Apple, Qualcomm reach modem licensing deal to end 'no license, no chips' trial

Posted:
in iPhone edited April 16
Apple and Qualcomm have hammered out a deal, concluding a high-stakes patent licensing trial scheduled to start on Tuesday before it even really began.




The deal between the pair was reached on Tuesday, and announced in a press release. The deal ends all ongoing litigation, including Qualcomm's suits against Apple's contract manufacturers.

Included in the deal are a global patent license agreement, and a chipset supply agreement.
Qualcomm and Apple today announced an agreement to dismiss all litigation between the two companies worldwide. The settlement includes a payment from Apple to Qualcomm. The companies also have reached a six-year license agreement, effective as of April 1, 2019, including a two-year option to extend, and a multiyear chipset supply agreement.
Tuesday morning, prior to the announcement of the agreement, Apple had made its opening arguments in court. Apple drew parallels to Qualcomm's "no license, no chips" business model akin to a Kentucky Fried Chicken restaurant that wouldn't sell food to customers before the customers bought a license to eat the food.

"You first have to go over to this different counter, KFL - Kentucky Fried Licensing," Apple attorney Ruffin Cordell said to the assembled jury and Judge Gonzalo Curiel. "You have to go pay that 'eating license' fee before they'll sell you any chicken."

Qualcomm had just begun opening arguments when word arrived that a settlement had been reached. The company was alleging that the trial and associated international legal actions were "planned in advance, every bit of it," and was part of a long, premeditated, campaign to weaken Qualcomm, with the goal of hurting it financially.

"Out of a $1,000 for that phone, what they're not paying us is $13," Qualcomm attorney Evan Chesler said. "What would your iPhone be worth to you if you stepped five feet to the right and the call dropped out? That's Qualcomm, not Apple."

Specific terms of the deal have not been made public, beyond Apple paying some amount, and a licensing agreement for either six or eight years. Neither Apple nor Qualcomm have made any statement on the matter as of yet, beyond the press release.

Immediate market response

The sudden announcement made an impact on the stock price of some of the companies involved in the lawsuit. Qualcomm saw its price shoot up from a fairly flat $58.05 at 2:55 p.m. eastern to $66.56 at 3:10 p.m. before sinking back down, while Intel endured a sudden plunge from $57.42 at 3 p.m. down to $56.33, a low for the day.

Apple saw a slight dip down to $199.50 at 2:55 p.m., rising to $200.08 ten minutes later, then briefly hitting $200.24 at 3:15 p.m.

At the 4pm closing bell, Apple ended the trading day at $199.25, Intel failed to recover from the drop and finished at $56.73. Qualcomm ended at a high of $70.57, its highest closing price for 2019 so far.

How we got here

In January 2017, Apple filed a lawsuit against Qualcomm, alleging the chip producer had withheld approximately $1 billion in royalty payments to Apple, in retaliation for cooperating with South Korean antitrust investigations, along with claims of extortion, monopolistic practices, and price gouging. In the suit, Apple claimed Qualcomm insisted on charging Apple "at least five times more in payments than all the other cellular patent licensors we have agreements with combined."

Apple's lawsuit followed shortly after the U.S. Federal Trade Commission stepped in with its own suit, accusing Qualcomm of forcing Apple into a baseband exclusivity deal from 2011 until 2016, by offering lower royalty payments in the form of rebates.

The following April, Qualcomm made its own filing with the court denying Apple's complaint, accusing it of attempting to pay less than the fair market value for access to Qualcomm's standard essential payments, breach of contract, and wrongly inducing regulatory action in a number of jurisdictions, among other issues.

Once the exclusivity period ended, Apple started to diversify its modem suppliers to include Intel, but this partnership was also a source of issue for Qualcomm. In a filing from September 2018, Qualcomm claims Apple stole trade secrets relating to its intellectual property that it provided to Intel, specifically software used to improve the performance of its baseband chips.

