What you need to know about Apple's and Qualcomm legal fight over cell phone modems

Posted:
in iPhone edited June 11
The legal battle between Apple and one of its cellular modem suppliers, Qualcomm, is set to really get going soon by way of three critical hearings in the U.S., Germany, and China. Here's what you need to know about the case, and how it could potentially impact Apple -- and you.


History

At the heart of the dispute is a lawsuit filed by Apple in January 2017, accusing Qualcomm of withholding nearly $1 billion in promised payments in retaliation for "responding truthfully to law enforcement agencies." Apple's involvement with a South Korean antitrust investigation had resulted in Qualcomm being fined about $853 million, and the U.S. Federal Trade Commission later launched a similar probe.

In its initial lawsuit, Apple claimed that Qualcomm is "charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined," and "reinforces its dominance through exclusionary tactics and excessive royalties." For several years Qualcomm was Apple's exclusive cellular chip supplier, something the latter agreed to in order to win discounted rates.

Qualcomm was further accused of forcing companies buying chips to pay for patent licenses at the same time. The firm owns a variety of key patents on cellular technology, allowing it derive a significant portion of its income from royalties.

It has denied any wrongdoing, and suggested that Apple is simply looking to reduce what it owes.

A number of suits, countersuits, and other legal actions have subsequently been launched around the world. At the moment there are over 50 intellectual property and antitrust proceedings underway, scattered across six countries. In January 2018, the European Union hit Qualcomm with a $1.23 billion fine.

Qualcomm is still providing Apple with cellular chips, with Intel now serving as second supplier, but Apple has been withholding payments to manufacturers from which Qualcomm would normally collect. This led to a complaint that the manufacturers were in breach of contract.

The week of June 18, the U.S. International Trade Commission will finally open a hearing on Qualcomm charges that Apple is violating three patents. Failure could result in an import ban on iPhone 7 models with Intel modems.

A similar threat exists in Germany, where a court is in the middle of a case that could block iPhones with Intel modems from entering the country. In fact a judge initially sided with Qualcomm, but postponed any ruling until the European Patent Office can decide on patent validity.

Later in June China's Patent Review Board will begin its own hearings, following up on Apple's push to invalidate patents Qualcomm is wielding.

Why does this matter?




Intel may be coming online as an important modem maker, but Qualcomm is still the leader in the field, and Apple can't afford to ditch it quite yet. 2018 iPhones are once again expected to use a mix of Intel and Qualcomm modems, like every flagship iPhone since the iPhone 7.

If Qualcomm is victorious -- though it has more often talked about a settlement -- Apple could owe anywhere between in $2.5 billion and $4.5 billion in unpaid fees, and be forced into an arrangement forcing Apple to pay Qualcomm for the luxury of using the infringing Intel chips.

There is also the possibility of a sales embargo in one country or another, if Apple is found to be at fault. But, this seems like an outside possibility at best.

An Apple victory, conversely, could deal a serious blow to Qualcomm's bottom line, especially if it's able to secure cheaper royalty payments going forward.

On a trivial level, another concern for the iPhone-buying public may be performance. One reason Qualcomm is the leader is because Intel has had to play catch-up in delivering a modem that can match both the speed and network compatibility of Qualcomm's products. If Qualcomm is forced out of the iPhone supply chain, that could mean iPhones will temporarily lose out.

But, none of this will immediately impact anybody. While the first hearings are happening soon, unless the pair come to a settlement, it will take years to lurch its way through assorted governmental bodies and the court system.

Comments

  • Reply 1 of 18
    nunzynunzy Posts: 662member
    Even if Apple had to pay the entire four and a half billion, it would mean very little to them. This  is Apple trying to teach Qualcomm a bitter lesson.
  • Reply 2 of 18
    entropysentropys Posts: 1,342member
    I still have trouble getting over how it is possible for a technology company to charge a second set of royalties down the production chain from the chip manufacturer that used its technology, and that second set of royalties varies according to the retail price of the product, so company A pays a lot more royalties than company B, even though they purchase the same chip from a manufacturer who has licensed the tech.

