Qualcomm accuses Foxconn & other Apple suppliers of breach of contract

Posted:
in iPhone
Chipmaker Qualcomm on Wednesday leveled a complaint against Foxconn and three other Apple manufacturing partners, accusing them of breaking licensing agreements by not paying due royalties.




The other parties include Pegatron, Wistron, and Compal, Reuters said. Qualcomm normally charges royalties to Apple's manufacturers, which are then compensated. In April, however, Qualcomm revealed that Apple was withholding that compensation, and accordingly the manufacturers are refusing to pay down the chain.

"While not disputing their contractual obligations to pay for the use of Qualcomm's inventions, the manufacturers say they must follow Apple's instructions not to pay," Qualcomm elaborated in a statement.

The company is pursuing an order that would force the manufacturers to comply with their contracts, as well as pay relief and damages.

In January, Apple launched a $1 billion lawsuit against Qualcomm, arguing that it was abusing its market position to obtain unfair royalties, and bullying chip buyers into signing patent licenses. A countersuit began in April, accusing Apple of breaking contract and wanting to pay less than market value for patents.

Before Apple began withholding 2017 royalties, the company was already withholding $1 billion from 2016 sales. Qualcomm offset the damage by holding back money it owed Apple under a cooperation agreement.

Comments

  • Reply 1 of 12
    Rayz2016Rayz2016 Posts: 3,177member
    I have trouble understanding how this is supposed to work. 

    They charge Pegatron for using their tech when making devices for Apple. 
    So what is Apple being charged for if the don't manufacture devices themselves?

    I have no idea what the agreements said, but it looks to me like they can charge Apple or charge Pegatron, but I don't see how they can charge both companies for making the same unit. 



    tycho_macuserjbdragon
  • Reply 2 of 12
    adrayvenadrayven Posts: 460member
    Rayz2016 said:
    I have trouble understanding how this is supposed to work. 

    They charge Pegatron for using their tech when making devices for Apple. 
    So what is Apple being charged for if the don't manufacture devices themselves?

    I have no idea what the agreements said, but it looks to me like they can charge Apple or charge Pegatron, but I don't see how they can charge both companies for making the same unit. 



    Thats what the dispute is about, it's forcing royalties to be paid both by suppliers and the OEM (Apple) at same time.. Qualcomm is double dipping and basically holding the market hostage since its the only game in town; even though these patents are under FRAND.

    Apple has started to buck this and play hardball.

    and now, the EU has declared Qualcomm a monopoly in this space.. That does not bode well for them. With Google and others weighing in as well about Qualcomm's abuse of their position, I honestly think they might loose this one.
    edited May 2017 longpathjbdragonwatto_cobra
  • Reply 3 of 12
    Rayz2016 said:
    I have trouble understanding how this is supposed to work. 

    They charge Pegatron for using their tech when making devices for Apple. 
    So what is Apple being charged for if the don't manufacture devices themselves?

    I have no idea what the agreements said, but it looks to me like they can charge Apple or charge Pegatron, but I don't see how they can charge both companies for making the same unit. 



    double dipping.

    You need to pay royalties to use the chips supplied by QC in order to build the devices.
    You need to pay more royalties to use those devices that contain QC supplied chips and in the case of the iPhone these royalties are proportional to the selling price of the device.

    I've never understood the reason for the 1st payment. I remember this being extensively covered back in the day on Groklaw. (www.groklaw.net)
    Seems to be a common practice but so far I've never fully uinderstood why this is done.
    If I were Foxconn, then I'd probably withold the payments but put them in escrow pending the outcome of the various QC patent cases. Many litigants accept this practice as you have shown intent to pay. IANAL and all that cr*p.

    longpathjbdragon
  • Reply 4 of 12
    williamhwilliamh Posts: 579member
    From what I read earlier, Qualcomm was also violating their FRAND obligations through a sort of kickback scheme.  Qualcomm is required to license the patents in a non-discriminatory fashion.  As I understood it, to inflate the price they were charging some customers, they entered into agreements with other customers according to which they would pay the inordinately high price and have a portion refunded back.

    In my area where there are a lot of legislators, Qualcomm is running radio adds claiming to have invented everything related to cell phones that we enjoy today and to be sharing that technology with everyone.  I'm sure the folks at Motorola and Bell Labs who actually invented cell phones must have something to say (if they're still alive).  Regardless of who it is, I find the lobbying pretty nauseating.  (Do we really need to hear commercials for fighter planes, really?)
    jbdragon
  • Reply 5 of 12
    tshapitshapi Posts: 269member
    Look at it this way. I think The royalties are for use of the name and such.  I imagine Foxconn uses the Qualcomm name in marketing or viewing, sensitive company information and such  I.e. "We are a proud licensed manufacturer of Qualcomm this or Qualcomm that, or I think Qualcomm forces them to pay for this right. 

