Qualcomm CEO says dispute with Apple about IP pricing, expects out of court settlement
Qualcomm CEO Steve Mollenkopf in an interview on Monday provided additional background on the company's ongoing legal battle with Apple, saying he believes intellectual property pricing and contract obligations are its core. He seemed optimistic, however, that the fight will end in an out of court settlement.
Qualcomm CEO Steve Mollenkopf speaks at the Brainstorm Tech conference in Aspen, Colo. | Source: Fortune
Speaking with Fortune at the Brainstorm Tech conference in Aspen, Colo., Mollenkopf said the Apple litigation is similar in scope to past legal battles involving IP and component pricing.
"At its core, it's really about the price of IP and what to pay for the technology that essentially Qualcomm and others -- but in this case Qualcomm -- really produced in order to invent the industry that I think [has] really become so disruptive and such an important force in our daily lives," Mollenkopf said. "But in reality, if you strip it all away, it's really about -- we have a contract and people want to pay less under the contract and there's a lot of worldwide maneuvering to try to get that resolved."
He added that Qualcomm's contract with Apple has been in existence "for a long time" and "there's not anything new going on," suggesting the litigation is a play for better price positioning.
He went on to compare the ongoing Apple fight with a case that took place in the 2000s. While Mollenkopf failed to provide details, he was likely referencing Qualcomm Inc. v. Broadcom Corp., a series of patent infringement lawsuits over cellular technology lodged with a U.S. district court and the ITC, as well as European and Korean regulatory agencies.
In 2009, Qualcomm agreed to end the litigation by paying Broadcom a $891 million out of court settlement. Mollenkopf on Monday said he expects the Apple action to end in a similar manner.
"Those things tend to get resolved out of court and there's no reason why I wouldn't expect that to be the case here, although I don't have an announcement or anything so please don't ask," he said. "But that's really the way that it works."
Mollenkopf's comments come over one week after Qualcomm announced plans to file a U.S. International Trade Commission complaint that would block the import and domestic sale of iPhone and iPad models that do not contain Qualcomm chips. To coincide with the ITC filing, the chipmaker lodged a lawsuit claiming Apple's devices infringe on six patents.
Apple initially filed suit against Qualcomm in January, claiming the firm abused its "monopoly power" of the wireless modem industry to demand excessive royalties while at the same time forcing buyers to license patents. Further, the suit claims Qualcomm withheld almost $1 billion in rebates in retaliation for Apple's willing participation in a South Korean antitrust investigation.
Qualcomm counter-sued in April, claiming Apple is in breach of contract. The firm has since asked courts to force Apple contract suppliers who stopped paying royalties earlier this year to continue payments.
Apple previously relied solely on Qualcomm modems in its iPhone and iPad lines, a supply decision that resulted in a windfall of revenue for the chipmaker. Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component. With the iPhone 7, however, Apple diversified sourcing to include modems made by Intel. The tech giant is rumored to escalate the process by deploying Intel chips in about half of all iPhones made in 2017.
Qualcomm CEO Steve Mollenkopf speaks at the Brainstorm Tech conference in Aspen, Colo. | Source: Fortune
Speaking with Fortune at the Brainstorm Tech conference in Aspen, Colo., Mollenkopf said the Apple litigation is similar in scope to past legal battles involving IP and component pricing.
"At its core, it's really about the price of IP and what to pay for the technology that essentially Qualcomm and others -- but in this case Qualcomm -- really produced in order to invent the industry that I think [has] really become so disruptive and such an important force in our daily lives," Mollenkopf said. "But in reality, if you strip it all away, it's really about -- we have a contract and people want to pay less under the contract and there's a lot of worldwide maneuvering to try to get that resolved."
He added that Qualcomm's contract with Apple has been in existence "for a long time" and "there's not anything new going on," suggesting the litigation is a play for better price positioning.
He went on to compare the ongoing Apple fight with a case that took place in the 2000s. While Mollenkopf failed to provide details, he was likely referencing Qualcomm Inc. v. Broadcom Corp., a series of patent infringement lawsuits over cellular technology lodged with a U.S. district court and the ITC, as well as European and Korean regulatory agencies.
In 2009, Qualcomm agreed to end the litigation by paying Broadcom a $891 million out of court settlement. Mollenkopf on Monday said he expects the Apple action to end in a similar manner.
"Those things tend to get resolved out of court and there's no reason why I wouldn't expect that to be the case here, although I don't have an announcement or anything so please don't ask," he said. "But that's really the way that it works."
Mollenkopf's comments come over one week after Qualcomm announced plans to file a U.S. International Trade Commission complaint that would block the import and domestic sale of iPhone and iPad models that do not contain Qualcomm chips. To coincide with the ITC filing, the chipmaker lodged a lawsuit claiming Apple's devices infringe on six patents.
Apple initially filed suit against Qualcomm in January, claiming the firm abused its "monopoly power" of the wireless modem industry to demand excessive royalties while at the same time forcing buyers to license patents. Further, the suit claims Qualcomm withheld almost $1 billion in rebates in retaliation for Apple's willing participation in a South Korean antitrust investigation.
