Qualcomm: we sought iPhone modem exclusivity since Apple wanted $1 billion 'incentive' payment to switch

Qualcomm: we sought iPhone modem exclusivity since Apple wanted $1 billion 'incentive' payment to switch
Qualcomm's modem exclusivity lawsuit against Apple is the gift that keeps on giving when it comes to revealing the inner workings of supplier deals and technology licenses. The latest nugget of info that comes from Reuters thanks to the testimony of Qualcomm's CEO Steve Mollenkopf is that Apple demanded no less than a cool billion for using the X-series modems of Qualcomm in future iPhones.

Since the negotiating team from Cupertino didn't specify a guaranteed number of modems Apple will be ordering from Qualcomm, the chip maker was forced to pursue the infamous exclusivity agreement for iPhone modems that it now sues Apple for breaking. Qualcomm's argument for the court is that a $1 billion of incentive payments to switch suppliers is an unusually high amount, so it had to ensure cost recuperation somehow, hence demanding that future iPhones come with its modems inside only.

Needless to say, that is the argument for the courts, but the sheer fact that a huge chunk of Qualcomm's revenue comes from royalty fees instead of chip sales adds water in Apple's argumentation mill that the double-dip licensing fees that Qualcomm demands are excessive. In any case, both Qualcomm's requirement that a customer license its patents before buying the actual product, and Apple's billion-dollar incentive request sound a bit excessive, so we'll see what the court will decide in the end.

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12 Comments

1. SIGPRO

Posts: 2813; Member since: Oct 03, 2012

Fruit company signed legal documents, so they agreed with QC's terms. So just pay up, cheating, lieing, stealing fruit!

3. joshuaswingle

Posts: 508; Member since: Apr 03, 2018

The problem isn't that they signed the documents, it's the offer itself. From a legal point of view, Qualcomm's offer was too attractive – its prices were so low that Apple couldn't say no – so it's seen as anticompetitive behavior. Apple itself even admitted that Qualcomm's offer made it very unattractive to go with competing chips because of the higher prices.

4. yalokiy

Posts: 923; Member since: Aug 01, 2016

If it's so cheap and attractive, then why they stopped paying..?

5. SIGPRO

Posts: 2813; Member since: Oct 03, 2012

That does not matter, they have a huge legal team with lawyers etc. They all agreed and signed, so they have pay! Let's say you singed a phone contract for a year with a certain provider because it's cheaper than others. You can't say after 4 months oh i will not pay because i do not agree anymore! You need to pay a find or just sit the year out! You made the choice to sign nobody forced you! This case case they said QC was cheap so what is the problem? The problem is that fruit company used the QC products without paying, so that is stealing!

6. joshuaswingle

Posts: 508; Member since: Apr 03, 2018

The reason Apple moved away from Qualcomm as its exclusive supplier is that it's not interested in depending solely on one manufacturer – that can have negative consequences later on as it gives the company too much power. As far as I'm aware (I could be wrong), Apple paid everything that was required when Qualcomm was its exclusive manufacturer. But as soon as it added Intel into the mix Qualcomm hiked its patent fee rate. Apple (and many other companies) believe Qualcomm is abusing its position of power by charging companies extortionate fees for licensing its patents. That's why the company is currently refusing to pay the extra fees and is waiting for the outcome of the trial. It does still pay for the chips though – If this wasn't the case Qualcomm could simply cut Apple's supply. These fees are also the reason Apple no longer uses Qualcomm chips in its newer devices. But as it admitted in the trial, it doesn't want to depend solely on Intel either, which is why it looked into Samsung and MediaTek modems.

7. yalokiy

Posts: 923; Member since: Aug 01, 2016

Thanks, now it makes more sense to me. One thing though, of course Apple pays for chips, but it's not QC that produces the chips. QC was always only getting the patent fee.

8. joshuaswingle

Posts: 508; Member since: Apr 03, 2018

Qualcomm gets payment for the intellectual property found within the chips (because it designs them) and requires a second payment for IP which isn't found within the chip's design. I believe it is the second payment which is the issue as many argue that it's charging double for no apparent reason.

10. shm224

Posts: 276; Member since: Mar 19, 2015

well, no. There is no separate payment made for the IP in the baseband cihpset -- that's all inclusive. There is only one licensing payment for everything else what is not part of the IP.

11. shm224

Posts: 276; Member since: Mar 19, 2015

well, no. There is no separate payment made for the IP in the baseband cihpset -- that's all inclusive. There is only one licensing payment for everything else what is not part of the IP.

9. slashas

Posts: 125; Member since: Jul 17, 2017

Ohhh yes from QC to intel and whole thing ended again to one supplier. Interesting if QC is aware about intel Apple agreement and terms these would be interesting as well ;) How can company abuse if there are intel, mediatek and other manufacturers, no one is stopping them from using chips from them. Pharmacy companies are abusing people with medicaments prices and no one cares...

12. shm224

Posts: 276; Member since: Mar 19, 2015

It was Apple who pushed $1B to win Apple's iPhone order and Qualcomm acquiesced to their demand. While Apple's practice of demanding a huge expansion or investment in capacity from supplier is nothing new, it's incorrect to say Qualcomm's offer was a counter-offer.

2. Shkselectah

Posts: 39; Member since: Jun 26, 2018

Apple, you have to pay

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