Qualcomm pushed for iPhone exclusivity in response to $1B incentive payment demand, CEO sa...

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Qualcomm CEO Steve Mollenkopf took the stand to defend his company at a trial with the Federal Communication Commission on Friday, saying the chipmaker pushed for exclusivity on iPhone because Apple demanded a $1 billion "incentive payment" to secure the deal.

Qualcomm CEO
Qualcomm CEO Steve Mollenkopf speaks at the Brainstorm Tech conference in 2017. | Source: Fortune


According to Mollenknopf, Apple said the payment would be used to cover technical costs to transition from communications hardware made by Infineon to comparable components manufactured by Qualcomm, reports Reuters.

Qualcomm agreed to Apple's request, at least in part, as the firm rendered an undisclosed sum to Apple in the form of a rebate starting in 2011. As described by Mollenkopf, Apple received the rebate on chips and licensing as long as Qualcomm remained the sole supplier of iPhone modems.

The deal, which was renewed in 2013, put Qualcomm in a precarious position as it did not specify the number of chips Apple would be obligated to buy. Qualcomm sought an exclusivity arrangement to offset the inherent financial risk, Mollenkopf testified.

"The risk was, what would the volume be? Would we get everything we wanted, given that we paid so much in incentive?" Mollenkopf said on the stand.

The testimony adds a wrinkle to the FTC case, which alleges Qualcomm participates in anticompetitive business practices to the detriment of industry competitors like Intel. Both Apple and Intel assisted antitrust regulators in bringing the case against Qualcomm to court, saying the chipmaker abuses FRAND (fair, reasonable and non-discriminatory) patent licensing commitments to maintain a stranglehold on the market.

Mollenkopf's statements contrast testimony offered by Apple supply chain executive Tony Blevins earlier in the day.

Apple typically attempts to diversify its supply chain by securing at least two manufacturers for each iPhone component, Blevins said, adding that Qualcomm's rebate made it "very unattractive" to seek a secondary chip supplier.

"We think competition and market forces are very important to us to achieve the best leverage," Blevins said, according to CNET. "With exclusivity, there would be no competition."

Apple is involved in its own legal struggle with Qualcomm over licensing, patents and alleged nefarious business practices. Apple fired first with a $1 billion suit in January 2017, claiming the chipmaker abused its "monopoly power" of the wireless modem industry to demand excessive royalties. Qualcomm has since filed multiple countersuits claiming Apple is in breach of contract.

Most recently, Qualcomm won two key rulings in China and Germany, where courts issued a sales ban on certain iPhone models for infringing on Qualcomm patents. Apple is appealing both cases, though Qualcomm this month posted a $1.52 billion bond in Germany to take all iPhones save for iPhone XS and XR off store shelves.
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Comments

  • Reply 1 of 73

    Hmm...I am not sure why AI is presenting this (the incentive payment) as some kind of a bribe that Apple offered Qualcomm. Going by Florian Mueller's article on fosspatents.com, it appears to be the other way around!

    That is, Qualcomm had a habit of negotiating incentive payments (by offering rebates) with device makers in return for strategic favours. So, there's really no wrinkle in the FTC case, as suggested by AI. On the contrary, it aligns with the testimony of Apple supply chain executive Tony Blevins who said the rebate offered by Qualcomm made it very unattractive (read, financially unviable) for Apple to pursue a secondary chip supplier.

    In fact, the issue of such 'incentive payments' is one of four issues related to Qualcomm's conduct that are being investigated in the FTC trial. To quote:

    ********

    For the FTC, Jennifer Milici outlined the four key issues surrounding Qualcomm's conduct that the FTC is tackling (let's not forget that some other aspects are at issue in Apple v. Qualcomm in San Diego, where a trial will start on April 15), which are interrelated as she also explained:

