qualcomm provides network connectivity chips for Apple's iPhones and is the world's largest provider of mobile chips. The technology is important for connecting phones to mobile networks. The company achieves a significant share of revenue from licensing the invention to hundreds of device manufacturers, with fees based on the value of the phone, not the components. Qualcomm owns patents related to 3G, 4G and 5G phones – in addition to other features such as software – so any handset that builds a device that connects to the networks must pay a license fee, even if they do not use Qualcomm's chips.

It includes Apple. The company creates its own application processor – the brain of the iPhone – but it relies on third-party network connectivity chips. From the iPhone 4S in 2011 to the iPhone 6S and 6S Plus in 2015, the only supplier for these chips was Qualcomm. The following year, Apple began using Intel modems in some models of the iPhone 7 and 7 Plus, but it still used Qualcomm in versions for Verizon and Sprint.

It continued this trend in 2017, but Apple's latest phones – the iPhone XS, XS Max and XR, use only Intel 4G chips. Apple accused Qualcomm even though Qualcomm said it would deliver to Apple. Nevertheless, Apple's move to 5G can be held up by not working with Qualcomm.

Hours after Apple and Qualcomm settled, Intel said it was the exciting 5G smartphone modem business. The chipmaker had been working on a processor for Apple that was expected to appear in iPhones next year. But recently worried had come out that the chip would not be ready for 2021 iPhones.

"The company will continue to meet current customer commitments for the existing 4G smartphone modem product line, but is not expected to launch 5G modem products in the smartphone site, including those scheduled for launches by 2020," Intel said in a press release. Apple

It is unclear whether the terms of the settlement address Apple's argument that it should pay a royalty fee based solely on the value of Qualcomm's connection chips, not the whole entity. It says Qualcomm is "effectively taxing Apple's innovation" and that Apple " they don't have to pay for technological breakthroughs they have nothing to do with. "Its manufacturing partners, like Foxconn, agree.

Qualcomm says technology is much more than just connectivity. There is also multimedia, imaging, GPS and countless Other inventions that make a phone a phone Qualcomm itself filed for a patent in 2000, seven years before Apple introduced the iPhone, it's one of the first smartphone descriptions, describing how to save power in a smartphone. Without technology, Qualcomm says the iPhone would not be possible.

Two years ago, the US Federal Trade Commission along with Apple and sent an antitrust lawsuit against Qualcomm . It accused the company of running a monopoly on wireless chips, forcing customers like Apple to work on it solely and charging too much license fee for their technology. The two met in San Jose, California, in January to argue the case for a judge, and Apple provided some of the FTC's most important witnesses and evidence. Qualcomm is waiting for a judgment in that case. It is unclear at this point that the settlement may affect the San Jose decision.

Apple and Qualcomm da met directly in March for a patent infringement test. A jury gave Qualcomm a victory and ordered Apple to pay the $ 31 million to violate three Qualcomm patents.

Here's what you need to know about this match:

What is Qualcomm again?

You can't know the Qualcomm name (unless you live in their hometown of San Diego and frequent Qualcomm Stadium), but the odds are quite high you've used a device with their technology. Qualcomm is best known for its chips that connect phones to cellular networks, as well as Snapdragon processors that act as the brain of mobile devices.

Qualcomm is one of the key component suppliers of Samsung and other phone manufacturers (including Apple, until 2018). Without a modem in your device, you wouldn't be able to pick up a lift to take you home or check Facebook while waiting in line for a food trolley.

What technology does Qualcomm do?

Along with the processors, Qualcomm finds a lot of technology used in mobile devices. The company says it has invested more than $ 40 billion in research and development over the past three decades, and the patent portfolio includes over 130,000 patents and patent applications worldwide.

The technology is centered on mobile communication and includes both standard essential patents and non-essential patents. (Standard essential patents are technologies that are crucial to a device. They must be licensed on reasonable and reasonable terms. Nonessential patents do not have these requirements.)

Some Qualcomm patents relate to multimedia standards, mobile operating systems, user interfaces, monitors, power management, Wi -Fi, Bluetooth and even airplane mode. The company is also the pioneer of CDMA, the 3G mobile network used by Verizon and Sprint, and it is innovated in 4G and 5G network connectivity.

"Qualcomm's inventions are needed for the entire cellular network to work – they are not limited to modem chip or even cell phone technologies," Qualcomm said in an archiving.

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Apple, Qualcomm goes head-to-head – with billions at stake

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What led the battle between Apple and Qualcomm?

Everything came down to money. Apple said Qualcomm cost too much in mobile technology license fees. Qualcomm said the iPhone (and other mobile devices) would not be possible without its technology. Qualcomm also accused Apple of violating technology patents for power management.

