Qualcomm loses two key rulings in its patent royalty fight with Apple
Qualcomm got two bits of bad news today in its squabble with Apple. First, it has failed to force Apple's manufacturing partners to make royalty payments prior to a determination of what the total disputed royalties should be, and second it lost an effort to stop Apple from pursing antitrust cases against it in other countries.
However, Apple and Qualcomm do have a contract that specifies that Qualcomm will reimburse Apple with royalty rebate payments, as noted in court filings published by Florian Mueller of FOSSpatents.
In September 2016, Qualcomm stopped making these rebate payments to Apple, a move which Apple alleges came in retaliation for its cooperation with a South Korean antitrust investigation into Qualcomm's business practices.
Apple subsequently sued Qualcomm over the terms of its licensing practices, arguing that its royalty provisions violate anti-trust laws, U.S. patent law, public policy and Qualcomm's commitment to license its intellectual property on fair, reasonable, and nondiscriminatory ("FRAND") terms.
Apple then instructed its manufacturing partners to stop making any royalty payments to Qualcomm until the case was resolved. Qualcomm responded with a lawsuit against the manufacturers that alleges that they violated their contracts.
In August, Qualcomm filed a motion seeking to force Apple's contract manufacturing partners to continue making intellectual property royalty payments while those royalty rates were being litigated.
Judge Gonzalo P. Curiel of the United States District Court for the Southern District of California is tasked with setting the FRAND royalty rates for Qualcomm's patents. But today, he handed down a decision denying Qualcomm's motion for a preliminary injunction that would force the manufacturers to make royalty payments.
Judge Curiel also denied Qualcomm's motion for an anti-suit injunction intended to stop Apple's parallel lawsuits in other jurisdictions.
Qualcomm would prefer to have a local San Diego court determine a global royalty rate covering all of its standard-essential patents. Apple would prefer that Qualcomm have the burden of proof in demonstrating infringement, and also face the scrutiny of patent invalidity in each jurisdiction, including China, Japan, Taiwan and the United Kingdom.
Apple is increasingly developing custom silicon that embarrasses Qualcomm's own components in computing performance, while also partnering with Intel to wean itself off of Qualcomm's modems. On top, Apple is also poaching Qualcomm's top engineering talent in an apparent bid to build its own mobile chips, just as it developed its own camera ISP and GPU architecture.
In response, Qualcomm has sought to create a media narrative that portrays Apple as distantly behind in various technologies, in particular the idea that the company's newest iPhone 8 and iPhone X can not support Qualcomm's Gbps LTE.
In fact, OpenSignal reported this year that the top US carriers only achieved average LTE download speeds of less than 17Mbps, while the global LTE download average was only 17.4 Mbps.
While Gbps networks are slowly being rolled out, the reality is that very fast mobile data rates require using up lots of valuable spectrum. While the technology makes for a great demo and confers bragging rights to the carriers who have claimed to implement it first, in reality spectrum will continue to be allocated to enable hosting the most paying subscribers at lower real-world rates.
As Cherlynn Low wrote for Engadget earlier this year, new Gbps LTE technologies can "achieve speeds of up to 1 Gbps in simulations and controlled environments. In the real world, though, speeds are expected to be closer to between 100 and 300 Mbps."
AAPL vs QCOM: Fight!
Apple and Qualcomm have a complex relationship, in that Apple doesn't directly license Qualcomm's patents involved in this case. Instead, Apple's contract manufacturers Foxconn, Pegatron, Wistron and Compal pay licensing fees to Qualcomm for the use of its patents involved in manufacturing cellular iPads and iPhones. Apple therefore pays for these royalties indirectly as part of the manufacturing costs.However, Apple and Qualcomm do have a contract that specifies that Qualcomm will reimburse Apple with royalty rebate payments, as noted in court filings published by Florian Mueller of FOSSpatents.
In September 2016, Qualcomm stopped making these rebate payments to Apple, a move which Apple alleges came in retaliation for its cooperation with a South Korean antitrust investigation into Qualcomm's business practices.
Apple subsequently sued Qualcomm over the terms of its licensing practices, arguing that its royalty provisions violate anti-trust laws, U.S. patent law, public policy and Qualcomm's commitment to license its intellectual property on fair, reasonable, and nondiscriminatory ("FRAND") terms.
Apple then instructed its manufacturing partners to stop making any royalty payments to Qualcomm until the case was resolved. Qualcomm responded with a lawsuit against the manufacturers that alleges that they violated their contracts.
In August, Qualcomm filed a motion seeking to force Apple's contract manufacturing partners to continue making intellectual property royalty payments while those royalty rates were being litigated.
Judge Gonzalo P. Curiel of the United States District Court for the Southern District of California is tasked with setting the FRAND royalty rates for Qualcomm's patents. But today, he handed down a decision denying Qualcomm's motion for a preliminary injunction that would force the manufacturers to make royalty payments.