    • the "no license-no chips" policy;
    • incentive payments (for a brief explanation, those incentives effectively reduce patent licensing fees in exchange for doing Qualcomm some strategically-relevant favors);
    • the refusal to license rival chipset makers (note that Judge Koh's summary judgment in this context was based on contractual obligations, while the focus at this trial is now on an antitrust duty to deal); and
    • past exclusive arrangements with Apple.
    ********

    http://www.fosspatents.com/2019/01/in-its-courtroom-chess-match-with.html

    edited January 12 applesauce007radarthekatsacto joenouserbluefire1racerhomie3netmageSpamSandwichgilly33watto_cobra
  • Reply 2 of 73

    Hmm...I am not sure why AI is presenting this (the incentive payment) as some kind of a bribe that Apple offered Qualcomm. Going by Florian Mueller's article on fosspatents.com, it appears to be the other way around!

    That is, Qualcomm had a habit of negotiating incentive payments from device makers in return for strategic favours. So, there's really no wrinkle in the FTC case, as suggested by AI. Instead, it's one of four issues related to Qualcomm's conduct that are being investigated. To quote:

    ********

    For the FTC, Jennifer Milici outlined the four key issues surrounding Qualcomm's conduct that the FTC is tackling (let's not forget that some other aspects are at issue in Apple v. Qualcomm in San Diego, where a trial will start on April 15), which are interrelated as she also explained:

    • the "no license-no chips" policy;
    • incentive payments (for a brief explanation, those incentives effectively reduce patent licensing fees in exchange for doing Qualcomm some strategically-relevant favors);
    • the refusal to license rival chipset makers (note that Judge Koh's summary judgment in this context was based on contractual obligations, while the focus at this trial is now on an antitrust duty to deal); and
    • past exclusive arrangements with Apple.
    ********

    http://www.fosspatents.com/2019/01/in-its-courtroom-chess-match-with.html

    We all know Florian Mueller is paid by Apple and has been Apple support for so many years. His blog is biased and has no credibility. The fact that FTC is getting testimony from Apple and other manufactures saying Qualcomm is a monopoly shows the flaw in the FTC case. Apple suing because of the price that has been previously agreed upon by Apple and come to know the only reason that both companies agreed to the deal is because Apple demanded a $1 billion "incentive payment" to secure the deal. Apple will and always eat alive their suppliers.

    Oh, and btw - https://www.sullcrom.com/district-court-holds-that-frand-commitment-does-not-require-licensing-at-chip-level
  • Reply 3 of 73
    ksecksec Posts: 1,561member
    I don't ever want a Dual Sourced iPhone Modem again. As much as like to use Qualcomm iPhone. I think it is time for Apple to just bite the bullet and just make their own Modem. There are quite a few 4G / 5G Modem IP out there already, so it is not like they are starting from Scratch. 

    But looking at some of the testimony today it doesn't seems Apple ever consider that an option. And if they haven't started now it means we won't be seeing it in the next 3 - 4 years. 
    MlorianFuellercaladaniangilly33watto_cobra
  • Reply 4 of 73
    Apple screws suppliers, all big companies do it to some extent, some are just more aggressive than other. Supermarkets push milk farmers to the point they can hardly make any money. Apple killed GT advanced technologies because it couldn't meet apples demands, screwed some other imaging company to although forgot the name.

    Apple is a super aggressive greedy bully, will do whatever it takes to keep generating its billions. Remember they were going super nuclear on android, well that worked out well for them, they lost that war. Apple now trying to screw over Qualcomm, because all they are thinking about is their share price and retaining their ridiculous profit margins.
    burnside
  • Reply 5 of 73
    dewmedewme Posts: 2,071member
    On the surface it seems like this dispute could be resolved by reviewing the terms and conditions of the contract between Apple and Qualcomm. Words like "pushed for" and "sought" are troublesome for me because they only imply intent. The same thing applies to Qualcomm's concerns about whether their incentive payments would ever get recouped through orders. Same deal with whether Qualcomm's incentives would serve as a deterrent from Apple seeking other suppliers. Those are all high level business decision points that needed to be made prior to entering into the contract. The only thing that matters is what's baked into the contract. I cannot imagine big players like Apple and Qualcomm, each with their own army of lawyers, to leave big deals like this open to interpretation. To me this sounds like Qualcomm stepped in a stinky pile all on their own, suddenly realized their mistake, and tried to put the screws to Apple after the fact to cover up their self-inflicted mistakes. There's a reason why big companies have big teams of lawyers reviewing big contracts.
    sacto joefirelock
  • Reply 6 of 73

    Hmm...I am not sure why AI is presenting this (the incentive payment) as some kind of a bribe that Apple offered Qualcomm. Going by Florian Mueller's article on fosspatents.com, it appears to be the other way around!