What did Apple say in his complaints?

Partly: "For many years, Qualcomm has unfairly insisted on charging royalties for technologies they have nothing to do with. The more Apple innovates with unique features such as TouchID, advanced monitors and cameras, to name but a few. a few, the more money Qualcomm gathers for no reason and the more expensive it becomes for Apple to fund these innovations. "

What did Qualcomm say?

Partly: "Apple's goal is clear – to leverage its tremendous power to force Qualcomm to accept less than fair value for patented technologies that have led to innovation in mobile technology and helped Apple generate more than 760 Billions of dollars in iPhone sales. "

How did legal battle start?

There has been a lot of legal back and forth, but here's the basics. Apple initially accused Qualcomm in January 2017 in the United States, saying the company does not offer fair mobile technology license terms. Qualcomm kicked back in April of that year, denying all of Apple's claims and accusing Apple of breach of contract and disrupting deals and conditions Qualcomm has with contract suppliers.

Apple, through its manufacturers, stopped paying Qualcomm's iPhone license fee, which was sold in March 2017. This led Qualcomm to pursue the case for payment.

What happens to the ITC?

Qualcomm also filed a complaint with the US International Trade Commission in July 2017 and requested that some iPhones using Intel chips be banned from import and sale in the US because Apple allegedly violated six of Qualcomm's patents. It also sued Apple in the southern district of California.

Technology companies in recent years have increasingly turned to ITC to resolve their disputes. Businesses can pursue an ITC case in parallel with civil litigation.

"Apple continues to use our technology and does not pay for it," said Don Rosenberg, Qualcomm's Secretary General, in an interview after filing his lawsuits. "They have really left us no choice but to say," You must stop this. "

In January 2018, the US Patent and Trademark Office's Patent Trial and Appeal Board said it would consider three Qualcomm patents in the ITC case against Apple. Such a notification may lead to the invalidation of patents. One of patents, No. 9,535,490, is the key patent issued by Qualcomm in its lawsuit against Apple. It covers "energy saving techniques in computing devices" that help reduce power consumption through phones.

About 64 percent of the time after an IPR review, all claims are void, according to a USPTO trial statistics report. And 17 percent of the time, some claims are void.

In March 2018, ITC sent two separate decisions . One found in favor of Qualcomm while the other was sideways with Apple.

In one case, a judge said Apple's iPhones violated a Qualcomm patent and should be excluded from sales. But a full commission review in a second, separate case said Apple did not violate Qualcomm's patents and rejected the suit. It also said it found that Qualcomm's patents are not valid.

Meeting in court

What happened in the March exam?

The first lawsuit between Apple and Qualcomm was about patents. In July 2017, Qualcomm accused Apple of violating six non-standard essential patents, but only three ended up doing it to court. A patent allows a smartphone to quickly connect to the internet when the device is turned on. Another is about graphics processing and battery life. The third allows apps on your phone to download data more easily by controlling the traffic between the app processor and the modem.

A jury decided recently that Apple violated all three Qualcomm's patents and said that it would pay the chip maker $ 31 million – or $ 1.41 per iPhone – to violate its technology. The jury awarded Qualcomm the full amount requested at the start of the two-week trial, which took place in San Diego.

What about the April study?

The April trial that was just decided should be the big one. It's about Apple's first complaint, where it sued Qualcomm for allegedly unfair license terms. Apple also said that Qualcomm sought to punish it for collaborating in a Korean survey of Qualcomm's licensing practice by holding back a $ 1 billion discount.

Apple wants a court to lower the amount it pays Qualcomm in the license fee, and order a $ 1 billion return.

Qualcomm maintains that no modern handset – including the iPhone – would have been possible "without relying on Qualcomm's basic cellular technologies." In its reply to Apple's submission, the company made its own counter-claims, including breach of contract and unfair competition. It also asked for an unspecified amount of damage and said Apple had disturbed its relationship with contract manufacturers.

In May 2017, Qualcomm filed a lawsuit against Apple's iPhone manufacturers who allegedly breached contract. The suit came less than a month after Apple stopped paying patent fees for Qualcomm technology that is important for connecting phones to a wireless network.

In July 2017, the four iPhone makers came to Apple by summoning a complaint against Qualcomm claiming it used its market position to charge excessive royalties. The four companies are Foxconn parent Hon Hai Precision Industry, Wistron, Compal Electronics and Pegatron. They are seeking at least $ 9 billion in compensation, which can triple to $ 27 billion under antitrust laws.

Patents and several patents

How does Qualcomm's licensing business work?