    Either that or Apple is splitting the royalties costs among itself and Its suppliers so as to not have to pay the full cost in exchange for letting them make money off building Apple products... 


    edited May 2017
  • Reply 6 of 12
    Rayz2016 said:
    I have trouble understanding how this is supposed to work. 

    They charge Pegatron for using their tech when making devices for Apple. 
    So what is Apple being charged for if the don't manufacture devices themselves?

    I have no idea what the agreements said, but it looks to me like they can charge Apple or charge Pegatron, but I don't see how they can charge both companies for making the same unit. 



    I believe that it works like this:
    Apple contracts w/ Pegatron parts @ a certain cost. Pegatron pays Qualcomm the FRAND costs, which cuts into their profits................ but, Apple reimburses them. 
    Now that Apple is disputing the charges & refusing to pay; they're informing their suppliers to not pay, because (obviously) then Qualcomm would get the money, Apple would have to refuse to pay Pegatron (who is NOT accused of any wrongdoing, & it would be a kerfuffle.

  • Reply 7 of 12
    davidwdavidw Posts: 910member
    tshapi said:
    Look at it this way. I think The royalties are for use of the name and such.  I imagine Foxconn uses the Qualcomm name in marketing or viewing, sensitive company information and such  I.e. "We are a proud licensed manufacturer of Qualcomm this or Qualcomm that, or I think Qualcomm forces them to pay for this right. 

    Either that or Apple is splitting the royalties costs among itself and Its suppliers so as to not have to pay the full cost in exchange for letting them make money off building Apple products... 


    It's more like Apple was paying both royalties. One to license the chip that their manufacturers put in Apple devices and one based on the price of the final product for using the technology in the chip. Apple was compensating Qualcomm for Apple manufacturers use of the chip. I think this was what the rebate was about. Qualcomm would give Apple a rebate for their cost in compensating manufacturers royalties. Not sure if the rebate was for the full cost or just a portion. But Qualcomm withheld the rebate due to Apple because of Apple's part in S.Korea suit against Qualcomm. Qualcomm lost close to $1B in that suit. So it withheld $1B worth of rebate it owed to Apple, claiming Apple broke some sort of agreement.

    Qualcomm is now going after Apple's manufacturers because Apple is no longer paying Qualcomm any royalties and thus no longer compensating the cost of the chip that manufacturers are installing into Apple products. Apple is telling their manufacturers not to pay. 

    There're actually 2 part to the suit against Qualcomm by Apple. One for the $1B in rebate that Qualcomm failed to pay Apple and one for abusing licensing under FRAND.
    jbdragon
  • Reply 8 of 12
    lkrupplkrupp Posts: 5,644member
    This makes Qualcomm look like a cornered rat wildly lashing out in all directions.
    longpathmobius
  • Reply 9 of 12
    sdw2001sdw2001 Posts: 16,853member
    Rayz2016 said:
    I have trouble understanding how this is supposed to work. 

    They charge Pegatron for using their tech when making devices for Apple. 
    So what is Apple being charged for if the don't manufacture devices themselves?

    I have no idea what the agreements said, but it looks to me like they can charge Apple or charge Pegatron, but I don't see how they can charge both companies for making the same unit. 



    Qualcomm charges Pegatron (for example) for using Qualcomm's tech when making Apple products.  

    Apple then reimburses Pegatron under the terms of an agreement between all parties (or separate agreements).  

    That means Apple ultimately pays Qualcomm for licensing. What Apple is saying is that Qualcomm is overcharging.  Apple finally decided to withhold its reimbursement to companies like Pegatron, and instructed them not to pay Qualcomm's fees anymore.  Apple is also suing Qualcomm over the issue, and Qualcomm is countersuing both Apple and the manufacturers (partially to force them to pay no matter what Apple says).   
    tycho_macuser
  • Reply 10 of 12
    tzeshantzeshan Posts: 1,591member
    I don't understand.  Qualcomm is an Apple suppler because Apple buys the chip from Qualcomm.  So Apple already paid Qualcomm for using its chip.  Right? How could Apple charge additional royalties from Apple and its suppliers?  Is it because the chip has many functionalities, the user needs to pay royalties according to the functionalities it uses? 
  • Reply 11 of 12
    mcdavemcdave Posts: 787member
    What's the caption?

    "You'll never be able to afford one of these"
  • Reply 12 of 12
    bestkeptsecretbestkeptsecret Posts: 2,524member
    mcdave said:
    What's the caption?

    "You'll never be able to afford one of these"

    You think she'd have the balls to say that to Tim Cook?
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