Cook calls Apple's $1B litigation against Qualcomm a 'last resort'

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in iPhone
In Tuesday's post-earnings conference call, Apple CEO Tim Cook reiterated that while the company is not a fan of litigation, Qualcomm's actions and refusal to negotiate fair patent licensing terms forced the iPhone maker to sue.




"We didn't see another way forward," said Cook, responding to a question about the suit, and future impacts on Apple. "They were insisting on charging royalties for technologies that they have nothing to do with."

Cook likened the situation to buying a sofa, but the seller charges different prices based on the value of the house in which it would ultimately end up.

"The more we innovated with unique features, the more money Qualcomm would collect for no reason," Cook added, suggesting the onerous licensing terms was beginning to impact Apple's ability to innovate.

Apple filed suit against Qualcomm on Jan. 20, alleging the firm's licensing strategy involves monopolistic practices, price gouging, extortion, and overall misuse of power. Specifically, Apple claims that Qualcomm abuses its "monopoly power" of the mobile wireless chip market to flout FRAND (fair, reasonable and nondiscriminatory) patent commitments and charge customers exorbitant royalty rates on standard-essential patents.

In its lawsuit, Apple alleges Qualcomm withheld nearly $1 billion in payments in retaliation for cooperating with law enforcement agencies. Specifically, Apple claims that Qualcomm demanded that false data be provided to the Korea Fair Trade Commission's probe that resulted in an $854 million fine against the chip manufacturer in December, the largest in the agency's history.

"Apple's complaint contains a lot of assertions, but in the end, this is a commercial dispute over the price of intellectual property," Qualcomm CEO Steve Mollenkopf said during its own earnings conference call on Jan. 25. "They want to pay less for the fair value that Qualcomm has established in the marketplace for our technology, even though Apple has generated billions in profits from using that technology."

Apple is seeking unspecified damages in its suit against Qualcomm including the $1 billion in unpaid payments, as well as a disgorgement of non-FRAND royalties paid by Apple CMs. The lawsuit also looks to free Apple from requiring patent licensing for some standards-essential cellular patents, or alternatively assign a reasonable FRAND royalty rate.

Cook said little about any financial impact on Apple, saying that the earnings report and projections for next quarter spoke sufficiently on the topic. Apple is expecting revenue between $51.5 billion and $53.5 billion and gross margin between 38 and 39 percent in the next quarter.

"We'll see where it goes," said Cook regarding how the suit would ultimately end. "Our hope is that common sense will prevail, and the courts will see it for what it is."

Comments

  • Reply 1 of 7
    Finally a lawsuit that actually has some meat and potatoes, looking forward to seeing how it pans out.
    watto_cobradamn_its_hot
  • Reply 2 of 7
    anomeanome Posts: 587member
    I was going to post a long bit on how I don't think Qualcomm have a leg to stand on, but I got annoyed and distracted. Needless to say, I don't think they do, and their licensing model seems to a non-lawyer like me to be ridiculous.
    watto_cobradamn_its_hotcali
  • Reply 3 of 7
    I like Cook's sofa analogy. The sofa is a component in a house and should have a static price regardless of how valuable the house is or what neighborhood it's in. 
    patchythepirate
  • Reply 4 of 7
    maestro64maestro64 Posts: 3,315member

    The is what happens with you get in bed with Verizon. Apple would not have to pay these cost if it was not for CDMA which is Verizon Cell tech. Apple should just pass the costs onto Verizon and Verizon can decide if they going to pass it along to consumers and explain to their customers why their phone cost more. Verizon and QComm have been in bed for a long time. Verizon has done this over and over again, they work deals with tech companies like QComm and then agree to only use that technology in their operations and anyone who want to sell them any widget are required to buy/license the tech from Verizon partners. This is no different than the whole MS/Intel deal. This was part of the reason Apple and Verizon could not come to an agreement early on was all these licensing costs and the they requires their suppliers to work with suppliers they selected.

    patchythepirate
  • Reply 5 of 7
    gatorguygatorguy Posts: 15,817member
    I like Cook's sofa analogy. The sofa is a component in a house and should have a static price regardless of how valuable the house is or what neighborhood it's in. 
    Yup, it does sound sensical. The issue will be proving the current model is illegal. No court has blanket ruled it as such AFAIK. It's a not-uncommon method of monetizing patents, and Apple has signed under those terms before. It's only been somewhat recently that Apple has decided to challenge it, but I think that's more roll-with-the-good-timing since the Chinese successfully got Qualcomm to bend. Had that not happened I personally think Apple would have swallowed hard, negotiated as toughly as they could, but in the end signed on the dotted line as they typically have. 
  • Reply 6 of 7
    gatorguy said:
    I like Cook's sofa analogy. The sofa is a component in a house and should have a static price regardless of how valuable the house is or what neighborhood it's in. 
    Yup, it does sound sensical. The issue will be proving the current model is illegal. No court has blanket ruled it as such AFAIK. It's a not-uncommon method of monetizing patents, and Apple has signed under those terms before. It's only been somewhat recently that Apple has decided to challenge it, but I think that's more roll-with-the-good-timing since the Chinese successfully got Qualcomm to bend. Had that not happened I personally think Apple would have swallowed hard, negotiated as toughly as they could, but in the end signed on the dotted line as they typically have. 
    The issue isn't that courts have determined that charging royalties based on the entire value of multi-component devices is per se illegal. They haven't, AFAIK, not in the U.S. and not as an affirmed (by appeals courts) decision anyway. Parties are free to agree to such terms if they want, even when it comes to SEPs. There are reasons why even some license seekers would prefer royalties based on the entire value of the end product.