    in my country, if someone charged someone else more than another for the same product because of who they were, the competition authority would get very concerned.
    icoco3jbdragonCuJoYYCronnGeorgeBMacjony0
  • Reply 3 of 18
    gatorguygatorguy Posts: 19,321member
    entropys said:
    I still have trouble getting over how it is possible for a technology company to charge a second set of royalties down the production chain from the chip manufacturer that used its technology, and that second set of royalties varies according to the retail price of the product, so company A pays a lot more royalties than company B, even though they purchase the same chip from a manufacturer who has licensed the tech.

    in my country, if someone charged someone else more than another for the same product because of who they were, the competition authority would get very concerned.
    You don't say where your country is but if it has any industry at all it's highly likely companies there are paying IP royalties to someone based on the build cost or selling price. It is not an uncommon royalty basis.
  • Reply 4 of 18
    entropysentropys Posts: 1,342member
    its a practice that should be stopped.  Sell your product for a price by all means that reflects your costs and to get the best profit margin you can. To as many customers as possible.  But this arrangement seems parasitical and extortionate. 


    ronnGeorgeBMacjony0
  • Reply 5 of 18
    icoco3icoco3 Posts: 1,454member
    I assume there are SEP's involved.  If ANYTHING becomes a SEP, it should only be accepted if the royalty is declared up front.  Also, if I license technology from company A, build my widget and sell to company B, company A should NOT also be allowed to charge company B a fee for its use.  That is just my opinion...take it for what it is.
    entropysronnjony0
  • Reply 6 of 18
    Qualcomm is just incentivizing Apple to invest even more resources in its efforts to produce its own baseband chips. Apple's record at making custom silicon so far is extremely good, if you look at the A-series processors and their cost/performance curve lately compared to Intel. Qualcomm is going to lose, here.
    icoco3ronn
  • Reply 7 of 18
    icoco3icoco3 Posts: 1,454member
    Qualcomm is just incentivizing Apple to invest even more resources in its efforts to produce its own baseband chips. Apple's record at making custom silicon so far is extremely good, if you look at the A-series processors and their cost/performance curve lately compared to Intel. Qualcomm is going to lose, here.
    What else does Qualcomm have they receive payments for?  Snapdragon and Broadband chips are all I know of.  They are not going to have their advantage forever in the chip business.
  • Reply 8 of 18
    jameskatt2jameskatt2 Posts: 696member
    Can't Samsung make a modem for Apple?
  • Reply 9 of 18
    If (and it is a very big IF) Apple were to make a baseband chip then they'd have to come up with patent deals for literally hundreds if not thousands of patents with dozens if not hundreds of companies. Each would want their own (and price inflated because it is Apple after all) slice of the pie.
    It is a legal minefield that could tie Apple up in the courts for decades after the patents have expired.

    IMHO (and I'm most certainly not Tim Cook or and of the Senior Management Team) it is far easier to go with the flow and deal with the likes of Intel and Quallcomm. Buying a device from them includes all the relevant patent licenses.
    What is wrong IMHO is the double dipping that QC is doing.
    If I were a car maker and I wanted say a water pump, I'd negociate a contract with a maker to buy a quantity of pumps over a period of time. That pump maker gets paid and that is it. They don't get to come back and say, 'you owe me lots more $$$ because you have fitted my pump in a million dollar car rather than the twenty thousand dollar car that you also make'.
    Double dipping needs to stop. Apple is also partially guilty with this rebate that they get from QC but the underlying fact of the QC Double dipping is wrong in the first place and needs to stop.
    If you go back and look at the Groklaw (.net) archives you will see discussions on Double Dipping from well over 10 years ago. It was bad practice then and is even more so now.

    jony0
  • Reply 10 of 18
    icoco3icoco3 Posts: 1,454member
    If (and it is a very big IF) Apple were to make a baseband chip then they'd have to come up with patent deals for literally hundreds if not thousands of patents with dozens if not hundreds of companies. Each would want their own (and price inflated because it is Apple after all) slice of the pie.
    It is a legal minefield that could tie Apple up in the courts for decades after the patents have expired.

