Qualcomm, Apple Trade Blows Over Licensing

Apple might be one of Qualcomm's biggest customers but its relationship with the chipmaker is on frosty ground.

The iPhone maker is suing Qualcomm for a whopping $1 billion, claiming it is owed the money as a rebate after being overcharged for years.

"Qualcomm built its business on older, legacy, standards but reinforces its dominance through exclusionary tactics and excessive royalties," Apple is widely reported to have noted in a company statement.

"We are extremely disappointed in the way Qualcomm is conducting its business with us and unfortunately after years of disagreement over what constitutes a fair and reasonable royalty we have no choice left but to turn to the courts," it continued.

While Qualcomm Inc. (Nasdaq: QCOM) has previously been embroiled in disputes with rivals, this appears to be the first time one of its big customers has taken legal action against the company.

The move also comes days after the US Federal Trade Commission (FTC) accused Qualcomm of abusing its dominant position in the market for smartphone processors. In a detailed statement, the FTC effectively accused Qualcomm of threatening to withhold processors unless customers sign up to its stringent licensing terms, and specifically named Apple Inc. (Nasdaq: AAPL) as a victim of Qualcomm's tactics. (See Qualcomm Abused Dominance, Say US Authorities.)

Qualcomm has also recently found itself in trouble with authorities in other parts of the world. Just a few weeks ago, South Korea's Fair Trade Commission (KFTC) fined it 1.03 trillion Won ($881 million, at today's exchange rate) for allegedly violating the country's competition laws. In 2015, Qualcomm agreed to pay a $975 million fine in China for similar abuses. (See Qualcomm to Appeal $865M Fine by South Korea's Fair Trade Commission and Qualcomm to Pay $975M in China Antitrust Spat.)

Qualcomm has lashed out at its newest critics, however, saying the FTC does not understand the mobile technology industry.

Responding to Apple's legal move, it described the claims as "baseless" in a statement on its website.

"Apple has intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed and shared with all mobile device makers through our licensing program," said Dan Rosenberg, Qualcomm's general counsel, in the statement.

Rosenberg also suggested that Apple was behind the legal moves against Qualcomm by government bodies. "Apple has been actively encouraging regulatory attacks on Qualcomm's business in various jurisdictions around the world, as reflected in the recent KFTC and FTC complaint, by misrepresenting facts and withholding information."

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While Qualcomm is not short of critics, the case is far from black and white. The FTC decision to press charges against Qualcomm, for instance, was vigorously opposed by Commissioner Maureen Ohlhausen, who published a strongly worded statement explaining her views.

Like Qualcomm -- whose statement on the FTC move seems to have lifted wording from Ohlhausen's -- the dissenting commissioner said the decision was based on "flawed legal theory" and pointed to the "dearth of evidence" to support suggestions Qualcomm is charging too much for royalties.

"Rather than allege that Qualcomm charges above-FRAND [fair, reasonable and non-discriminatory] royalties, the complaint dances around that essential element," she wrote.

Some of the world's biggest technology players have also been able to make a strong case either for or against the current patents system based on their own interests.

The FairStandards Aliance, which includes Cisco Systems Inc. (Nasdaq: CSCO), Google (Nasdaq: GOOG) and Intel Corp. (Nasdaq: INTC), is pushing for a reduction in the royalty rates for standard-essential patents, arguing this would spur innovation and provide a boost to smaller players. (See Patents Prizefight Pending: Clash of the Tech Titans.)

But IP Europe, which features Ericsson AB (Nasdaq: ERIC), Nokia Corp. (NYSE: NOK) and Qualcomm Inc. (Nasdaq: QCOM), insists that the current system offers protection to all R&D organizations and ensures that would-be imitators cannot rip off original innovation.

Qualcomm made as much as $8.1 billion in licensing sales in 2015 and is desperate to defend these revenues while other parts of its business remain under pressure.

While those licensing sales dipped from $8.2 billion in 2014, revenues from equipment and services fell from $17.1 billion to $15.5 billion over the same period.

Qualcomm's share price fell by 2.4% on Friday on the Nasdaq after Apple issued its statement and is now trading 3.9% lower than at the start of the year.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

lanbrown 1/23/2017 | 12:47:11 PM
Re: Floodgates are opn now! There is BlackBerry, Sony, TCL and even Intel could go after them.


It is amazing that for over 20 years Qualcomm has been in an almost constant battle of how they do business.  Has there ever been a year that they weren't under investigation or being sued?


Then again, you can almost blame their customers as well; they knew what they were getting into based solely on the fact of how Qualcomm has done business in the past.
TV Monitor 1/23/2017 | 12:32:49 PM
Re: Floodgates are opn now! Dan Jones

Samsung and Huawei prefer to let their government agencies do the dirty work for them.

So only possible actors left are Ericsson and Nokia.
DanJones 1/23/2017 | 11:32:13 AM
Floodgates are opn now! Which other companies do you think could go after Qualcomm?
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