    The issue is what courts have determined to be proper and improper ways to determine (non-punitive) damages, and licensing fees going forward, when there have been findings of infringement. Those determinations provide the basis for how third-party adjudicators (to include other courts) should settle disputes over what would be proper licensing fees. They also provide the basis for what would be considered fair and reasonable when it comes to FRAND terms such that it would be improper for FRAND-obligated patent holders to demand such terms from license seekers.

    As we were discussing in the other thread, the Federal Circuit has said that in most cases it isn't proper to base royalties (for patents that relate only to certain components of multi-component devices) on the entire value of the end product. And, excepting a successful petition to the Supreme Court of a decision made by the Federal Circuit, the Federal Circuit determines the law of the land on such issues - those relating to patent rights. It isn't like other U.S. federal circuit courts in that their rulings only apply to the geographical region which they relate to. When it comes to most legal issues, different federal circuits sometimes establish different rules of law (when it comes to more nuanced aspects of law) for different federal circuits within the United States. It's only a ruling from the Supreme Court that establishes a rule of law for the entire nation. When it comes to the Federal Circuit, however, it has authority for all appeals that relate to certain subject matter. Thus its rulings establish a rule of law for the entire nation when it comes to that subject matter.

    The end result being that, based on various Federal Circuit rulings, a patent holder refusing to license SEPs unless the license seeker agreed to pay royalties based on the entire value of the multi-component end product would be doing so in violation FRAND terms. There is, as we discussed in the other thread, an exception to that basic rule. But I don't think it can fairly be argued that that exception applies when it comes to the dispute between Qualcomm and Apple. So Apple could decide that it wants to pay royalties based on the value of, e.g., iPhones, and so long as Qualcomm wanted that also they could agree to those terms. But Qualcomm could not take the position that Apple must agree to those terms or else it can't have the licenses it seeks. Qualcomm also saying that Apple wouldn't be supplied with certain processors which Qualcomm has an effective monopoly on, if Apple didn't agree to pay royalties based on the entire value of, e.g., iPhones, would make Qualcomm's position even more problematic and difficult to defend legally.

    As for the timing of Apple's filings, I suspect it has more to do with (1) Apple feeling that it is better positioned than it was before to deal with pushback from Qualcomm relating to the business they do with each other, in case things went in that direction (though hopefully they wouldn't) and (2) Qualcomm providing Apple (assuming Apple's assertions are true) with an easier foot in the door, so to speak. By that I'm referring to Qualcomm not paying Apple what Apple claims it is owed. That could provide a cleaner legal argument - a simple contract dispute, an accusation that the other party failed to live up to clear contractual terms - to begin an action with. The scope of that action and what Apple ultimately seeks as redress might, in effect, then expand based on the allegations it's making about other actions on Qualcomm's part. There could of course be other reasons for the timing and what you mention likely plays some role. Apple probably was waiting for regulatory agencies - notably the U.S. FTC - to file complaints first, in combination with the actions of other regulatory agencies that FTC filing makes Apple's own complaint initially look more credible.
    edited February 2
  • Reply 7 of 7
    gatorguygatorguy Posts: 15,817member
    carnegie said:
    gatorguy said:
    I like Cook's sofa analogy. The sofa is a component in a house and should have a static price regardless of how valuable the house is or what neighborhood it's in. 
    Yup, it does sound sensical. The issue will be proving the current model is illegal. No court has blanket ruled it as such AFAIK. It's a not-uncommon method of monetizing patents, and Apple has signed under those terms before. It's only been somewhat recently that Apple has decided to challenge it, but I think that's more roll-with-the-good-timing since the Chinese successfully got Qualcomm to bend. Had that not happened I personally think Apple would have swallowed hard, negotiated as toughly as they could, but in the end signed on the dotted line as they typically have. 


    As for the timing of Apple's filings, I suspect it has more to do with Qualcomm providing Apple (assuming Apple's assertions are true) with an easier foot in the door, so to speak. By that I'm referring to Qualcomm not paying Apple what Apple claims it is owed. That could provide a cleaner legal argument - a simple contract dispute, an accusation that the other party failed to live up to clear contractual terms - to begin an action with. 
    And that's Qualcomm's argument: This should be handled as a contract dispute, which Apple isn't doing and disagrees that it is one anyway.

    Qualcomm says Apple wants to turn “a simple contract dispute into a regulatory issue.”  In essence Apple isn't going to just take the chance they lose in court and end up agreeing to a contract anyway under terms they don't want to accept and so are pushing for government regulators to find fault with Qualcomm. 
    edited February 2
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