Some companies license patents on an individual basis; Qualcomm licenses all patents as a group. For a fixed fee – based on the sales price of the device device, usually a phone – the device makes the manufacturer use all Qualcomm's technology.

It has been the norm in the mobile industry for patent holders to base their license fees on the total value of a handset, so Qualcomm is not alone there. Ericsson, Huawei, Nokia, Samsung and ZTE also charge license fees based on the total unit. Any company that makes a device that connects to a cellular network must pay Qualcomm a license fee, even if it does not use Qualcomm chips.

Part of the dispute between Apple and Qualcomm is that Apple believes the license fee should be based on the Qualcomm tag used in the device, not the entire phone.

"They do some really good work on standard essential patents, but that's a small part of what an iPhone is," said Apple CEO Tim Cook in May 2017. " It has nothing to do with the display or Touch ID or a gazillion of other innovations that Apple has made. And then we don't think that's right, and then we take a basically stand on it. "

Who licenses Qualcomm's technology?

Qualcomm licenses the technology to more than 340 companies, especially telephone providers, it does not license patents to chip makers, but anything that governments and Apple have dealt with. Chipmakers do not need licenses because the handsets already cover the cost of using the technology.

Apple licenses Qualcomm's technology through its manufacturers, such as Foxconn, rather than having a license of its own. been negotiating a direct license with Qualcomm, but that the terms offered – such as cross-licensing Apple's technology – were not fair. Apple's manufacturing partners are also involved in legal disputes.

In April 2017, Apple said it stopped paying Qualcomm royalties for units sold in the march quarter Qualcomm accused the producers of breach of contract, in October Qualcomm said Apple owes it $ 7 million liars in patent licensing fees.

So what is Qualcomm's license fee?

Qualcomm's license fee is based on the total value of a unit ($ 999 for iPhone XS) against the value of a chip (close to $ 20), but they are also truncated at a certain level. The FTC Qualcomm fight revealed specific details of Qualcomm's license fee including the price Apple paid.

Apple partners paid Qualcomm a license fee five times higher than it thought was fair, Apple COO Jeff Williams testified during the FTC trial. Apple wanted to pay $ 1.50 per unit in royalties to Qualcomm, based on a 5 percent charge for the cost of every $ 30 modem connecting iPhones to mobile networks. Instead, it ended up paying $ 7.50 per phone, he said.

"The whole idea of ​​a percentage of the cost of the phone didn't make sense to us," Williams said. "It hit our core of justice. At that time, there was something we really did, very differently."

Nevertheless, Apple agreed the price since it was lower than what Qualcomm wanted to charge contract suppliers – a 5 percent fee for each iPhone sold, which would be around $ 12 to $ 20 per unit, Williams said. A discount deal dropped it to $ 7.50 per iPhone and the level became stable over the years.

In November 2017, Chinese handlers began to pay Qualcomm royalties for their 3G and 4G patents of 3.25 percent of the sales price of each phone sold in the country. Qualcomm later rolled over to consider its license base. It also covers the value of phones, on which its royalties are based, of $ 400, although a unit sold for it triples. And Qualcomm's cap for a full portfolio license is $ 20 per unit and $ 13 for only Qualcomm's essential patents.

By comparison, in one of its patents with Samsung, Apple claimed it deserved $ 40 per unit for Samsung's five patents violation, as well as lost profits, for a total of $ 2.19 billion. A jury ultimately decided that Samsung should pay $ 119.6 million to offend three of Apple's five patents related to software features such as "quick links" and "push to unlock." And in March the patent law between Apple and Qualcomm decided a jury that three non-essential patents from Qualcomm were worth $ 1.41 per iPhone .

Does Intel have a factor in this?

When Apple first launched the iPhone a decade ago, it used modems from Germany's Infineon. It continued for the next three years until Apple switched to Qualcomm in 2011.

Intel bought Infineon in 2011, but the chips were not shown on the iPhone again until 2016s iPhone 7 and 7 Plus. At that time, US models running on AT&T and T-Mobile networks began using Intel processors, while Verizon and Sprint versions used Qualcomm. Intel is now the only provider of iPhone modems.

Qualcomm has accused Apple of providing trade secrets to Intel . In September, in a lawsuit, Apple told Intel engineers confidential information, including Qualcomm source code and log files, to overcome company chip failure in the iPhone. Qualcomm said in a complaint that Apple is using this "second source of chipset" to push it into business negotiations.

The new complaint from Qualcomm is a proposed amendment to the November 2017 case filed against Apple. Qualcomm's newly discovered facts have given rise to additional charges against the iPhone manufacturer, including commercial license and breach of contract.

