Apple sues iPhone modem supplier Qualcomm, claims $1 billion in payments withheld over FTC...

Posted:
in iPhone edited January 2017
Apple on Friday filed a lawsuit against longtime iPhone modem supplier Qualcomm, in a dispute over royalty payments apparently connected to a federal investigation into the chipmaker's potentially anticompetitive business dealings.




Apple's complaint comes just a few days after the U.S. Federal Trade Commission also filed a lawsuit against Qualcomm, accusing the company of forcing Apple to buy wireless chips in exchange for better royalties. Apple reportedly sought to lower its patent royalty payments to Qualcomm, but the chipmaker made it conditional that the iPhone maker exclusively use Qualcomm chips from 2011 until 2016.

Now Apple has added to the attack on Qualcomm with its own lawsuit, accusing its partner of withholding nearly $1 billion in payments, according to CNBC. In the complaint, Apple claims the $1 billion spat was "retaliation for responding truthfully to law enforcement agencies," referring to the FTC complaint against Qualcomm.

"Despite being just one of over a dozen companies who contributed to basic cellular standards, Qualcomm insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined," Apple's complaint reads.




After the exclusivity agreement with Qualcomm ended in 2016, Apple began diversifying its modem suppliers last year with the iPhone 7 and iPhone 7 Plus. The company's latest flagship handsets use modems from both Qualcomm and Intel.

The FTC has been investigating Qualcomm since 2014, concerned that it was abusing FRAND (fair, reasonable and nondiscriminatory) patent commitments with clients. Apple remains one of the company's more important customers, despite the iPhone 7's shift towards multiple modem suppliers.

For its part, Qualcomm has denied any wrongdoing, and has said that the FTC's complaint is "is significantly flawed." The firm cited a dissenting opinion from FTC Commissioner Maureen Ohlhausen, who said the case is "based on a flawed legal theory, a lack of economic support, and significant misconceptions about the mobile technology industry."
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Comments

  • Reply 1 of 22
    It's just business, no hard feelings. 
    damn_its_hot
  • Reply 2 of 22
    Now Apple has added to the attack on Qualcomm with its own lawsuit, accusing its partner of withholding nearly $1 billion in payments, according to CNBC. In the complaint, Apple claims the $1 billion spat was "retaliation for responding truthfully to law enforcement agencies," referring to the FTC complaint against Qualcomm.

    Can someone clarify this. Who is withholding $1 billion; it appears they are saying that Qualcomm is withholding pmt and they refer to them as Apple's partner.

    Why does Qualcomm owe Apple $1 billion and also I was not aware that Qualcomm was a partner of Apple's (i.e., anymore than say Intel)?
    edited January 2017 StrangeDays
  • Reply 3 of 22
    Now Apple has added to the attack on Qualcomm with its own lawsuit, accusing its partner of withholding nearly $1 billion in payments, according to CNBC. In the complaint, Apple claims the $1 billion spat was "retaliation for responding truthfully to law enforcement agencies," referring to the FTC complaint against Qualcomm.

    Can someone clarify this. Who is withholding $1 billion; it appears they are saying that Qualcomm is withholding pmt and they refer to them as Apple's partner.

    Why does Qualcomm owe Apple $1 billion and also I was not aware that Qualcomm was a partner of Apple's (i.e., anymore than say Intel)?
    The allegation is that Qualcomm is withholding $1 billion from Apple. That would be for royalty rebates that Qualcomm owes Apple pursuant to a deal they made. Qualcomm, allegedly and among other things, forces phone makers to pay improperly high licensing fees. Then, at least in the case of Apple, rebates a large portion of those fees in exchange for Apple agreeing not to buy certain processors from Qualcomm's rivals. In this way Qualcomm can, in effect (but not directly), charge phone makers more for standard-essential patent licenses if they buy certain processors from its competitors rather than from Qualcomm. Doing that would be (or is, if the allegations are true) a violation of its agreements to license SEPs on FRAND terms.
    hlee1169teejay2012radarthekaticoco3argonautjony0
  • Reply 4 of 22
    It's definitely worth noting that it's not Qalcomm stating the suit is based on flawed legal theory, it's an FTC commissioner, Maureen K. Ohlhausen, who stated that the decisions to sue is: "an enforcement action based on a flawed legal theory...that lacks economic and evidentiary support".

