Although there is a fierce rivalry between smartphone manufacturers, the companies are on far better terms with their suppliers. But over the past two years, the relationship between Apple and Qualcomm has been anything but amicable. The two companies have been locked up in an intense legal battle that encounters one of the world's largest smartphone vendors, Apple, against one of the largest designers of smartphone processors and modems, Qualcomm. The two have sued each other across the globe, claiming monopolistic practices, patent infringement and even theft.
The core point of the conflict is a core field: how much is Qualcomm's technology worth? Apple claims that Qualcomm has demanded high fees for using its modems and patents, while Qualcomm claims Apple is using the legal system to try and get a good deal on its technology. It's a critical issue for the entire industry ̵
In the past few months, the battle has escalated. Qualcomm argued that Apple stole "big stings" from its "confidential information and business secrets", and it flipped onto Apple with small but meaningful legal transitions, leading to partial iPhone bans in Germany and China.
Now, the main event has finally come. On Monday, Apple and Qualcomm will face San Diego, and Qualcomm will be forced to respond to Apple's allegations that patent costs are unreasonable and that the license terms are unfair. If not, Qualcomm qualifies to lose a portion of billions of dollars as it currently comes from patent certificates.
The core procedure is about patents, especially patents that cover the design and functionality of a telephone modem. You can't make a smartphone that doesn't connect wirelessly to the Internet, which means you can't make a phone without getting in touch with these patents – and a large number of Qualcomm's owned.
As Qualcomm sees, these patents are a hard won product of billions of dollars for research and development, and it is reasonable to now trust them for billions in revenue. When Qualcomm sells its modems, it not only sells hardware. It also sells a license that is tied to that hardware, part of an alleged "no license, no chips" policy. But Apple says Qualcomm has been able to charge more for these patents than it should have, because the company is also the dominant provider of smartphone modems. If any manufacturer does not agree with the license fees, Qualcomm has the ability to cut them from modems as well.
Since Apple made these complaints in its first trial against Qualcomm, the battle between the two companies has spiraled 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 make Qualcomm a similar practice to those Apple has complained. Qualcomm paid $ 975 million to settle a survey in China, $ 853 million to break the antitrust law in South Korea, and $ 93 million over an antitrust dispute in Taiwan.
More recently, Qualcomm has been sneaking away at Apple. The company managed to get judges to ban iPhones in China and Germany, forcing Apple to temporarily withdraw iPhone 7 and 8 models. In the United States, a jury recently agreed that Apple violated three of Qualcomm's patents.
Dramatically, as some of these outcomes have been, they have all been sidelined to a primary lawsuit. That lawsuit, in court on Monday, is the one who kicked all this off. In January 2017, Apple filed lawsuits against the United States, the United Kingdom, and China accusing Qualcomm of charging phone manufacturers "disproportionately high" patents access fees. Apple said Qualcomm "illegally double" when forcing companies to license patents as well as buying their hardware and claiming that Qualcomm only agrees to reduce their fees "in exchange for further competitive advantage." Apple described it as a "scheme of relentless extortion."
Qualcomm overcharging for its patents is a problem Apple claims because you can't make a modern smartphone without them. They are crucial to industry-based standards and should therefore be licensed on so-called "FRAND" terms (short for "fair, affordable and non-discriminatory"). Apple says Qualcomm has entered into these terms in the filing, made to the European Telecommunications Standards Institute (ETSI), but does not comply with these obligations.
The two companies have been crossing these terms for many years out of court and began when Apple first began using Qualcomm modems in the iPhone 4 in 2011. With that phone, Apple says Qualcomm agreed to reimburse part of Apple's royalties, but only if Apple agreed to use its modems exclusively. Apple claimed that in order to reduce its "unmanned royal burden," it had "no choice" but to make that promise. "Qualcomm used unfair terms to get even more unreasonable conditions," Apple said in a court filing.
Qualcomm says these events happened the opposite and that Apple requires patent reimbursement first. In return, Qualcomm says it was asked that Apple use its modems exclusively so that it could guarantee that it would sell enough modems for the event to be worthwhile.
This scheme continued until 2016, when Apple said Qualcomm eventually held back as much as $ 1 billion in payouts. This was the catalyst that led Apple to sue Qualcomm in January 2017. According to Apple, Qualcomm did so because it had witnessed the Korea Fair Trade Commission in South Korea on Qualcomm's licensing practices.
In a preliminary decision, a judge sank with Apple in this part of the dispute. Although the agreement between the two companies said Apple could not attack Qualcomm in court or with regulators, the judge said Apple's action had not given Qualcomm the right to stop payments and that it owed Apple as much as $ 1 billion in unpaid royalties.
Apple's lawsuit over the transfers began the same month, the US Federal Trade Commission announced a separate case against Qualcomm's patent practice. This lawsuit, which was dealt with in January, is awaiting a judge's decision.
Apple has kept the pressure on Qualcomm since the legal shelter began. In 2017, Apple instructed suppliers such as Foxconn and Compal to hold back all royalty payments to Qualcomm while the dispute was ongoing. Qualcomm responded by suing Apple's vendors, who then decided to join Apple's fight against the chip maker. Qualcomm has attacked Apple to tell the vendors to stop paying so it can recover further damage if it wins this case.
Qualcomm has not taken Apple's aggressions. It has been used for the past two years to accuse Apple of violating its patents, and to complain in the US, Germany, and China with some success. Judges in Germany and China both found that Apple had violated some of Qualcomm's patents and reacted by prohibiting the sale of certain iPhones – although Reuters notes that the ban in China never seems to have been enforced seriously. Apple has also played its own hand in the patent battle, claiming that Qualcomm violated patents related to power consumption.
Qualcomm hopes to prove that the patent portfolio is equal or more valuable than what it has been charging. This would not disprove Apple's claims – that Qualcomm is forcing it to agree on cumbersome licenses – but it may encourage the company to go down if it appears that the legal battle could eventually lead to an increase in costs.
In a recent San Diego trial, Qualcomm successfully claimed that Apple violated three of its patents for a $ 1.41 per iPhone tune. It's just a small portion of $ 7.50 Apple pays a total of $ 5. IPhone for Qualcomm's patents, but if the courts judge Qualcomm's other patents to be equally valuable, Qualcomm can be emboldened to further raise prices by sending a hefty bill to Apple.
Qualcomm has also backed claiming that Apple stole the company's confidential modem technology and gave it to its fierce rival Intel. According to Qualcomm, Apple stole "huge ties of Qualcomm's confidential information and business secrets" and used it to improve Intel's chips. Qualcomm is in the process of suing Apple separately over these claims. In a recent trial with the FTC, Qualcomm also claimed that Apple's ability to use Intel chips exclusively shows that there is still strong competition in the industry.
Apple claims Monday's case is about bringing Qualcomm's monopolistic and competitive competition to an end. Apple wants to be able to buy modem chips from whom it pleases (or even make its own) without having to factor in large patent royalty payments. The transition from 4G to 5G is an important moment for the mobile industry, and if today's trends continue, Qualcomm may end up dominating the industry for the next 10 years.