Qualcomm counter-sued in April, claiming Apple is in breach of contract. The firm has since asked courts to force Apple contract suppliers who stopped paying royalties earlier this year to continue payments.
Apple previously relied solely on Qualcomm modems in its iPhone and iPad lines, a supply decision that resulted in a windfall of revenue for the chipmaker. Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component. With the iPhone 7, however, Apple diversified sourcing to include modems made by Intel. The tech giant is rumored to escalate the process by deploying Intel chips in about half of all iPhones made in 2017.
Comments
I love the way Qualcomm blithely say that Apple merely want the agreed rates lowered without mentioning that they were agreed while Qualcomm were squeezing Apple's nuts.
There were some calculation that nearly $100 per iPhone goes to patent system, more then half goes to 4G. Let say on a 20% Market Share Apple paid average $50 per phone. While the Rest of the industry paid average $20 per phone. Apple is literally paying ~40% of total in the telecom patent industry!
With a projected 1.5B Smartphone sales, that is 40B yearly revenue for the telecom industry, without doing a thing!.
And you have to remember if 4G LTE has a life time of 10 - 15 years, that is $500B+, assuming there is no growth of 4G devices! Then there is the coming 5G.
I think Apple wanted a future where Laptop, Desktop, Cars, Phones tablet will all have 4G / 5G built-in, but the roadblock is this ridiculously expensive patents system.
Some of you commenting are looking at the wrong pieces for evidence of illegality and FRAND-violation. ASP (Average Selling Price) as a royalty basis is both legal and common even if specific licensing terms between specific companies in specific contracts may not be.
No doubt that several readers here think that China found Qualcomm guilty of violating FRAND rules and fining them because of royalties based on a completed device. They did not. In fact China for all intents acknowledged that final build cost IS an appropriate royalty basis by telling Qualcomm to reduce it from 100% to 65% of the total cost for Chinese OEM's. It was other parts of Qualcomm's licensing requirements such as mandatory cross-licensing without recompense and including both SEP and non-SEP patents in the same license without the option of negotiating the non-SEP's separately that China found in violation of law.
Same thing in Korea. Basing royalties on a final device cost was not ruled illegal, not even inappropriate AFAIK. It was the bundling of non-SEP patents that might have nothing to do with the a particular product, or perhaps not applicable to any standard used in a company's product, and forcing the licensee to pay royalties on those in order to license the applicable SEP's. That's wrong in my view, and wrong in the view of China and Korea. They deserved to be fined.
Here in the US I suspect the same general finding if the government follows thru on their Qualcomm antitrust suit: Several Qualcomm licensing tactics including the two I mentioned being found to violate competition laws, but royalties based on total build cost not ruled illegal per-se.
For a couple of reasons I think companies like the ones I mentioned will stop world-wide licensing and negotiate royalties for specific regions in order to maximize their revenue, and companies like Apple and Samsung will try to resist in order to minimize their costs of doing business.
From memory, it was Broadcomm that was doing some of then but don't quote me on that. Groklaw is still there as an archive and is searchable.
Question for people who think Apple should settle, just to get the case "behind them": If Qualcomm won't abide by its long-ago-signed FRAND agreements, how can it be expected to abide by any new settlement? What's to stop Qualcomm from demanding even more money in the future? If Apple ultimately must ask the courts to compel Qualcomm to abide by its agreements, why not do that right now, with the FRAND agreements Qualcomm has already signed?
I KNEW you'd post exactly this. It's like copy/paste from your previous posts.
Where's your proof it's common? Do you have the details on a significant number of contracts so you can tally up who does and doesn't do this in order to make this claim?
http://www.investorvillage.com/uploads/82827/files/LESI-Royalty-Rates.pdf
https://www.reuters.com/article/us-ericsson-apple-idUSKBN0U40MT20151221
http://www.lexology.com/library/detail.aspx?g=626e9206-adf2-425a-b101-67243346edeb
https://www.theguardian.com/technology/2011/jun/14/apple-nokia-patent-case
http://www.fosspatents.com/2015/01/ericsson-may-demand-15-of-apples-sales.html
And this is not anything unique to the telecomm industry. You'll find the same IP licensing basis in effect for medical devices...
http://www.mbbp.com/news/setting-values-and-royalty-rates
Batteries...
http://techtransfercentral.com/wp-content/uploads/2009/01/royalty-rates-for-technology-4th-edition-sample-report.pdf
Agriculture...
http://www.wipo.int/wipo_magazine/en/2015/04/article_0003.html
It's exceedingly easy to find out for yourself that IP royalties based on a company's gross revenues, device cost being one way of determining it, is used throughout the business world.
When the newer 5G standards are ratified I'm pretty sure all the contributors will recognize that the relatively high royalties based on ASP are under fire and a hybrid royalty basis will be used instead. On the negative side some companies (ie.Nokia, Asus) may no longer be willing to contribute to the standards anyway, taking their chance with negotiating licenses to their IP on an individual basis.
With all that said I'm not sure you understand the use of the word "common".