    Source: https://www.ftc.gov/system/files/documents/cases/170117qualcomm_mko_dissenting_statement_17-1-17a.pdf


  • Reply 5 of 22
    ktappektappe Posts: 759member
    One wonders if Apple did this on a Friday afternoon purposely to ruin the weekend of the Qualcomm board (and legal dept.)
  • Reply 6 of 22
    Qualcomm has already been sued in Korea. Now the federal government and Apple are both suing them. 

    Intel needs to get busy and release a baseband radio with both CDMA and GSM support, winning all of Apple's modem business. 

    Samsung and LG need to abandon Qualcomm also, using their own chips, not snapdragons. The company can sink into the abyss. Their practices are odious and Apple is better off using Intel anyhow. 
  • Reply 7 of 22
    Could Apple's in-house expansion in chip-design eventually include designing and building their own modem circuits, eliminating both Intel and Qualcomm as suppliers in this category?
    watto_cobraargonaut
  • Reply 8 of 22
    mattinozmattinoz Posts: 1,019member
    Qualcomm has already been sued in Korea. Now the federal government and Apple are both suing them. 

    Intel needs to get busy and release a baseband radio with both CDMA and GSM support, winning all of Apple's modem business. 

    Samsung and LG need to abandon Qualcomm also, using their own chips, not snapdragons. The company can sink into the abyss. Their practices are odious and Apple is better off using Intel anyhow. 
    How long till LTE build out is far enough advanced that they could drop legacy support for those standards in some devices?
    Maybe not the iPhone itself but say iPod touch turns into an iPhone nano with eSimLTE. Not to mention iPads could have wifi/lte as standard config charge more for the old cellular standards. Even the watch as eSim LTE only model.  
  • Reply 9 of 22
    k2kwk2kw Posts: 1,699member
    Qualcomm has already been sued in Korea. Now the federal government and Apple are both suing them. 

    Intel needs to get busy and release a baseband radio with both CDMA and GSM support, winning all of Apple's modem business. 

    Samsung and LG need to abandon Qualcomm also, using their own chips, not snapdragons. The company can sink into the abyss. Their practices are odious and Apple is better off using Intel anyhow. 
    I'm not going to buy a phone with any crappy Intel modem.   And is CDMA a public standard like GSM?

    The FTC lawsuit will probably be dropped by the new Admin when Trump takes over.
    Don't expect Apple's legal department to win this; they have a poor track record.

  • Reply 10 of 22
    smack416 said:
    It's definitely worth noting that it's not Qalcomm stating the suit is based on flawed legal theory, it's an FTC commissioner, Maureen K. Ohlhausen, who stated that the decisions to sue is: "an enforcement action based on a flawed legal theory...that lacks economic and evidentiary support".

    Source: https://www.ftc.gov/system/files/documents/cases/170117qualcomm_mko_dissenting_statement_17-1-17a.pdf


    That's the minority's dissenting opinion.  Kinda like if the Supreme Court votes 6 to 3, or 5 to 4, and you start quoting someone from the disagreeing (ie losing) side.  Why did Maureen lose?
  • Reply 11 of 22
    Could Apple's in-house expansion in chip-design eventually include designing and building their own modem circuits, eliminating both Intel and Qualcomm as suppliers in this category?
    Negative, because Qualcomm still owns those standards-essential patents, and they only licence them out on non-FRAND terms apparently.
  • Reply 12 of 22
    ktappe said:
    One wonders if Apple did this on a Friday afternoon purposely to ruin the weekend of the Qualcomm board (and legal dept.)
    Doubt it.  I think news get dropped on Friday if you want it to have low publicity, and on Monday/Tuesday if you want high publicity.  The board and legal department get paid so much anyway, so I have zero sympathy for them - they better earn every last penny that they're paid
  • Reply 13 of 22
    bravadu said:
    smack416 said:
    It's definitely worth noting that it's not Qalcomm stating the suit is based on flawed legal theory, it's an FTC commissioner, Maureen K. Ohlhausen, who stated that the decisions to sue is: "an enforcement action based on a flawed legal theory...that lacks economic and evidentiary support".