    That is, Qualcomm had a habit of negotiating incentive payments from device makers in return for strategic favours. So, there's really no wrinkle in the FTC case, as suggested by AI. Instead, it's one of four issues related to Qualcomm's conduct that are being investigated. To quote:

    ********

    For the FTC, Jennifer Milici outlined the four key issues surrounding Qualcomm's conduct that the FTC is tackling (let's not forget that some other aspects are at issue in Apple v. Qualcomm in San Diego, where a trial will start on April 15), which are interrelated as she also explained:

    • the "no license-no chips" policy;
    • incentive payments (for a brief explanation, those incentives effectively reduce patent licensing fees in exchange for doing Qualcomm some strategically-relevant favors);
    • the refusal to license rival chipset makers (note that Judge Koh's summary judgment in this context was based on contractual obligations, while the focus at this trial is now on an antitrust duty to deal); and
    • past exclusive arrangements with Apple.
    ********

    http://www.fosspatents.com/2019/01/in-its-courtroom-chess-match-with.html

    We all know Florian Mueller is paid by Apple and has been Apple support for so many years. His blog is biased and has no credibility. The fact that FTC is getting testimony from Apple and other manufactures saying Qualcomm is a monopoly shows the flaw in the FTC case. Apple suing because of the price that has been previously agreed upon by Apple and come to know the only reason that both companies agreed to the deal is because Apple demanded a $1 billion "incentive payment" to secure the deal. Apple will and always eat alive their suppliers.

    Oh, and btw - https://www.sullcrom.com/district-court-holds-that-frand-commitment-does-not-require-licensing-at-chip-level
    The simplest view here is until recently Qualcomm was the only game in town for these chips and they held the licensing and refused to license Standards required tech to rivals. That doesn’t sound like Apple was holding the strongest hand. The real issue came when they realized they were charging their manufacturers too. 

    sacto joe
  • Reply 7 of 73
    We all know Florian Mueller is paid by Apple and has been Apple support for so many years. His blog is biased and has no credibility. The fact that FTC is getting testimony from Apple and other manufactures saying Qualcomm is a monopoly shows the flaw in the FTC case. Apple suing because of the price that has been previously agreed upon by Apple and come to know the only reason that both companies agreed to the deal is because Apple demanded a $1 billion "incentive payment" to secure the deal. Apple will and always eat alive their suppliers.

    Oh, and btw - https://www.sullcrom.com/district-court-holds-that-frand-commitment-does-not-require-licensing-at-chip-level
    Not sure that he is paid by Apple or overly biased. He seems to have agreed with most of Samsung's arguments and pro-Samsung rulings in the Apple v Samsung case.
    sacto joemdriftmeyernetmageSpamSandwichgilly33bb-15jony0
  • Reply 8 of 73
    saltyzip said:
    Apple screws suppliers, all big companies do it to some extent, some are just more aggressive than other. Supermarkets push milk farmers to the point they can hardly make any money. Apple killed GT advanced technologies because it couldn't meet apples demands, screwed some other imaging company to although forgot the name.

    Apple is a super aggressive greedy bully, will do whatever it takes to keep generating its billions. Remember they were going super nuclear on android, well that worked out well for them, they lost that war. Apple now trying to screw over Qualcomm, because all they are thinking about is their share price and retaining their ridiculous profit margins.
    Looks like many dozens of good companies are perfectly happy being suppliers to Apple.

