Qualcomm CEO says dispute with Apple about IP pricing, expects out of court settlement

Posted:
in General Discussion edited July 2017
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.
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Comments

  • Reply 1 of 33
    netroxnetrox Posts: 699member
    "Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component." That is truly an insane way to license IP!
    dunksradarthekatcalimdavisRayz2016watto_cobrajahbladelongpathanton zuykovnetmage
  • Reply 2 of 33
    teknishnteknishn Posts: 34member
    What he means when he says out of court settlement is that Qualcomm will be cutting a nearly billion dollar check to Apple just like they have had to do to others already. 
    larryalongpathnetmagejbdragonjony0
  • Reply 3 of 33
    bkkcanuckbkkcanuck Posts: 854member
    Let us hope that this case gets heard and reviewed by at least one court before settlement so we have some clarity on the merits of the case.  
    fracanton zuykovjony0
  • Reply 4 of 33
    larryjwlarryjw Posts: 309member
    bkkcanuck said:
    Let us hope that this case gets heard and reviewed by at least one court before settlement so we have some clarity on the merits of the case.  
    You want to wait 5 years for a court to hear the case? 


    longpath
  • Reply 5 of 33
    mdavismdavis Posts: 5member
    I read this as he really hopes that there is an out of court settlement. I suspect there a many things that Qualcomm does not want exposed in a discovery process that would aid the government agencies that are currently investigating them.
    shrave10EsquireCatsradarthekatjahbladelarryalongpathfracnetmagejbdragonpscooter63
  • Reply 6 of 33
    dunksdunks Posts: 1,232member
    Reviewing their passive aggressive Six Inventions iPhones use Everyday 'infographic' these could broadly defined as being abstract concepts related to power management that are IMO pretty obvious. All have also been granted to since 2014 which means their validity has not been fully tested in a court of law.

    longpathtmay
  • Reply 7 of 33
    analogjackanalogjack Posts: 1,063member
    netrox said:
    "Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component." That is truly an insane way to license IP!
    Insanely great for Qualcomm.


    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. 
    watto_cobrajahbladelongpathjbdragonsflocal
  • Reply 8 of 33
    Rayz2016Rayz2016 Posts: 4,556member
    netrox said:
    "Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component." That is truly an insane way to license IP!
    Yes, I have to admit I'm struggling to think of anyone else who does this. I'm sure there are, just can't think of one. 
    longpath
  • Reply 9 of 33
    SoliSoli Posts: 8,489member
    netrox said:
    "Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component." That is truly an insane way to license IP!
    Did Apple do something clever by having Foxconn sell to Apple a complete unit at basically cost so that the amount paid to Qualcomm would be substantially lower than Apple's retail cost?
  • Reply 10 of 33
    netroxnetrox Posts: 699member
    To price based on a 'value' invites abuse of pricing. No company should license that way. It should be per component, not the entire value of a device.  Remember how Microsoft required licensing even if a pc doesn't have windows. It's now illegal. 
    radarthekatjahbladelongpathanton zuykovnetmagejbdragonpscooter63tmay
  • Reply 11 of 33
    SpamSandwichSpamSandwich Posts: 30,581member
    Don't bet on it Steve!
  • Reply 12 of 33
    ksecksec Posts: 1,545member
    netrox said:
    To price based on a 'value' invites abuse of pricing. No company should license that way. It should be per component, not the entire value of a device.  Remember how Microsoft required licensing even if a pc doesn't have windows. It's now illegal. 
    I remember reading somewhere this actually make sense for some market like telecom, if you based on % of chipset you will never actually get back your investment. The problem now is that they are abusing it. 

    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.
        
  • Reply 13 of 33
    gatorguygatorguy Posts: 19,817member
    netrox said:
    "Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component." That is truly an insane way to license IP!
    ...and yet very common in the industry. 
  • Reply 14 of 33
    gatorguygatorguy Posts: 19,817member
    Rayz2016 said:
    netrox said:
    "Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component." That is truly an insane way to license IP!
    Yes, I have to admit I'm struggling to think of anyone else who does this. I'm sure there are, just can't think of one. 
    Besides Ericcson, Alcatel-Lucent, Nokia, Huawei, LG, Lenovo and a few other major licensees of IP I can't think of any either. :)

    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. 
    edited July 2017 netmagezimmermann
  • Reply 15 of 33
    larryalarrya Posts: 536member
    This is the beginning of the end for Qualcomm. What is Apple's motivation for settling out of court?  If they lose in court they pay what they were already paying, and Qualcomm will be in deep sh*t for withholding their rebate (plus still have to contend with regulators investigating monopoly abuses). If they win in court, Qualcomm will be ruined, and Android phones will see even less competitive processors. 
  • Reply 16 of 33
    Rayz2016 said:
    netrox said:
    "Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component." That is truly an insane way to license IP!
    Yes, I have to admit I'm struggling to think of anyone else who does this. I'm sure there are, just can't think of one. 
    There was a whole raft of discussions that took place relating to Double Dipping oh, around 10 years ago on Groklaw.net. QC may be the highest profile company doing that today but historically, they are not alone.
    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.

  • Reply 17 of 33
    kbeatkbeat Posts: 47member
    I have to admit there is something refreshing about a CEO, removing himself from all the "we're stunned and will battle till the very end" PR stuff and simply saying "this shit happens in business all the time and at some point I'm sure we'll sit in a room and get it sorted." It doesn't make for salacious headlines, but 99% of the time that's exactly what happens.  
  • Reply 18 of 33
    Of course Qualcomm wants an out-of-court settlement. If they get anything above and beyond what they agreed to get — when they signed FRAND contracts to have their patents included in the now-unavoidable cell tower network — then they'll be getting that much more than they are owed! Notice their lawyers and CEO carefully avoid mentioning anything about FRAND, and keep trying to cast the whole case as just a disagreement over price — like if Apple thinks Qualcomm is asking too much, then Apple should just go build its own, all-new, cell tower system all over the entire world! The specific purpose of FRAND agreements is to exclude companies from doing what Qualcomm is now doing.

    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?
    edited July 2017 netmagepscooter63
  • Reply 19 of 33
    gatorguy said:
    netrox said:
    "Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component." That is truly an insane way to license IP!
    ...and yet very common in the industry. 

    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?
    pscooter63tmay
  • Reply 20 of 33
    gatorguygatorguy Posts: 19,817member
    gatorguy said:
    netrox said:
    "Qualcomm's royalty rates, which are also at issue in Apple's lawsuits, are calculated based on whole device value, not per-component." That is truly an insane way to license IP!
    ...and yet very common in the industry. 

    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?
    No prob. I'll do your work for you since apparently you can't find it for yourself.
    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". 
    edited July 2017
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