Qualcomm pushed for iPhone exclusivity in response to $1B incentive payment demand, CEO sa...
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 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.
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.
Comments
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
Oh, and btw - https://www.sullcrom.com/district-court-holds-that-frand-commitment-does-not-require-licensing-at-chip-level
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.
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.
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.
Incidentally then, how do we know you’re not being paid by Qualcomm?
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.
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.
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.
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.
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).