Apple to halt royalty payments to Qualcomm until end of ongoing legal battle

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in iPhone
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.
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Comments

  • Reply 1 of 28
    jkichlinejkichline Posts: 1,316member
    There's got to be some reason why not just Apple, but other manufacturers are on the outs with Qualcomm.  Is this monies that Qualcomm is claiming over FRAND IP for cellular connectivity? Are Qualcomm products being used in these products any longer, or are they trying to still milk royalties from devices that have less and less of their IP in them?  They state that they have been under the same contract with Apple for over a decade... technology changes. Perhaps your patents are no longer that valuable as a proportion of the product?
    lkruppnetmageelijahgmejsricronnbrakken
  • Reply 2 of 28
    SpamSandwichSpamSandwich Posts: 30,563member
    I suppose if Qualcomm ends up winning they could sue for even more damages caused by Apple and hugely increase what Apple owes them.
    edited April 2017
  • Reply 3 of 28
    blastdoorblastdoor Posts: 1,888member
    Wow. Go Apple!
    stantheman
  • Reply 4 of 28
    lkrupplkrupp Posts: 6,608member
    There are consequences when you piss off one of your biggest customers.
  • Reply 5 of 28
    lkrupplkrupp Posts: 6,608member
    I suppose if Qualcomm ends up winning they could sue for even more damages caused by Apple and hugely increase what Apple owes them.
    Apple is the villain once again. Typical.
  • Reply 6 of 28
    gatorguygatorguy Posts: 19,805member
    Well this is the first time I'd read that Apple is not paying royalties to Qualcomm directly, but instead it's built in to the price of the purchased component. If accurate then "double-dipping" complaints might not be applicable in this particular case? In any event that's a little bit different scenario than I and probably everyone else here had thought.
    SpamSandwich
  • Reply 7 of 28
    mwhitemwhite Posts: 171member
    gatorguy said:
    Well this is the first time I'd read that Apple is not paying royalties to Qualcomm directly, but instead it's built in to the price of the purchased component. If accurate then "double-dipping" complaints might not be applicable in this particular case? In any event that's a little bit different scenario than I and probably everyone else here had thought.
    If you had read enough articles there has been a lot of them that Apple was paying suppliers and Qualcomm royalties so yes Qualcomm was double dipping...
  • Reply 8 of 28
    saltyzipsaltyzip Posts: 193member
    This will backfire on Apple long term. They are punishing the company's and indirectly their employees and those associated further down the food chain, because they have a direct spat with one component supplier. I would like all those suppliers and their employees and Qualcomm to sue Apple for withholding payments.

    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.
    edited April 2017
  • Reply 9 of 28
    mwhite said:
    If you had read enough articles there has been a lot of them that Apple was paying suppliers and Qualcomm royalties so yes Qualcomm was double dipping...
    Which is seemingly SOP in the industry.
    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.

  • Reply 10 of 28
    If Qualcomm did not patent what does not belong to them in the first place (CDMA belongs to British MI6 agency read about why GSM was invented) then their behavior would be more acceptable. That opened unacceptable practices with weak USPTO patenting system that is absolutely non-compliant with European patrents.
    stantheman
  • Reply 11 of 28
    saltyzip said:
    This will backfire on Apple long term. They are punishing the company's and indirectly their employees and those associated further down the food chain, because they have a direct spat with one component supplier. I would like all those suppliers and their employees and Qualcomm to sue Apple for withholding payments.

    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.
    backfire how, are all those companies really going to turn down the multi-year, multi-million (sometimes billion) dollar contracts that apple offer? many of these companies rely on apple, almost entirely. There are other manufacturers to step in, there is no other customer to step in.
  • Reply 12 of 28
    jkichline said:
    There's got to be some reason why not just Apple, but other manufacturers are on the outs with Qualcomm.
    I don't have links to various articles I've read handy. But it is my understanding that besides double-dipping accusations.