    Source: https://www.ftc.gov/system/files/documents/cases/170117qualcomm_mko_dissenting_statement_17-1-17a.pdf


    That's the minority's dissenting opinion.  Kinda like if the Supreme Court votes 6 to 3, or 5 to 4, and you start quoting someone from the disagreeing (ie losing) side.  Why did Maureen lose?
    Smack's point is that that article is wrong in attributing the quote to the company instead of a dissenting commissioner. 
  • Reply 14 of 22
    Imagine if Apple ever made their A Series processors available to other phone/tablet manufacturers (extremely unlikely)?

    Qualcomm would be finished overnight. Who'd buy an inferior Snapdragon processor if a superior alternative was available?
    watto_cobraargonaut
  • Reply 15 of 22
    k2kw said:
    Qualcomm has already been sued in Korea. Now the federal government and Apple are both suing them. 

    Intel needs to get busy and release a baseband radio with both CDMA and GSM support, winning all of Apple's modem business. 

    Samsung and LG need to abandon Qualcomm also, using their own chips, not snapdragons. The company can sink into the abyss. Their practices are odious and Apple is better off using Intel anyhow. 
    I'm not going to buy a phone with any crappy Intel modem.   And is CDMA a public standard like GSM?

    The FTC lawsuit will probably be dropped by the new Admin when Trump takes over.
    Don't expect Apple's legal department to win this; they have a poor track record.

    From a purely technical perspective, QUALCOMM has the better modem. However, Intel's modem is adequate.

    The decision to buy a phone with an Intel or QUALCOMM modem is an individual one. That is not what's being discussed here.

    QUALCOMM is abusing it's patent monopoly to charge exorbitant prices to manufacturers such as Apple, Samsung, and LG for modems.

    It is the basis of the Korean fair trade commission lawsuit against QUALCOMM the FTC lawsuit and now the Apple lawsuit.

    While Trump is pro business, he very likely will look at this quite unfavorably. It is doubtful that he will protect companies who use monopoly positions to charge exorbitant prices as in the case of QUALCOMM. Don't expect him to bail QUALCOMM out of this one.

    In any case, Trump has no say over how the Korean government prosecutes lawsuits. QUALCOMM still has a huge liability, should the Korean lawsuit be lost.
    icoco3
  • Reply 16 of 22
    ksecksec Posts: 1,551member
    mattinoz said:
    Qualcomm has already been sued in Korea. Now the federal government and Apple are both suing them. 

    Intel needs to get busy and release a baseband radio with both CDMA and GSM support, winning all of Apple's modem business. 

    Samsung and LG need to abandon Qualcomm also, using their own chips, not snapdragons. The company can sink into the abyss. Their practices are odious and Apple is better off using Intel anyhow. 
    How long till LTE build out is far enough advanced that they could drop legacy support for those standards in some devices?
    Maybe not the iPhone itself but say iPod touch turns into an iPhone nano with eSimLTE. Not to mention iPads could have wifi/lte as standard config charge more for the old cellular standards. Even the watch as eSim LTE only model.  
    I wishes the same too. But from a world wide perspective, not soon. China is still not fully LTE yet, while they are building it as quickly as they can, ( There are more mobile users in China then North America population ), it will likely be late 2018 or early 2019 before they finish.