    IMHO (and I'm most certainly not Tim Cook or and of the Senior Management Team) it is far easier to go with the flow and deal with the likes of Intel and Quallcomm. Buying a device from them includes all the relevant patent licenses.
    What is wrong IMHO is the double dipping that QC is doing.
    If I were a car maker and I wanted say a water pump, I'd negociate a contract with a maker to buy a quantity of pumps over a period of time. That pump maker gets paid and that is it. They don't get to come back and say, 'you owe me lots more $$$ because you have fitted my pump in a million dollar car rather than the twenty thousand dollar car that you also make'.
    Double dipping needs to stop. Apple is also partially guilty with this rebate that they get from QC but the underlying fact of the QC Double dipping is wrong in the first place and needs to stop.
    If you go back and look at the Groklaw (.net) archives you will see discussions on Double Dipping from well over 10 years ago. It was bad practice then and is even more so now.

    That right there is the problem.  Once someone licenses the patent and makes something, they should not be allowed to go further down the chain and collect again.
  • Reply 11 of 18
    GeorgeBMacGeorgeBMac Posts: 3,104member
    I am wondering how 5th Gen LTE is impacted by this -- and conversely how it is impacted by 5G?

    5G has been slow to come up with an international standard.  Perhaps part of that is a realization that Qualcomm could, potentially, be castrated by a newer technology.

    Perhaps the analogy is cable -- where the producers of content and the deliverers of that content have been dragging their feet making content available on an adhoc type basis over an internet connection.  From a technical perspective, free and open delivery of content has been available for decades -- but technology was subverted by commercial interests trying to maintain their control over its availability -- thus, to get, say, ESPN you had to pay for a cable and 150 other channels you didn't want.

    Added:
    In short, I suspect there is a lot of back room maneuvering going on between the chip makers, airwave carriers and cell phone producers that is impacting the technology....
    edited June 12
  • Reply 12 of 18
    IreneWIreneW Posts: 112member
    I am wondering how 5th Gen LTE is impacted by this -- and conversely how it is impacted by 5G?

    5G has been slow to come up with an international standard.  Perhaps part of that is a realization that Qualcomm could, potentially, be castrated by a newer technology.
    ..
    Not likely, Qualcomm is one of the major drivers of 5G standardization. I'd say the slow roll out is not due to technical reasons, it has more to do with a lack of business cases; what are we supposed to do with all this bandwidth? Right now 5G is a solution in search of a problem.
  • Reply 13 of 18
    gatorguygatorguy Posts: 19,321member
    icoco3 said:
    If (and it is a very big IF) Apple were to make a baseband chip then they'd have to come up with patent deals for literally hundreds if not thousands of patents with dozens if not hundreds of companies. Each would want their own (and price inflated because it is Apple after all) slice of the pie.
    It is a legal minefield that could tie Apple up in the courts for decades after the patents have expired.

    IMHO (and I'm most certainly not Tim Cook or and of the Senior Management Team) it is far easier to go with the flow and deal with the likes of Intel and Quallcomm. Buying a device from them includes all the relevant patent licenses.
    What is wrong IMHO is the double dipping that QC is doing.
    If I were a car maker and I wanted say a water pump, I'd negociate a contract with a maker to buy a quantity of pumps over a period of time. That pump maker gets paid and that is it. They don't get to come back and say, 'you owe me lots more $$$ because you have fitted my pump in a million dollar car rather than the twenty thousand dollar car that you also make'.
    Double dipping needs to stop. Apple is also partially guilty with this rebate that they get from QC but the underlying fact of the QC Double dipping is wrong in the first place and needs to stop.
    If you go back and look at the Groklaw (.net) archives you will see discussions on Double Dipping from well over 10 years ago. It was bad practice then and is even more so now.

    That right there is the problem.  Once someone licenses the patent and makes something, they should not be allowed to go further down the chain and collect again.
    Since the SCOTUS ruling last year, Lexmark International Inc. v. Impression Products Inc, they do seem to have a licensing legal issue on their hands. On the surface it might look like printer cartridges would have little to do with this, but it does. Curious to see how they work around it since as a matter of business they're going to have to do something to replace any lost IP licensing revenues over potential "double-dipping".
  • Reply 14 of 18
    Apple just needs to purchase Qualcomm so they can make there own modems without paying someone else which will save them a fortune in the long run for future products, this will also reduce the cost of the there products when it comes to manufacturing and demands.
    icoco3
  • Reply 15 of 18
    woodbinewoodbine Posts: 81member
    If (and it is a very big IF) Apple were to make a baseband chip then they'd have to come up with patent deals for literally hundreds if not thousands of patents with dozens if not hundreds of companies. Each would want their own (and price inflated because it is Apple after all) slice of the pie.
    It is a legal minefield that could tie Apple up in the courts for decades after the patents have expired.