    And it is the fundamental job of any company purchasing stuff that it buys that stuff at the highest possible quality and the lowest possible price. 

    If you don’t like it, tough. Don’t do business with Apple — chances are, however, you’ll soon discover that you’re doing business with no one. 
    macxpressmdriftmeyermwhitejbdragonracerhomie3netmageSpamSandwichgilly33StrangeDaysbb-15
  • Reply 9 of 73

    Hmm...I am not sure why AI is presenting this (the incentive payment) as some kind of a bribe that Apple offered Qualcomm. Going by Florian Mueller's article on fosspatents.com, it appears to be the other way around!

    That is, Qualcomm had a habit of negotiating incentive payments from device makers in return for strategic favours. So, there's really no wrinkle in the FTC case, as suggested by AI. Instead, it's one of four issues related to Qualcomm's conduct that are being investigated. To quote:

    ********

    For the FTC, Jennifer Milici outlined the four key issues surrounding Qualcomm's conduct that the FTC is tackling (let's not forget that some other aspects are at issue in Apple v. Qualcomm in San Diego, where a trial will start on April 15), which are interrelated as she also explained:

    • the "no license-no chips" policy;
    • incentive payments (for a brief explanation, those incentives effectively reduce patent licensing fees in exchange for doing Qualcomm some strategically-relevant favors);
    • the refusal to license rival chipset makers (note that Judge Koh's summary judgment in this context was based on contractual obligations, while the focus at this trial is now on an antitrust duty to deal); and
    • past exclusive arrangements with Apple.
    ********

    http://www.fosspatents.com/2019/01/in-its-courtroom-chess-match-with.html

    We all know Florian Mueller is paid by Apple and has been Apple support for so many years. His blog is biased and has no credibility.
    What a dumb statement. Even if that were true — although you don’t provide a shred of evidence — that’s like saying, since Mollenkopf is paid by Qualcomm, we shouldn’t believe anything he says. 

    Incidentally then, how do we know you’re not being paid by Qualcomm?
    georgie01radarthekatmdriftmeyerjbdragonracerhomie3netmageSpamSandwichgilly33StrangeDaysbb-15
  • Reply 10 of 73
    saltyzip said:

    Apple is a super aggressive greedy bully, will do whatever it takes to keep generating its billions. Remember they were going super nuclear on android, well that worked out well for them, they lost that war. Apple now trying to screw over Qualcomm, because all they are thinking about is their share price and retaining their ridiculous profit margins.
    What have you been using??? Apple going nuclear on Android is simply a quote from Steve Jobs biography that never materialized. Android collapsed under its own "diversity", with no incentive for developers in delivering real (paid) apps to that platform. Apple did go after Samsung for ripping off its designs, and that got quite well. But Apple did eat Samsung lunch when it launched the bigger iPhones, so many years ago. Samsung mobile division isn't a whisper of what it was before iPhone 6.
    As a consumer, I'd sure like to have cheaper Apple products, in part because there's just so many of them that I desire to buy, but all this desirability comes from the investment they make on those billions of profit. There is no such thing as a free lunch...
    As for Qualcomm, CDMA (which Qualcomm owns virtually all IP) never flourished in most of the world because most people didn't want to become Qualcomm's bitch. Now, well into 4G and coming 5G, that's not so relevant anymore, and Qualcomm is trying to stay afloat through litigation, which is a sound strategy only in the US.
    edited January 12 sacto joemdriftmeyerjbdragonracerhomie3StrangeDaysbb-15watto_cobrajony0
  • Reply 11 of 73
    radarthekatradarthekat Posts: 3,057moderator
    saltyzip said:
    Apple screws suppliers, all big companies do it to some extent, some are just more aggressive than other. Supermarkets push milk farmers to the point they can hardly make any money. Apple killed GT advanced technologies because it couldn't meet apples demands, screwed some other imaging company to although forgot the name.

    Apple is a super aggressive greedy bully, will do whatever it takes to keep generating its billions. Remember they were going super nuclear on android, well that worked out well for them, they lost that war. Apple now trying to screw over Qualcomm, because all they are thinking about is their share price and retaining their ridiculous profit margins.
    Here’s the story on GT Advanced Technology, as told from an investor’s perspective...