The FTC court action has concluded, but is still awaiting a ruling by Judge Lucy Koh. That ruling is unaffected by the agreement signed on Tuesday.
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Comments

  • Reply 1 of 127
    avon b7avon b7 Posts: 4,295member
    Thunderbirds are go on X55!
    edited April 16
  • Reply 2 of 127
    Qualcomm Blinked...
    cornchipericthehalfbeeMplsP
  • Reply 3 of 127
    gatorguygatorguy Posts: 21,267member
    That certainly came as a surprise to a number of us. Despite denials it seems there may have negotiations going on behind the scenes for some time at least. Not likely the terms of the agreement were hammered out over a few days. 
    edited April 16 caladanianmuthuk_vanalingamfotoformat1STnTENDERBITS
  • Reply 4 of 127
    WoodywoodWoodywood Posts: 2unconfirmed, member
    They need that 5G chip production for this fall. 
    caladanianGeorgeBMacn2itivguychemenginCarnage
  • Reply 5 of 127
    So they were talking... Didn't I read somewhere Apple vehemently denying talks?
    muthuk_vanalingamavon b71STnTENDERBITSchemengin
  • Reply 6 of 127
    Please tell us there is more to this than “apple agrees to pay QCOM”.
    n2itivguyCarnage
  • Reply 7 of 127
    Damn!  Would have loved to hear the details of QTL double dipping and their defense.  Wonder how the pending results of the FTC lawsuit played a factor.
    JFC_PA
  • Reply 8 of 127
    elijahgelijahg Posts: 1,014member
    So Apple was lying about having no meaningful discussion with Qualcomm?
    muthuk_vanalingamcornchipavon b7chemengin
  • Reply 9 of 127
    wood1208wood1208 Posts: 2,026member
    Intel 5G chip will be under pressure. We still don't know details of settlement including money aspect.
    This will give Apple multiyear licensing agreement for Qualcomm chips and IP to build own 5G chip in future.
  • Reply 10 of 127
    avon b7avon b7 Posts: 4,295member
    No doubt those who spouted so much vitriol against Qualcomm have mixed feelings now. QC was evil but now a different viewpoint will probably unfold.

    If the X55 ends up in the 2019 refresh, no doubt all the talk about 5G being unnecessary on the iPhone this year will be forgotten.

    I wonder how much of a factor the 5G modem really was in ending this issue (and how much Apple paid in the end).


    edited April 16 muthuk_vanalingamGeorgeBMactyler82chemenginseanj
  • Reply 11 of 127
    So the cool Meeting between CEO’s that didn’t bring anything brought a resolve. What would the results have been if the meeting had been greate 🤪
    muthuk_vanalingam
  • Reply 12 of 127
    sacto joesacto joe Posts: 797member
    Wow! Basically, Qualcomm blinked. This is going to be a positive for AAPL's price....although maybe the word had leaked out some time ago, and that would explain the big push upward for AAPL lately. Was this the worst kept secret in the world?

    Inquiring minds want to know…

    edited April 16
  • Reply 13 of 127
    gatorguygatorguy Posts: 21,267member
    wood1208 said:
    Intel 5G chip will be under pressure. We still don't know details of settlement including money aspect.
    This will give Apple multiyear licensing agreement for Qualcomm chips and IP to build own 5G chip in future.
    Apparently a 6-year royalty license to the IP, tho no mention of a license to manufacture. I would guess that Apple is forgoing further development of their own chip for the near future, at least in any shipping device, since they've agreed to purchase QC chips for multiple years as part of this settlement. 
    muthuk_vanalingam
  • Reply 14 of 127
    avon b7 said:
    No doubt those who spouted so much vitriol against Qualcomm have mixed feelings now. QC was evil but now a different viewpoint will probably unfold.

    If the X55 ends up in the 2019 refresh, no doubt all the talk about 5G being unnecessary on the iPhone this year will be forgotten.

    I wonder how much of a factor the 5G modem really was in ending this issue (and how much Apple paid in the end).


    Ha ha!  Still evil for alleged double dipping and hiring Definers Public Affairs to spout negativity about Apple but they do make a damn good modem.
    cornchipjony0
  • Reply 15 of 127
    gatorguygatorguy Posts: 21,267member
    sacto joe said:
    Wow! Basically, Qualcomm blinked. This is going to be a positive for AAPL's price....
    How so? QC wanted to settle all along, and this was Apple suing QC and supposedly considered to be in the driver's seat. Whatever agreement has been made will probably be surfaced at some point, at least in another courtroom,  since there is other litigation going on besides those cases involving Apple and Qualcomm.  Making a "special deal" favoring Apple over others might be difficult and I don't see that happening. 