    I do hope once all the LTE patents are sorted, Apple could force the world to be LTE / 5G only. 
  • Reply 17 of 22
    I read Apple's complaint this weekend. I'd also read the Korean FTC's release on the matter and the U.S. FTC's complaint. What I haven't been able to read yet is China's findings from 2015. If anyone knows where I can find an English version of its findings, I'd very much appreciate a pointer. I've read various reports on what China found (which lead to its settlement with Qualcomm), but I'd like to read for myself what the Chinese regulator (the NDRC) had to say. And I can't read Chinese so the version I found didn't help me much. :smile: 

    That said, judging by the pre-market movement in Qualcomm stock (QCOM) this morning, I'd say that the market realizes what I now realize. If the factual allegations are true - and that remains a big if, though we have multiple regulators and Apple making meaningfully the same allegations - then Qualcomm has a bigger problem on its hands than losing a $1 billion in a lawsuit and perhaps a few billion more due to regulator's fines. If the factual allegations are true - again, that's a pretty big if - then it means that Qualcomm's business model isn't sustainable, not now that it's been exposed and various parties seem willing to fight to put an end to it. If the allegations are correct - again, one last time, that's an important if - then Qualcomm's business model over the last decade or so has been based more on extortion and illegal and improper tactics than on legitimate business practices. Figuratively speaking, Qualcomm has been holding guns to the industry's head and using the ill-gotten gains therefrom to buy more guns that it can hold to the industry's head. And that is what has driven its earnings in recent years.

    If the allegations are more or less true, then the damage done to Qualcomm's business will - eventually - be quite dramatic. And by the damage done, I'm not so much referring to the judicial judgments and regulatory fines that might go against it, I'm more so referring to Qualcomm losing its ability going forward to employ the tactics it's allegedly been using to extort the industry.  That's not to say that Qualcomm couldn't go on as a profitable business, just that its earnings could be dramatically impacted and growth from where it's at now would be much more difficult. At this point, its best hopes might lie in trying to drag the judicial and regulatory processes out for as long as it could and forestall the falling of the axe for as long as it can. Even without that, it would take a while to undo the effect that Qualcomm's practices have had and for strong competition for Qualcomm to emerge in certain areas.

    I haven't been a Qualcomm investor (ever, as far as I can recall). But if I were one now, I'd be wrestling quite intensely with whether I thought the factual allegations that have been made were true. Qualcomm is now down about 8% since this Apple suit was announced and more than 10% since the FTC's suit was announced. Is that a buying opportunity? Only, I'd say, if we think these allegations will prove untrue - even then, I'm not sure.
  • Reply 18 of 22
    gatorguygatorguy Posts: 20,287member
    carnegie said:
    I read Apple's complaint this weekend. I'd also read the Korean FTC's release on the matter and the U.S. FTC's complaint. What I haven't been able to read yet is China's findings from 2015. If anyone knows where I can find an English version of its findings, I'd very much appreciate a pointer.
    You are more likely to find it by using Google Scholar as the search engine rather than a standard searchbar.

    For those unfamiliar with what he's talking about Qualcomm already was investigated in China over complaints very similar to the ones the FTC is now handling. Their agreement with the Chinese is linked here:
    http://www.essentialpatentblog.com/2015/02/qualcomm-reaches-agreement-with-chinese-government-on-standard-essential-patent-investigation/

    edited January 2017
  • Reply 19 of 22
    gatorguy said:
    carnegie said:
    I read Apple's complaint this weekend. I'd also read the Korean FTC's release on the matter and the U.S. FTC's complaint. What I haven't been able to read yet is China's findings from 2015. If anyone knows where I can find an English version of its findings, I'd very much appreciate a pointer.
    You are more likely to find it by using Google Scholar as the search engine rather than a standard searchbar.

    For those unfamiliar with what he's talking about Qualcomm already was investigated in China over complaints very similar to the ones the FTC is now handling. Their agreement with the Chinese is linked here:
    http://www.essentialpatentblog.com/2015/02/qualcomm-reaches-agreement-with-chinese-government-on-standard-essential-patent-investigation/

    Thanks, that's a good idea.

    Qualcomm stock has beaten down even further, it's now down about 15% since the Apple suit was announced.
  • Reply 20 of 22
    Apple is reportedly suing Qualcomm in China now.
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