Apple to halt royalty payments to Qualcomm until end of ongoing legal battle
Apple is no longer paying iPhone manufacturers for any of the royalties it owes to Qualcomm, and is planning to withhold them entirely until current lawsuits are resolved, the latter company said on Friday.
As a result Qualcomm had to cut its revenue forecast for the current quarter by $500 million, to between $4.8 billion and $5.6 billion, according to Forbes. Qualcomm's licensing deals for the iPhone are techncially with Apple's manufacturers, who pass the costs along to their client.
Earlier this month Qualcomm indicated that those manufacturers were withholding payments, and that it would impact upcoming financials. At the time however it didn't have specific numbers.
"Apple has now unilaterally declared the contract terms unacceptable; the same terms that have applied to iPhones and cellular-enabled iPads for a decade," said Qualcomm general counsel Don Rosenberg in an official statement.
"Apple's continued interference with Qualcomm's agreements to which Apple is not a party is wrongful and the latest step in Apple's global attack on Qualcomm. We will continue vigorously to defend our business model, and pursue our right to protect and receive fair value for our technological contributions to the industry."
In January, Apple filed a $1 billion lawsuit against Qualcomm, accusing it of abusing its market dominance to obtain unfair royalties, and forcing chip buyers to accept patent licenses. Earlier this month Qualcomm launched a countersuit, arguing that Apple broke contract and really wants to pay less than fair market value for patents.
Prior to now Apple was already withholding approximately $1 billion in earlier royalty payments dating to 2016 sales, but Qualcomm prevented this from seriously impacting its financials by withholding money it owed Apple under a cooperation agreement that ended last year.
As a result Qualcomm had to cut its revenue forecast for the current quarter by $500 million, to between $4.8 billion and $5.6 billion, according to Forbes. Qualcomm's licensing deals for the iPhone are techncially with Apple's manufacturers, who pass the costs along to their client.
Earlier this month Qualcomm indicated that those manufacturers were withholding payments, and that it would impact upcoming financials. At the time however it didn't have specific numbers.
"Apple has now unilaterally declared the contract terms unacceptable; the same terms that have applied to iPhones and cellular-enabled iPads for a decade," said Qualcomm general counsel Don Rosenberg in an official statement.
"Apple's continued interference with Qualcomm's agreements to which Apple is not a party is wrongful and the latest step in Apple's global attack on Qualcomm. We will continue vigorously to defend our business model, and pursue our right to protect and receive fair value for our technological contributions to the industry."
In January, Apple filed a $1 billion lawsuit against Qualcomm, accusing it of abusing its market dominance to obtain unfair royalties, and forcing chip buyers to accept patent licenses. Earlier this month Qualcomm launched a countersuit, arguing that Apple broke contract and really wants to pay less than fair market value for patents.
Prior to now Apple was already withholding approximately $1 billion in earlier royalty payments dating to 2016 sales, but Qualcomm prevented this from seriously impacting its financials by withholding money it owed Apple under a cooperation agreement that ended last year.
Comments
Apple have become too big and too powerful, and are using their dominating position to try and screw everyone else to keep them in their ivory tower.
I can remember this being discussed at length on groklaw around 2006.
Company A has the IP and the chips
It charges Company B to use the chips in their device
It charges Company C to put them in the devices it makes for Company B even though they are not technically using them.
Company B usually pays Company C the amount due to Company A
It ends up costing Company B more than if they made the devices themselves.
A lot of companies would tip their hat (probably silently) to Apple if somehow this double dipping was made illegal.
Qualcomm has been charging licensing fees based on the value of the finished product even though the part is the same. Apple has stated that every time they add new tech to their products (3D touch, AR, oled etc) that adds value or higher selling price, Qualcomm wants more licensing fees.
Apple has been paying more for a 7+ than a $200 commodity phone even if they have the exact same chips. This would be like other manufacturers charging you more for your furniture, appliances, tv's etc if your house was worth $1 million instead of $100,000.
If that aspect is true. I can see why they don't want to pay anymore. It doesn't work like that for any other FRAND licensing and apple is arguing that Qualcomm is capitalizing on apples innovation/design which allows them to maintain higher ASP's.
https://www.usatoday.com/story/tech/news/2017/04/12/blackberry-shares-rose-15-after-new-its-8149b-arbitration-award/100365180/
I think Apple has a pretty good case here and I think Qualcomm has some real problems....
This makes me think that Apple has very carefully built a pretty strong case over time. That case may have been bolstered by evidence that has come to light out of the various anti-trust investigations of Qualcomm around the world (EU, South Korea).
So I'm guessing Apple has a very good chance of winning.... they wouldn't have taken these steps otherwise.
First time I seen someone explain this correctly on this forum.
Couple correction,
The license that Company C is paying can be one of two or both of these items.
1. it could be a license to put the chip and load software on the product of Company B. This is manufacturing license, this could be because Company A has IP which affects how the chips or software is place in the product. or it could be a general manufacturing license.
2. If Company C is buying the parts on behalf of Company B they pay the royalties on behalf of Company B. This is an issue since Company C adds them margins on top of the licensing fees if it not clear what is include in the fees and how they are all being rolled up.
Qualcomm has license the entire value chain of their chips and who uses them. The carries also have to pay Qualcomm a fee to sell and use the chips in the phones and the equipment in their network to connect to a phone. This was a model which was developed a long time ago. I hope Apple does win this since the licensing the entire value chain is costing everyone lots of money.
Think about this, Qualcomm charges the Company C a fee, which the pass along to Company B which in Company C's margins, This cost gets rolled up into Company B's COGS and then Qualcomm charges Company B a fee and that fee is also rolled up into the COGS of the product plus margins. Then Company B sells the product to the Carries which Company C's fees + margin + Company B's fees + margins on total. Then the carries then pay their fees and margin it all up and sells it to the consumer. In this case the consumer is paying 3 fees and all the margins on those fees.
Qualcomm is not the only one doing this MPEG does the same thing, I had to negotiate MPEG deals and they are so complicated with all the licensing and who pays when and when. They do allow the actually contract manufacturers to void paying fees under certain conditions, but if you are not careful it could end up like what Qaulcomm is doing.
Royalties=Property Tax
Seems like a more appropriate comparison than talking about the furniture which is optional and not integral to the home.