    I don't personally think either one actually blinked but instead reached a pragmatic decision that benefits both companies. Maybe the personalities agreed to step aside and let negotiations develop without "feelings" getting in the way which was being reported as a problem. 
    edited April 16 chemenginmuthuk_vanalingam
  • Reply 16 of 127
    thttht Posts: 3,312member
    gatorguy said:
    wood1208 said:
    Intel 5G chip will be under pressure. We still don't know details of settlement including money aspect.
    This will give Apple multiyear licensing agreement for Qualcomm chips and IP to build own 5G chip in future.
    Apparently a 6-year royalty license to the IP, tho no mention of a license to manufacture. I would guess that Apple is forgoing further development of their own chip for the near future, at least in any shipping device, since they've agreed to purchase QC chips for multiple years as part of this settlement. 
    I wouldn’t bet on either of these scenarios.

    OEMs are required to pay QC regardless if they use QC LTE modems or not. QC is deeply embedded in the patent pool. The imbroglio was over how much those patents are worth. Apple wanted to pay a lot less. QC wanted them to pay a lot more. They were going to court to have judge and jury figure out how much should be paid.

    In the future, Apple will continue to use Intel modems, possibly use QC modems, and will use their own custom modems if satisfactory. This settlement just means they have come to agreement on how much should be paid for these scenarios.
    radarthekat
  • Reply 17 of 127
    gatorguygatorguy Posts: 21,267member
    sacto joe said:
    Wow! Basically, Qualcomm blinked. This is going to be a positive for AAPL's price....although maybe the word had leaked out some time ago, and that would explain the big push upward for AAPL lately. Was this the worst kept secret in the world?

    Inquiring minds want to know…

    Early stock response has been very muted for Apple , but QC is up significantly. 
    chemengin
  • Reply 18 of 127
    cornchipcornchip Posts: 1,420member
    Apple said:
    "You have to go pay that 'eating license' fee before they'll sell you any chicken."
    Qualcomm said:
    "Well, when you say it like that in front of a bunch of people..."


    sacto joeradarthekat
  • Reply 19 of 127
    gatorguygatorguy Posts: 21,267member
    tht said:
    gatorguy said:
    wood1208 said:
    Intel 5G chip will be under pressure. We still don't know details of settlement including money aspect.
    This will give Apple multiyear licensing agreement for Qualcomm chips and IP to build own 5G chip in future.
    Apparently a 6-year royalty license to the IP, tho no mention of a license to manufacture. I would guess that Apple is forgoing further development of their own chip for the near future, at least in any shipping device, since they've agreed to purchase QC chips for multiple years as part of this settlement. 
    I wouldn’t bet on either of these scenarios.

    OEMs are required to pay QC regardless if they use QC LTE modems or not. QC is deeply embedded in the patent pool. The imbroglio was over how much those patents are worth. Apple wanted to pay a lot less. QC wanted them to pay a lot more. They were going to court to have judge and jury figure out how much should be paid.

    In the future, Apple will continue to use Intel modems, possibly use QC modems, and will use their own custom modems if satisfactory. This settlement just means they have come to agreement on how much should be paid for these scenarios.
    That's certainly a decent guess, but there's no mention of specifics and the tone of the press release seems to fall in Qualcomm's favor. I'm not as certain as you that Apple also gets a manufacturing license. 

    The only things actually announced are:
    - A payment from Apple to Qualcomm.
    - A six-year license agreement, effective as of April 1, 2019
    - A two-year option to extend
    - A multiyear chipset supply agreement.

    Anything else is supposition so far so both our guesses are good. 
    edited April 16 muthuk_vanalingam
  • Reply 20 of 127
    sflocalsflocal Posts: 4,748member
    avon b7 said:
    No doubt those who spouted so much vitriol against Qualcomm have mixed feelings now. QC was evil but now a different viewpoint will probably unfold.

    If the X55 ends up in the 2019 refresh, no doubt all the talk about 5G being unnecessary on the iPhone this year will be forgotten.

    I wonder how much of a factor the 5G modem really was in ending this issue (and how much Apple paid in the end).


    Ha... right.  Don't pat yourself on the back.  Qualcomm blinked...  Apple held all the cards.  I'm actually disappointed that Apple didn't take QC to the cleaners.  They certainly could have.  QC's attitude hasn't changed on bit and is still the evil little shit it's always been.

    Once QC realized it was in a courtroom, and actually having to fight is when QC raised the white flag.  All this means is that Apple is going to get the terms it wants - for six years - and by then Apple will have its own modem chip.  In the end Apple wins not only by eventually having its own chip, but also giving QC the middle finger.

    QC started a slow-burning bridge with Apple.  
    radarthekatpscooter63
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