Other legal strokes

What happens between Apple and Qualcomm outside the US?

Apple has filed lawsuits against Qualcomm in China and the United Kingdom, while Qualcomm has responded with counts in China and Germany.

At the beginning of December 2018, a Chinese court ordered four of Apple's Chinese subsidiaries to stop importing or selling iPhones due to patent infringement. The patents involve technology that allows iPhone users to adjust and reformat the size and appearance of photos, and manage applications using a touch screen when viewing, navigating, and rejecting applications.

Later that month, a Munich court found that Apple violated Qualcomm's smart phone savings technology and claimed that the iPhone manufacturer had to stop selling the device in Germany. Apple in February resumed selling its iPhone 7 and iPhone 8 in Germany again, but it only offered models with Qualcomm chips. Apple stopped using Intel chips in the older devices to comply with the German court decision.

In January another German court in Mannheim rejected Qualcomm's last claim against Apple and called them unfounded. The other German case is related to something called "mass voltage" or voltage, in the iPhone. The decision of a regional court states that Apple did not violate Qualcomm's patents because the excitement of smartphones is not constant. It rejected the claim, but Qualcomm is appealing.

What other legal issues are facing Qualcomm?

In recent years, Qualcomm has had a great deal of oversight over supervision of alleged monopolistic practices.

In China at the beginning of 2015, Qualcomm agreed to pay a $ 975 million fine and reduce the license fees to settle the dispute in that country. South Korea beat the company with a $ 850 million fine the following year, which Qualcomm is appealing. The EU in early 2018 bent Qualcomm's $ 1.23 billion to pay Apple to spend only its chips, which Qualcomm is also appealing. And in August of that year, the company reached a settlement with Taiwan, where the country would retain $ 93 million Qualcomm had paid, but the company would not owe any more.

During March 2019, Japan Fair Trade Commission decided that Qualcomm was not a monopoly after all reversed its decision about ten years ago.

USA has also accused Qualcomm of running a monopoly and it went to court in January 2019. It is not a decision in that case.

What was Qualcomm's fight with the FTC about?

FTC sued Qualcomm in 2017, and the case was filed in San Jose two years later. The US government has accused Qualcomm of running a monopoly on wireless chips, forcing customers like Apple to work with Qualcomm exclusively and charging "excessive" license fees for the technology, partly by using its "no license, no chips" policy . Qualcomm's practice prevented rivals from entering the market, dropping the cost of phones and, in turn, harming consumers, who faced higher handset prices, the FTC said.

The FTC claimed that Qualcomm used its power in the 3G and 4G chip markets to force handsets into the unfair licensing agreement. If Qualcomm is not stopped, the FTC said it would do the same in the 5G market.

Qualcomm said the FTC's lawsuit is based on "wrong legal theory". It is also said that customers choose their chips because they are the best and that it has never stopped giving processors to customers, even when they are fighting over licenses.

It also said that royal practices did not harm competitors. Intel now delivers all modems to Apple's iPhones, MediaTek is the world's second largest wireless chipmaker, and Samsung and Huawei have developed their own modems.

Leaders from tech's largest companies witnessed Qualcomm's licensing practices in January, revealing the internal operation of the smartphone industry. The FTC and Qualcomm presented their closing arguments on January 29, and it is now up to Judge Lucy Koh to decide the verdict. At the same time, the two sides continue to negotiate a possible solution.

How did Apple work in that case?

The FTC complaint specifically related to how Qualcomm was about Apple. The US government said that Qualcomm forced Apple to pay technology license fees instead of using chips in iPhones. It also claimed that Qualcomm used its position to charge unreasonably high license fees and damage competition by refusing to license the technology to chip rivals.

"Qualcomm acknowledged that any competitor who won Apple's business would be stronger and used exclusivity to prevent Apple from working and improving the efficiency of Qualcomm's competitors," the FTC stated in a statement at the time it filed its lawsuit.

During the trial, the FTC called Apple COO Jeff Williams and Purchasing Manager Tony Blevins to the stand. Williams testifies that Qualcomm refused to sell modems to Apple for 2018 iPhones due to the companies' license competition. And Blevins said Apple wanted to build an Intel communication chip in its iPad Mini 2, released in the fall of 2013, but Qualcomm's hardball business methods shattered the plan.

Matthias Sauer, an Apple executive and a witness called by Qualcomm, testified that Intel's modems did not meet the technical standards required for the company's iPhones in 2014. Although Intel could not meet Apple's chip requirements for iPad, it would have used them Anyway, he said, Qualcomm had not offered incentives to stick with their chips.

The next iPhone

What does this mean for my next iPhone?