    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.
    edited April 2017 Rayz2016
  • Reply 13 of 28
    emoelleremoeller Posts: 415member
    Blackberry just won a $841M binding arbitration against Qualcomm for improper royalty charges.   

    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....
    SpamSandwichstanthemanmwhitemejsric
  • Reply 14 of 28
    blastdoorblastdoor Posts: 1,888member
    I suppose if Qualcomm ends up winning they could sue for even more damages caused by Apple and hugely increase what Apple owes them.
    This action taken by Apple is not something they would take lightly for exactly that kind of reason. 

    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. 
    SpamSandwichcharlesatlasstantheman
  • Reply 15 of 28
    gatorguygatorguy Posts: 19,805member
    jkichline said:
    There's got to be some reason why not just Apple, but other manufacturers are on the outs with Qualcomm.
    I don't have links to various articles I've read handy. But it is my understanding that besides double-dipping accusations.

    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.
    Like property tax? 
    andrewj5790
  • Reply 16 of 28
    SpamSandwichSpamSandwich Posts: 30,563member
    blastdoor said:
    I suppose if Qualcomm ends up winning they could sue for even more damages caused by Apple and hugely increase what Apple owes them.
    This action taken by Apple is not something they would take lightly for exactly that kind of reason. 

    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. 
    Don't get me wrong, I want Apple to win.
  • Reply 17 of 28
    maestro64maestro64 Posts: 4,414member
    mwhite said:
    If you had read enough articles there has been a lot of them that Apple was paying suppliers and Qualcomm royalties so yes Qualcomm was double dipping...
    Which is seemingly SOP in the industry.
    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.

    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.

    gatorguypatsu
  • Reply 18 of 28
    gatorguy said:
    jkichline said:
    There's got to be some reason why not just Apple, but other manufacturers are on the outs with Qualcomm.
    I don't have links to various articles I've read handy. But it is my understanding that besides double-dipping accusations.

    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.
    Like property tax? 
    Yeah. I guess it's like a property tax in some sense. That the more value the device has the more you pay. Except with property taxes, they are based on the land, size and configuration of the buildings. Not so much what's inside. This extends that concept to your Sony tv  "taxing" you more as a royalty for you have a nicer house.
  • Reply 19 of 28
    gatorguygatorguy Posts: 19,805member
    gatorguy said:
    jkichline said:
    There's got to be some reason why not just Apple, but other manufacturers are on the outs with Qualcomm.
    I don't have links to various articles I've read handy. But it is my understanding that besides double-dipping accusations.

    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.
    Like property tax? 
    Yeah. I guess it's like a property tax in some sense. That the more value the device has the more you pay. Except with property taxes, they are based on the land, size and configuration of the buildings. Not so much what's inside. This extends that concept to your Sony tv  "taxing" you more as a royalty for you have a nicer house.
    Phone=House
    Royalties=Property Tax

    Seems like a more appropriate comparison than talking about the furniture which is optional and not integral to the home.
    edited April 2017
  • Reply 20 of 28
    gatorguy said:
    gatorguy said:
    jkichline said:
    There's got to be some reason why not just Apple, but other manufacturers are on the outs with Qualcomm.
    I don't have links to various articles I've read handy. But it is my understanding that besides double-dipping accusations.

    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.
    Like property tax? 
    Yeah. I guess it's like a property tax in some sense. That the more value the device has the more you pay. Except with property taxes, they are based on the land, size and configuration of the buildings. Not so much what's inside. This extends that concept to your Sony tv  "taxing" you more as a royalty for you have a nicer house.
    Phone=House
    Property tax=royalties

    Seems like a closer comparison than talking about the furniture which is optional and not integral. 
    But property taxes are based on the house. Not what's inside. Your house isn't worth for tax purposes the value of the land, house and furnishings added together. The Qualcomm chip is closer to a furnishing in the house than it is to the roof, pool or sq footage.
    ronn
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