    IMHO (and I'm most certainly not Tim Cook or and of the Senior Management Team) it is far easier to go with the flow and deal with the likes of Intel and Quallcomm. Buying a device from them includes all the relevant patent licenses.
    What is wrong IMHO is the double dipping that QC is doing.
    If I were a car maker and I wanted say a water pump, I'd negociate a contract with a maker to buy a quantity of pumps over a period of time. That pump maker gets paid and that is it. They don't get to come back and say, 'you owe me lots more $$$ because you have fitted my pump in a million dollar car rather than the twenty thousand dollar car that you also make'.
    Double dipping needs to stop. Apple is also partially guilty with this rebate that they get from QC but the underlying fact of the QC Double dipping is wrong in the first place and needs to stop.
    If you go back and look at the Groklaw (.net) archives you will see discussions on Double Dipping from well over 10 years ago. It was bad practice then and is even more so now.

    I'm thinking that this is a very different scenario. QC is a major supplier and patent holder for these chips. No doubt Apple had very little choice but to accept the terms from the outset.
    In the car industry, there will be several companies vying for parts orders, so a keen price with no strings attached is the only way to survive. 
    QC cannot continue their bad practices forever, hence the fines. 

  • Reply 16 of 18
    gatorguygatorguy Posts: 19,321member
    IreneW said:
    I am wondering how 5th Gen LTE is impacted by this -- and conversely how it is impacted by 5G?

    5G has been slow to come up with an international standard.  Perhaps part of that is a realization that Qualcomm could, potentially, be castrated by a newer technology.
    ..
    Not likely, Qualcomm is one of the major drivers of 5G standardization. I'd say the slow roll out is not due to technical reasons, it has more to do with a lack of business cases; what are we supposed to do with all this bandwidth? Right now 5G is a solution in search of a problem.
    If Ericsson's massive 400-page+ 5G patent application gets approved, and it likely will as it's sailed thru so far, expect that to be the one that changes the rules, up-ending the field of play. 
    GeorgeBMac
  • Reply 17 of 18
    GeorgeBMacGeorgeBMac Posts: 3,104member
    IreneW said:
    I am wondering how 5th Gen LTE is impacted by this -- and conversely how it is impacted by 5G?

    5G has been slow to come up with an international standard.  Perhaps part of that is a realization that Qualcomm could, potentially, be castrated by a newer technology.
    ..
    Not likely, Qualcomm is one of the major drivers of 5G standardization. I'd say the slow roll out is not due to technical reasons, it has more to do with a lack of business cases; what are we supposed to do with all this bandwidth? Right now 5G is a solution in search of a problem.
    Why do I suspect that they are trying to standardize it around their products and patents?

    What are we supposed to do with "all this bandwidth"?  
    ...  Does the sponge ask that when it sees water?
  • Reply 18 of 18
    avon b7avon b7 Posts: 2,790member
    IreneW said:
    I am wondering how 5th Gen LTE is impacted by this -- and conversely how it is impacted by 5G?

    5G has been slow to come up with an international standard.  Perhaps part of that is a realization that Qualcomm could, potentially, be castrated by a newer technology.
    ..
    Not likely, Qualcomm is one of the major drivers of 5G standardization. I'd say the slow roll out is not due to technical reasons, it has more to do with a lack of business cases; what are we supposed to do with all this bandwidth? Right now 5G is a solution in search of a problem.
    Why do I suspect that they are trying to standardize it around their products and patents?

    What are we supposed to do with "all this bandwidth"?  
    ...  Does the sponge ask that when it sees water?
    The thing about 5G is that it goes beyond general users and will have potential deep roots in industry. For that to happen, the infrastructure has to be in place first.

    One use case I read about years ago was commercial salmon farming. The idea was to put lice sensors on each fish (IIRC) and have 5G handle everything regarding the data flow.

    For general internet users, perhaps it could take longer for a justification of widespread infrastructure outlay from carriers but the car industry and IoT could help out in that sense (along with the porn industry - just kidding).
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