Most people don't care about which chips are in their devices, but Qualcomm has a big advantage over Intel: speed.

In the middle of February 2019, the Qualcomm X55 processor revealed the first modem to run anywhere from 2G to 5G networks. It is capable of 7.5 Gbps download speeds and will be in units by the end of 2019. Qualcomm's former modem, the X50, will be in units released in the coming months. It includes 5G Moto Mod which is now on sale with the Moto Z3 for Verizon's 5G Network .

Most operators have just started turning on the 5G networks, and smartphone companies are still prepping their first 5G devices. Many large Android vendors – including Samsung, Huawei and LG – presented 5G phones on or right in front of MWC 2019 in February. The first 5G phones use the X50 modem, which can deliver download speeds of up to 5 Gbps.

During the 2019 season, all major Android vendors in the United States will have a 5G phone available using Qualcomm chips.

Intel does not yet have a 5G chip on the market, but said its 5G modem will be ready for commercial units in the second half of 2019, with wider distribution by 2020. However, there are some concerns that the modem could be delayed.

What about a 5G iPhone?

5G is expected to be 100 times faster than our current 4G LTE wireless technology and 10 times faster than what Google Fiber offers through a physical connection to the home. Experts say it should enable use as a virtual reality and magnified reality, as well as things we cannot even think of today.

But Apple can be behind with the technology. The company wanted to use Qualcomm's 4G LTE processors in its 2018 iPhones, but the chip maker wouldn't work with Apple. Apple's Williams testified in the FTC test .

Qualcomm continues to supply Apple with chips for its older iPhones, including the iPhone 7 and 7 Plus, he said. But it would not provide Apple with processors for the latest iPhones for 2018, designed since the two began to fight over patents, he said.

"The strategy was also dual source in 2018," Williams in January. "We were dealing with Qualcomm, but in the end they would not support us or sell us chips."

Williams' comments seemed to oppose testimony from Qualcomm's CEO Steve Mollenkopf from earlier in the FTC trial. He said on the stand that Qualcomm continued to win a contract that delivered chips to the iPhone from spring 2018, but that it had not "had new business" from Apple since the previous contracts expired. Due to the trial evidence limitations, he was not allowed to discuss the current state of Qualcomm's business with Apple.

Other Qualcomm leaders have commented in recent months about their willingness to deliver processors to Apple.

During a earnings figure in July 2018, Cristiano Amon, head of Qualcomm's chip business, said that "if the opportunity presents itself, I think we will be an Apple provider." And in September, Finance Director George Davis said during a Citi conference, "We welcome the engagement with Apple at 5G."

While many market watchers expect Apple to release a 5G iPhone by 2020, there are some concerns that Intel's chip is not ready before Apple's 2021 lineup. That would put Apple in two years behind the Android vendors.

If Apple gets a lower license fee, will we pay less for iPhones?

That's probably a big fat number. Apple has more influence over prices when it has two vendors to play each other. It is very unlikely that it will pass any of these savings to all of us.

When Apple launched its iPhone X at the end of 2017, someone wondered if the $ 999 price list would scare consumers. Instead, the iPhone X became the best-selling device from the time it hit the stores through the end of the June quarter, even though it was the most expensive phone Apple ever sold.

The 5.8-inch device was $ 300 more than the 4.7-inch iPhone 8 and $ 200 more than the 5.5-inch iPhone 8 Plus. Apple followed up this year with the iPhone XS and the larger and even more affordable XS Max, starting at $ 1,099.

Apple, som står overfor en nedgang i iPhone-salget, trenger å generere mer penger fra hver enhet den selger. The company in early January 2019 issued a rare warning — its first in 16 years — that it would fall short of its financial projections in the December quarter. Later that month, it said its sales in the March quarter also would be lower than analysts expected. It pointed to an economic slowdown in China and the country's "rising trade tensions with the United States" as the main culprits.

Even if Apple pays less for patents, that doesn't mean we'll see any benefit from those savings. Its higher prices are likely here to stay.

First published July 9, 2017.
Update, March 1, 2019, at 5:30 a.m. PT: Adds details of recent developments, including the FTC-Qualcomm trial, and notes the impending trial dates in March and April.
Update, April 11, 2019, at 5 a.m. PT: Adds details of recent developments, including the patent trial from March and the licensing trial in April and May.
Update, April 16, 2019, at 2:46 p.m. PT: Adds news of settlement, tweaks throughout. Update, April 16, 2019, at 3:46 p.m. PT: Adds news of Apple testing Qualcomm chips. Update, April 16, 2019, at 5:19 p.m. PT: Adds news of Intel leaving the 5G phone modem business.