Apple would prefer that Qualcomm have the burden of proof in demonstrating infringement, and also face the scrutiny of patent invalidity in each jurisdiction
Judge Curiel also denied Qualcomm's motion for an anti-suit injunction intended to stop Apple's parallel lawsuits in other jurisdictions.
Qualcomm would prefer to have a local San Diego court determine a global royalty rate covering all of its standard-essential patents. Apple would prefer that Qualcomm have the burden of proof in demonstrating infringement, and also face the scrutiny of patent invalidity in each jurisdiction, including China, Japan, Taiwan and the United Kingdom.
Who's on first!?
Having lost both injunctions, Qualcomm is incentivized to quickly work to resolve the question of what royalties it is fairly owed by Apple's manufacturing partners before it can get paid anything from sales of iPhones. And at the same time, it faces the prospect of repeatedly fighting Apple in every jurisdiction where they have disagreements, and potentially losing patent rights it can't prove are infringed, or which Apple can prove are invalid.Apple is increasingly developing custom silicon that embarrasses Qualcomm's own components in computing performance, while also partnering with Intel to wean itself off of Qualcomm's modems. On top, Apple is also poaching Qualcomm's top engineering talent in an apparent bid to build its own mobile chips, just as it developed its own camera ISP and GPU architecture.
In response, Qualcomm has sought to create a media narrative that portrays Apple as distantly behind in various technologies, in particular the idea that the company's newest iPhone 8 and iPhone X can not support Qualcomm's Gbps LTE.
Qualcomm's Gbps smokescreen
However, Apple's existing iPhone 6s and iPhone 7 already support LTE Advanced, with theoretical data throughput maximums of 300 to 450Mbps. Carriers around the world currently do not yet take full advantage of this, let alone Qualcomm's two to three times faster upper potential promised in 1 Gbps LTE.OpenSignal reported this year that the top US carriers only achieved average LTE download speeds of less than 17Mbps, while the global LTE download average was only 17.4 Mbps
In fact, OpenSignal reported this year that the top US carriers only achieved average LTE download speeds of less than 17Mbps, while the global LTE download average was only 17.4 Mbps.
While Gbps networks are slowly being rolled out, the reality is that very fast mobile data rates require using up lots of valuable spectrum. While the technology makes for a great demo and confers bragging rights to the carriers who have claimed to implement it first, in reality spectrum will continue to be allocated to enable hosting the most paying subscribers at lower real-world rates.
As Cherlynn Low wrote for Engadget earlier this year, new Gbps LTE technologies can "achieve speeds of up to 1 Gbps in simulations and controlled environments. In the real world, though, speeds are expected to be closer to between 100 and 300 Mbps."
Comments
Poor Q... no more double dipping for royalty payments.
I am sure there is serious monopoly. Are other chipset that sucks?
Intel has AMD. But AMD is just half generation behind.
Are the physical chips provided by Qualcomm? I would think that Qualcomm would simply stop supplying the chips if that were the case until they get paid. Can anyone provide some insight on that?
Before Intel got back into this, Apple had to take Qualcomms crap. But, no more it seems.
Currently Apple buys their modems from both QCOM and INTEL. Apple would like to move away from QCOM altogether. However, considering their scale, it’s not practical at this time. On the other hand, QCOM would like to get back at Apple and teach them a lesson. But their hands are tied, again because of scale. If they intentionally stop supplying to Apple. They might as well put up a “Fool” sticker on their forehead for refusing to do business with the largest of the largest customer. It will seriously effect their revenues. Say 25%. That would cause even more serious problems for QCOM then currently at hand. Therefore, FOR NOW, I’m afraid APPLE is stuck with around 50/50 split between QCOM AND INTEL, fast moving towards Intel as their position becomes stronger slowly.
Finally, Apple should challenge QCOM and win. Apple is a values based company unlike others. This is a matter of principle for Apple and Monopolistic abuse by QCOM. You wouldn’t pay for the same bread twice at your supermarket. Would you?? Maybe if it’s the only supermarket in the World and you have no other choice. With a newcomer just coming on the block (Intel), you don’t have to anymore.
(1) It might exacerbate Qualcomm's anti-trust problems. One of the allegations made against Qualcomm - by multiple parties, to include various regulatory bodies - is that Qualcomm has used its virtual monopoly when it comes to certain kinds of chips to force companies to agree to unreasonable licensing terms. Qualcomm has threatened, it is alleged, to cut off supply of certain kinds of chips which weren't otherwise available (and which were necessary for certain kinds of smartphones) if companies didn't agree to Qualcomm's unilateral terms - even as those terms related to licensing for IP in chips not supplied by Qualcomm. (I can get into various aspects of those terms, and why they might be considered unreasonable, if you're interested.) Actually cutting off the supply of chips would strengthen the anti-trust claims made against Qualcomm. And, to be clear, it isn't as if Qualcomm isn't getting paid what it's entitled to - when it comes to the licensing of the included IP - on the chips which it supplies itself. Qualcomm (at least superficially) argues to the contrary, but in the U.S. the law is clear on this point: In selling those chips Qualcomm exhausts its patent rights with regard to the underlying IP.
