Why Apple protested so strongly

Licensing patents are a critical revenue stream for Qualcomm. The patent licensing fees were only 23% of Qualcomm's revenue in the 2018 fiscal year, but represented a majority of Qualcomm's revenue.

Specifically, Qualcomm's chip department QCT reported over $ 17 billion in revenue, but only $ 3 billion in revenue. Qualcomm's licensing department, QTL, reported $ 5.1 billion in revenue of 68% in the operating margin, which accounts for $ 3.5 billion in profit.

A specialized agency of the United Nations called the International Telecommunication Union defines what people in the industry call "standards" ̵[ads1]1; or the official technical specifications of telecom networks, so that devices can operate across borders and carriers. Qualcomm has many patents that fit into these standards.

"Standard bodies have been informed that we have patents that may be crucial to all 3G standards based on CDMA," wrote Qualcomm in a SEC filing in November. [19659002] Thanks to these patents, Qualcomm has licensing agreements with over 300 companies.

Proprietors must license necessary patents at a reasonable price and on equal terms to everyone, or what is called fair, reasonable and non-discriminatory (FRAND) licensing.

But technology companies and governments often have different ideas about what is fair and reasonable.

Apple's main objection was that Qualcomm forced it to license these patents, even though it itself was a great customer for Qualcomm's chips.

"The problem we have with Qualcomm is that they have a policy of no license, no chips. This is, in our opinion, illegal," said Apple CEO Tim Cook in January. [19659002] Apple also protested against Qualcomm's pricing system, where it used The total sales price of a whole unit to find out what to use, instead of the sales price of the modem chip, finally struck the two companies at a $ 7.50 royalties per unit, which Apple still believed was

As Cook said, "They have an obligation to offer their patent portfolio on a fair, affordable and non-discriminatory basis, and they do not. They charge exorbitant prices. "

Apple is not the only party that has had problems with Qualcomm's business practices.

In 2009, South Korea's antitrust agency, which protects local companies such as Samsung and LG, fined Qualcomm $ 200 million to abuse its market position in radio frequency chips, and said in a statement recently that a "monopolist's misuse of its market position cannot be tolerated. "The KFTC later fines Qualcomm again in 2016 for $ 854 million for what it said was unfair business practices.

In 2015, Qualcomm paid a $ 975 million fine in China to solve another complicated competition competition. The deal was Qualcomm required to reduce its royalties in China for handsets such as Xiaomi and Huawei.

Perhaps the biggest threat to Qualcomm is a blow to the US Federal Trade Commission, which ended in a trial period in previous years. 19659015]

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