    GT Advanced Technologies (GTAT), a maker of solar manufacturing equipment, is an example of a speculative bet, and one that went terribly wrong for those who made that bet.  In 2012 and 2013, GTAT saw its solar business collapse under the weight of competition from Chinese manufacturers.  Late in 2013, GTAT partnered with Apple to manufacture sapphire display glass, presumably for use on the iPhone 6.  GTAT needed that partnership to go well; it represented GTAT’s lifeline to a corporate reboot, a chance to reinvent itself in a new line of business in which it had little experience.  That reinvention, if successful, would materially enhance the value of the company.  If a failure, it would mark the collapse of GTAT as a viable business.  GTAT did fail, and filed for bankruptcy protection.  In the process, the share price went from a high of about $20 to about 40 cents.  Many of those holding the shares indignantly complained in online forums that their investment was wiped out by unscrupulous actions of GTAT's CEO and management team.  They weren’t wrong about the actions of GTAT’s management, but they were wrong in characterizing their GTAT holdings as an investment.  These people were speculating and paid a high price.

    ———

    Part of the story is how the CEO of GTAT failed to give timely public disclosure of material adverse changes in the business, while he and other insiders were selling their own shares at prices in the $teens.  The stock quickly collapsed to about 40 cents after the iPhone 6/6+ Keynote spoke of ion strengthened glass, but not Sapphire (sapphire was used only for the camera lens cover).  But you, apparently, and others at that time, would have us believe it was Apple’s intend to collapse GTAT, against any logical reason to do so and in full light of the actions of GTAT’s own CEO.  You see a CEO who seemingly shafted his shareholders and still you believe he was the innocent victim.  The Apple blame game was strong with that crowd. 

    edited January 12 sacto joenouserjbdragonracerhomie3netmagegilly33StrangeDaysbb-15ronnwatto_cobra
  • Reply 12 of 73
    We all know Florian Mueller is paid by Apple and has been Apple support for so many years. His blog is biased and has no credibility. The fact that FTC is getting testimony from Apple and other manufactures saying Qualcomm is a monopoly shows the flaw in the FTC case. Apple suing because of the price that has been previously agreed upon by Apple and come to know the only reason that both companies agreed to the deal is because Apple demanded a $1 billion "incentive payment" to secure the deal. Apple will and always eat alive their suppliers.

    Oh, and btw - https://www.sullcrom.com/district-court-holds-that-frand-com mitment-does-not-require-licensing-at-chip-level
    ROFL.
     There was a time during SCO vs IBM saga that Florian what charged with being in the pay of Microsoft.
    My guess is that he works for whoever pays him that day.

    jbdragon
  • Reply 13 of 73
    I really hope this conflict can be resolved sooner rather than later if for no other reason that when it comes to iPhones, Qualcomm  chips are far superior to Intels.
    caladanianLatkowatto_cobra
  • Reply 14 of 73
    robjnrobjn Posts: 210member
    “Most recently, Qualcomm won two key rulings in China and Germany, where courts issued a sales ban on certain iPhone models for infringing on Qualcomm patents”

    In Germany, there was an initial hearing during which Qualcomm’s lawyers blocked Apple from presenting evidence. (Apple’s defense must present to the court evidence about how Apple’s chip technology actually works, this involves trade secrets and Qualcomm’s lawyers refused to sign agreements not to share proprietary Apple technology with Qualcomm engineers. Apple were therefore prevented from presenting evidence in their defense).

    Qualcomm purchased the injunction by issuing a bond to the court of more than a billion dollars. The matter will now go through further legal trial. Due process will ensure that Apple can present evidence and then a real judgement can be made. If Qualcomm lose, they may also lose much of the huge bond they had to issue to secure the provisional sales ban.