(2) Cutting off the supply of those chips would do great commercial harm to Qualcomm. It would be Qualcomm cutting off its nose to spite its face. In order to understand Qualcomm's actions in this situation, we need to understand that much of what it is doing is for investor PR reasons - not in hopes of winning (most of) its legal battles. Qualcomm - and, iikely, most of its institutional investors - understand that the model which has worked for it in the past is no longer viable. Its (arguably) bad behavior has caught up with it and the party is over. What is left for it to do is to salvage as much commercial success going forward as it can. That success can still be quite substantial. It can't throw away the pieces (for future success) which remain out of anger over the pieces which are lost.
If we were talking about a privately-held company, perhaps it might be willing to (at least threaten to) burn the whole house down in a last act of desperation (or vengeance). But we're talking about a publicly-traded company, answerable to shareholders - one with a high level of institutional ownership. Qualcomm has already taken a major hit to its stock price from this dispute and the spreading awareness that the model it's relied on for a while will no longer worker. If Qualcomm took the kinds of actions you're referring to, those institutional investors would understand the likely business consequences and many of them would dump the stock. Or they might demand new leadership. Those possibilities, and the success of potential shareholder lawsuits, are what Qualcomm's leadership is trying to guard against. That's what so many of the statements that Qualcomm has made, and legal positions it's taken, are about. It knows it's on the wrong side of many of the legal issues. It's fighting to survive as a viable investment in the eyes of many.
They can’t really do that. If you stop producing, you force your clients to move elsewhere possibly destroying your own business. Furthermore, I’m sure when your IP is considered and used as part of an industry standard, it is made available to anyone and everyone who wants it. Qualcomm no longer has the right to deny its use by anyone, as they as they receive licensing fees. In this case though, because of the lawsuits, those fees can be withheld while going through the courts - as just ruled by the judge.
Qualcomm WILL eventually get paid all that it is owed as determined by this case.
Don’t forget - Apple was required to pay Qually for every iPhone sold, even the phones containing Intel modems, and by the price of the phone even though they were a small fragment (or no part at all) of the final product.
Quallys goal was to keep this extra (and double) dipping while attempting to prevent Apple from leaving by indirectly increasing the price when dealing with competitors chips.
This is a monopolistic move because their technology was 'chosen' to be the standard.
Apple used to get a 'rebate' from Qualcomm that offset the 'licensing' fee, Qualcomm stopped that, so Apple sued for themselves and everyone else.
1) QCOM stopped the “patent peace rebates” to AAPL because it violated that agreement, **not** because of its cooperation with the FTC / KFTC, but because it provided them with false information such as- 1) double dipping, 2) basing royalties on the iPhones full value, 3) demanding exclusive use of QCOM modems, etc
2) QCOM has signed FRANDly licenses with over 300 companies (big and small), with AAPL being virtually the only holdout although selling iPhones under the umbrella of its contract manufactures for close to 10 years using QCOM technology to become the world’s richest company. Those royalty bearing licenses allow device manufactures to sell 2G/3G/4G devices using QCOM’s technology developed by its thousands of engineers (20,000 currently) over the past 30 years.
3) QCOM designs and manufactures the world’s leading mobile wireless chipsets (APs / modems). AAPL and others are free to use any company’s chips (INTC, MediaTek, Spredtrum, etc), so long as the device makers using 2G/3G/4G technology have a QCOM license.
4) QCOM’s royalty is base is **not** on the total sales price of the device, but at a capped amount believed to be between $300 - $400, significantly less than the iPhone’s ~$700+ ASP. QCOM’s implied royalty rate for FY16 was less than 3%
5) QCOM’s royalty is at the device level and **not** at the component (modem) level as demanded by AAPL, since only a small percentage (<10%) of QCOM’s patents are practiced solely within the modem-- most are practiced within the modem & the device, the device alone, or within the network itself..
re: Qualcomm's Gbps smokescreen
“....Investments in technologies that reduce latency and increase speed may not return higher levels of user satisfaction, but they can have big financial returns because they enable operators to deliver more data using the same spectrum. There is no escaping the escalating demand for data, so operators need to deploy more spectrum and simultaneously invest in technologies that make better use of their existing spectrum....”
+ “Speed is capacity so as we provide more speed that does give us capacity,” said Verizon’s Ed Donofrio, executive director for network support. “As we provide speed that provides capacity and that will hopefully reduce the cost per bit.”
+ In the near term, mobile network speeds may outpace our ability to appreciate that speed. But as users we will appreciate the fact that the networks keep performing even as we load them up with more and more data.
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https://www.rcrwireless.com/20170920/carriers/how-real-is-the-need-for-speed-tag4-tag99
How real is the need for speed?