Qualcomm Blasts Apple for Disrupting Deals in Legal Dispute

Mobile phone chip company Qualcomm has hit back in a legal dispute with Apple, accusing the iPhone maker of trying to upset its agreements with licensees and deliberately misrepresenting the performance of Qualcomm modems.

The attack comes after Apple Inc. (Nasdaq: AAPL) sued Qualcomm Inc. (Nasdaq: QCOM) for $1 billion at the start of the year, claiming it had been overcharged for years and that Qualcomm had resorted to "exclusionary tactics and excessive royalties" to build a dominant position. (See Qualcomm, Apple Trade Blows Over Licensing.)

Now Qualcomm has retaliated with a series of counterclaims about what it evidently sees as underhand tactics by Apple. In a statement accompanying its 134-page legal response to Apple's original charges, Qualcomm said it was seeking damages from Apple "for reneging on its promises in several agreements."

Among other things, Apple is charged with interfering in deals between Qualcomm and contract manufacturers such as Taiwan's Foxconn Electronics Inc. , which makes iPhones and iPads for Apple.

It is even blamed for Qualcomm's difficulties with regulatory authorities in various jurisdictions, with Qualcomm accusing Apple of encouraging regulatory attacks on its business by "misrepresenting facts" and through "false statements."

Another charge leveled at the iPhone maker is that it tried to prevent Qualcomm from publicizing the superiority of its own chip technology over that of rival Intel Corp. (Nasdaq: INTC).

In its filing, Qualcomm says that Apple chose not to use high-performance features of Qualcomm chipsets in the iPhone 7. Even when Qualcomm's chips outperformed technology from Intel, Apple "falsely claimed there was 'no discernible difference' between iPhones with Qualcomm's chipsets and iPhones with Intel's," says Qualcomm.

Qualcomm says that Apple's goal was to "force Qualcomm into accepting less than fair value the for patented technologies that have led innovation in cellular technology and helped Apple generate more than $760 billion in phone sales."

While Apple claims it is owed $1 billion by Qualcomm, the chipmaker insists that Apple's behavior has led contract manufacturers to withhold payments from Qualcomm and that "continued interference" would threaten "significant additional injury."

Investors reportedly expect about $1.9 billion in revenues to come from Apple-related royalty payments this year.

The company reported overall sales of $23.9 billion in 2016, including nearly $7.7 billion from licensing activities. But the licensing unit has so far looked more resilient in the face of business challenges. While revenues at its semiconductor business fell by 10% last year, those from licensing were down just 4%.

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As the company that controls much of the intellectual property used in wireless communications devices, Qualcomm has frequently been accused of abusing its dominant position for commercial gain.

In late 2016, South Korea's Fair Trade Commission fined it 1.03 trillion Won ($900 million, at today's exchange rate) for allegedly violating the country's competition laws. It has also recently found itself in hot water in the European Union and China, where it agreed in 2015 to pay a $975 million fine 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.)

Apple took legal action against the company just days after the US Federal Trade Commission (FTC) said that Qualcomm had threatened to withhold processors unless customers signed up to its stringent licensing terms, singling out Apple as a victim of its tactics. (See Qualcomm Abused Dominance, Say US Authorities.)

But Qualcomm also has allies on the regulatory side. Commissioner Maureen Ohlhausen opposed the FTC decision to press charges against Qualcomm, arguing the move was based on "flawed legal theory" and that there was a "dearth of evidence" to indicate Qualcomm charges too much for royalties.

When it comes to the broader issue of intellectual property rights, companies on opposite sides of the fence have been lobbying vigorously in defense of their positions. (See Patents Prizefight Pending: Clash of the Tech Titans.)

A group called the FairStandards Alliance, which includes IP equipment giant Cisco Systems Inc. (Nasdaq: CSCO), Google (Nasdaq: GOOG) and Intel, wants to see cuts to royalty rates for standard-essential patents, saying this would spur innovation and boost smaller players.

Meanwhile, the IP Europe group, whose members include Ericsson AB (Nasdaq: ERIC), Nokia Corp. (NYSE: NOK) and Qualcomm, insists the current system offers protection to R&D organizations, ensuring copycats cannot easily rip off innovators.

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

kq4ym 4/27/2017 | 5:09:14 PM
Re: Smartphones It is pretty amazing the dispute large companies get themselves into. One would think theoretically if both parties acted honestly and above board, there would be no such lawsuits. But, sometimes I wonder if the teams of attorneys convince clients they've got such a great case they can't lose. Of course both sides hear the same thing.
bosco_pcs 4/13/2017 | 3:05:12 PM
Re: Smartphones IMHO, QCOM needs to reexamine its way of doing business, period.

This is not just about Apple. It got into trouble with China, then S Korea, and the U.S. Okay, so you may argue the bank-robber-robbing-bank mentality. But the arbitration settlement between QCOM and BBRY (Blackberry) yesterday should give people a pause. 

QCOM is actuall a solid company with a lot of rollups. For example, it has dug in with its snapdragon beating back NVDA tegra's challenge. And sure, Intel's modem is not quite up for the challenge for now, but the danger is this unnecessary fight with Apple may divert its attention from its focus and allow Intel with an opening. 

By that I mean Apple obviously was trying a duo source approach and had to throttle back QCOM's speed at Sprint and Verizon to match Intel's at AT&T. But instead of trying to regain its single sourced status, it wants to hold back Apple's payment. An agreement is an agreement. So it seems to me QCOM is penny wise (not even that) and pound foolish
DanJones 4/12/2017 | 3:21:28 PM
Re: Smartphones Cuts both ways here as far as I can tell. I don't see another supplier with an exact X16 equivalent if Apple wants to stay on the bleeding edge of LTE speeds.
danielcawrey 4/12/2017 | 11:49:31 AM
Smartphones This is a tough business for Qualcomm to be in. 

There are only so many flagship smartphones out there for the company's chips. Samsung and Apple are the leaders, and it's not smart to play this kind of game with either of them if you ask me. 
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