    Qualcomn are playing very high stakes poker. They apparently thought that a sales ban would force Apple to come to them for settlement. They were wrong. By fighting like this, they are only going to do themselves more harm.
    jbdragonracerhomie3netmageradarthekatronn
  • Reply 15 of 73
    GeorgeBMacGeorgeBMac Posts: 4,514member
    There is an analogy to this:
    Qualcomm told Apple if they agreed to push Intel out of the wireless modem market by making Qualcomm their exclusive supplier, they would pay them a huge rebate.

    Pharmaceutical companies do the the same with drug distributors:   "You obey our rules (push our drugs at our prices) and, at the end of the year, we will pay you an enormous rebate."

    Both are back doors to work around trade violations.
    jbdragonracerhomie3netmageradarthekat
  • Reply 16 of 73
    saltyzip said:
    Remember they were going super nuclear on android, well that worked out well for them, they lost that war. .
    I guess if you consider getting 90 to 100% of the ENTIRE industry's profits "losing," you're spot on. LOL.
    racerhomie3netmageanantksundaramradarthekatStrangeDaysbb-15ronnwatto_cobra
  • Reply 17 of 73
    It sounds like Mr. Mollenkopf doesn't know his a$$ from a whole in the ground. Qualcomm has been in the business of gaining exclusivity through rebates. It has been documented several times by different Android manufacturers throughout the years. When I heard Huawei was being interviewed as part of the FTC's investigation, I knew Qualcomm would be in hot water. Huawei has done a great job documenting how Qualcomm attempted to gain exclusivity through these rebates (they called them financial bribes). 

    Huawei and Lenovo are both on record stating Qualcomm has in the past threatened retaliation against them if they attempted to challenge Qualcomm's legal terms by either delaying, or cutting off supply of chips.

    Qulcomm's refusal to license their patents is another dangerous game they are playing since most consider their patent holdings to be standard-essential patents. This is a clear violation of FRAND. 

    It takes a company like Apple to stand up to a company like Qualcomm and personally I am glad to see it happen. I'm sure many of the other OEM's who cannot sustain a fight against Qualcomm (or are unwilling to) are glad to see it as well, which can be confirmed by the support Apple is receiving by many of it's competitors (Samsung, Huawei, Lenovo, ZTE, Amazon, Facebook, Microsoft, Google, Intel, Sprint).



    racerhomie3GeorgeBMacnetmageradarthekatbb-15watto_cobra
  • Reply 18 of 73
    saltyzip said:
    Apple screws suppliers, all big companies do it to some extent, some are just more aggressive than other. Supermarkets push milk farmers to the point they can hardly make any money. Apple killed GT advanced technologies because it couldn't meet apples demands, screwed some other imaging company to although forgot the name.

    Apple is a super aggressive greedy bully, will do whatever it takes to keep generating its billions. Remember they were going super nuclear on android, well that worked out well for them, they lost that war. Apple now trying to screw over Qualcomm, because all they are thinking about is their share price and retaining their ridiculous profit margins.
    Who are you to say their profit margins are ridiculous. Apple doesn’t force you to buy their products. You go buy your commodity crap if you want. 
    edited January 12 netmageradarthekatSpamSandwichStrangeDaysbb-15ronnwatto_cobra
  • Reply 19 of 73
    avon b7avon b7 Posts: 3,800member
    Notsofast said:
    saltyzip said:
    Remember they were going super nuclear on android, well that worked out well for them, they lost that war. .
    I guess if you consider getting 90 to 100% of the ENTIRE industry's profits "losing," you're spot on. LOL.
    The last news I saw on this subject was Q2-18 and the figure given was 62%.
    muthuk_vanalingam
  • Reply 20 of 73
    avon b7 said:
    Notsofast said:
    saltyzip said:
    Remember they were going super nuclear on android, well that worked out well for them, they lost that war. .
    I guess if you consider getting 90 to 100% of the ENTIRE industry's profits "losing," you're spot on. LOL.
    The last news I saw on this subject was Q2-18 and the figure given was 62%.
    Who was how much of the other 38%? Please give us a link.
    watto_cobra
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