Qualcomm Fires Back Against Apple Lawsuit Over Patent Licensing
By Mike Freeman. Updated April 11, 2017.
Qualcomm fired back late Monday against Apple's legal attack on its patent licensing business -- accusing the world's largest tech company of egging on anti-trust regulators with misleading information and meddling with Qualcomm's long-standing patent agreements with contract manufacturers that build iPhones.
Qualcomm also claims Apple violated California's unfair competition law by throttling the performance of Qualcomm's modems and then claiming there was "no discernible difference" in performance between iPhone 7s using Qualcomm's cellular modems and iPhone 7s with Intel chips. Apple threatened to retaliate if Qualcomm publicly made a case that its chips were better.
The San Diego wireless giant filed its counter-claims in response to Apple's lawsuit in January in a San Diego federal court. Apple alleges that Qualcomm uses its market dominance in cellular modems to squeeze excessive patent royalties out of smartphone makers.
Apple also says Qualcomm is withholding nearly $1 billion it owes Apple in retaliation for its cooperation with anti-monopoly regulators investigating Qualcomm.
In its court filing, Qualcomm denies Apple's charges. The San Diego company also contends that Apple is refusing to make payments it owes to Qualcomm.
Apple's lawsuit attacks the foundation of Qualcomm's patent licensing business model by challenging the value of its patents and the practice of charging royalties based on the wholesale price of the smartphone instead of the modem chip itself.
Patents are a key part of Qualcomm's business. While it makes most of its revenue selling chips used in mobile devices, it earns the bulk of its profit from patent licensing.
In court filings, Qualcomm takes pains to paint Apple as a Goliath with immense power over suppliers, saying the company has more money and influence than many countries.
Qualcomm contends Apple's aim is to pay less for the Qualcomm intellectual property that allowed Apple to prosper in smartphones with little or no investment in the core cellular technology.
"Apple could not have built the incredible iPhone franchise that has made it the most profitable company in the world -- capturing over 90 percent of smartphone profits -- without relying upon Qualcomm's fundamental cellular technologies," said Don Rosenberg, Qualcomm's general counsel. "Now it has launched a global attack on Qualcomm and is attempting to use its enormous market power to coerce unfair and unreasonable license terms from Qualcomm."
Qualcomm's technology is in nearly all 3G and 4G smartphones, powering the connection between the handset and cellular towers that enables services ranging from mobile emails to social media photo sharing to streaming video.
For more than two decades, the company has licensed its cellular know-how to smartphone makers. But recently its licensing business has come under attack.
South Korea's anti-monopoly regulator fined Qualcomm more than $850 million and seeks to upend the way it licenses technology. (Qualcomm has appealed in court.) The U.S. Federal Trade Commission also has sued Qualcomm over patent licensing. Investigations are under way in Japan, Taiwan and elsewhere.
In its court filing, Qualcomm claims Apple played a role in this recent regulatory scrutiny by "intentionally giving government agencies false and misleading information and testimony about Qualcomm.
Qualcomm also claims that Apple has interfered with Qualcomm's patent contracts with third party contract manufacturers that build iPhones -- mostly in China.
Apple previously reimbursed these companies for patent royalties paid to Qualcomm but has stopped in recent months, according to Qualcomm's court filing.
That has led contract manufacturers in some cases to stop paying Qualcomm.
The company wants the court to find that its patent deals with Apple's contract manufacturers comply with the rules for licensing standard essential patents and don't violate competition law. It also wants the court to find that it has dealt fairly with Apple with regards to licensing patents.
Over the past decade, Apple has rung up $760 billion in iPhone sales, according to court filings. Yet Qualcomm's per-device royalty for its vast portfolio of cellular patents is less than what Apple charges consumers for a basic plastic iPhone case.
"Apple can sue Samsung, for example, and claim all kinds of value on a few patents that they sue them on, but somehow claim that our tens of thousands of core technology patents are not worth what the market has said they're worth," said Rosenberg. "That is what they are trying to take from us here. That is why we have to fight as hard as we can to prove the continuing value of our contributions."