Apple had a game plan to end Qualcomm's licensing policies, but in the end it caved

Apple had a game plan to end Qualcomm's licensing policies, but in the end it caved
When Apple agreed to use only Qualcomm's modem chips for the iPhone, it worked out an annual $1 billion "incentive fee" that it would receive from the chip maker. But there was an important condition. If Apple decided to use a second modem chip supplier, it would have to pay Qualcomm back the "incentive fees" it received. Apple then attended a hearing held by the South Korea Fair Trade Commission and spoke out against Qualcomm's chip licensing practices. As a result, the $1 billion checks stopped. At the same time, Qualcomm learned that Apple was planning on using Qualcomm and Intel modem chips for the iPhone 7.

In January 2017, Apple sued Qualcomm over the $1 billion checks it was no longer receiving, setting off a chain reaction of lawsuits filed by both sides against each other. But that is all water under the bridge following the settlement that both companies agreed to last week. All lawsuits are dropped, and Apple will pay Qualcomm an undisclosed amount. Apple now has a six-year licensing agreement with Qualcomm and a multi-year pact that will guarantee it modem chips from the San Diego based chip maker. According to one analyst, Apple could be paying Qualcomm as much as $9 per iPhone for the component.

The Washington Post reports that during the two years before the settlement, Apple publicly derided the quality of Qualcomm's modem chips while in private it called them "the best." These complementary comments were made by Apple executives in memos that also praised Qualcomm's "unique patent share" and "significant (intellectual property) holdings." The memos were obtained by Qualcomm during the discovery process. That is when both parties in a lawsuit hand over evidence to each other before a trial starts.


Apple called Qualcomm's chips worthless in arguments it made to lawmakers, regulators, judges, and juries while privately raving about the company's components. This has many wondering how deeply Apple believed what it was saying when it tried to get courts to change the methods that Qualcomm uses to sell its chips. Apple's true feelings about Qualcomm might explain why it might be paying Qualcomm as much as $9 per iPhone for its chips.

Previously, Apple derided Qualcomm's royalty deals that force phone manufacturers to pay a percentage of the retail price of each phone sold. In fact, just before the settlement was announced, Apple and Qualcomm were squaring off in a San Diego courtroom with billions of dollars in play. On Tuesday, during his opening statements, Apple's attorney (Ruffin Cordell from Fish & Richardson) was trying to prove that the iPhone didn't rely on Qualcomm's component. He did this by pointing out that an iPhone can function using a Wi-Fi connection. And Apple has wondered in the past why Qualcomm should receive royalties for parts of a phone that it has nothing to do with.

Apple had a plan to reduce royalty payments it was making to Qualcomm


Apple's attorney also pointed out Tuesday that licensing deals Apple made with Ericsson and Huawei were for twice the number of patents that Apple licensed from Qualcomm, but for a small percentage of what Apple was paying the chip supplier. However, an internal Apple document later obtained by Qualcomm showed that Apple licensed less expensive patents on purpose in order to create evidence that showed how much more Qualcomm was seeking to license its patents.


Documents received by Qualcomm during discovery revealed that Apple had planned on suing Qualcomm as far back as 2014; the tech giant decided to wait so it could continue to collect the billion-dollar payments from the chip maker. One document, produced by Apple six months before it lobbed the first salvo in their court battles, revealed Apple's game plan to reduce the amount of the royalties it was paying to Qualcomm. Apple would "hurt Qualcomm financially," and "put Qualcomm’s licensing model at risk." 

Qualcomm's licensing model is at risk, but not necessarily because of Apple. Earlier this year the Federal Trade Commission and Qualcomm squared off in a non-jury trial held before Judge Lucy Koh. Apple did have some executives testify against Qualcomm's licensing practices, but other phone manufacturers did so as well. If Judge Koh, who presided over the Apple v. Samsung patent trial, rules in favor of the FTC, Qualcomm might have to change the way it sells its chips.

FEATURED VIDEO

27 Comments

1. blingblingthing

Posts: 974; Member since: Oct 23, 2012

Isn't that something, Apple doesn't like being overcharged by Qualcomm. Yet they turnaround and do the same to their customers.

2. OneLove123

Posts: 1177; Member since: Aug 28, 2018

But, the customers are willing to pay them. Why lower the price when the animals are willing?

3. blingblingthing

Posts: 974; Member since: Oct 23, 2012

As they say, the value of anything, is how much a fool is willing to pay. Good to see Apple doesn't over pay, but sad their customers don't know that.

28. oldskool50 unregistered

Many of them do know. But here is the issue. If you want an iPhone, the only way you're gonna get one is from Apple. Unless you buy an older model. What's so funny is, to get a cheaper costing iPhone; you have to buy an older model. With Android, if you can't get the top of the line, you can still buy a lower costing one, and it will still have the latest available hardware.

13. monkeyb

Posts: 413; Member since: Jan 17, 2018

@OneLove123 - It is one thing to make comments on a Company. You are entitled to your opinions. But calling a set of people who have different tastes than you as “animals” is straight up disgusting. This also goes to the people who liked your comment.

4. mackan84

Posts: 547; Member since: Feb 13, 2014

Pixel 3 XL launched at about $960 and they actually program android. Are they worth every cent? Compare pixel to iPhone because they actually r&d about the same thing

22. cmdacos

Posts: 4260; Member since: Nov 01, 2016

Google has to buy all of their hardware. They don't make phones.

26. oldskool50 unregistered

Because they are hypoctites! They charge $600 to replace any of the iPhone X models if the back glass gets broken, even though liek otther phones, the rear glass is glued on. Since the glass is already broke, it actually easier to remove them and clean and jt on another. But Apple simply gives a refurb in return. Not an actual repair. Yet my carrier charges $99 for the exact same thing.

5. Vancetastic

Posts: 1541; Member since: May 17, 2017

Wow. I’m not sure how the Apple faithful are going to defend this. (I’m not saying Qualcomm is necessarily innocent, either)

7. darkkjedii

Posts: 31290; Member since: Feb 05, 2011

They're not innocent, but man is this funny.

9. Vancetastic

Posts: 1541; Member since: May 17, 2017

100 percent agreed. It is interesting to hear how this stuff works...free market economy is SO cutthroat.

19. shm224

Posts: 295; Member since: Mar 19, 2015

fabricating evidence and lying to regulators aren't really uniquely intrinsic to free market. In this case, you have a politically influential company abusing their connection to cripple their competition/suppliers.

31. oldskool50 unregistered

Qualcomm is 100% innocent. Apple came to QC for hardware. QC set the terms an conditions and Apple signed the contract. Then according to the contract, QC gives a $1B incentive, as a cash back to Apple for exclusively using QC's chip. The clause was, if you source another OEm, while in our contract, you would need ot pay us the $1B back. Very straight forward and very simple. Apple wanted a even lower cost which si what Intel gave them for their crappy non-working piece of crap hardware. So apple sued QC beeeeeeeeeeeeeeeeeeeeey simply wanted a lower cost, but had already signed a deal. They were hoping a court would squash the contract and make it null and void. No court can do that. So Apple use the question QC business tactics as a way to get the court to side with them. If Apple though QC was so shady, why did they do to them in the first place? Because QC has the best and Apple knows the best cost money. They just didn't wanna pay. Now they are paying even more. QC can charge Apple more for parts, because they can only be used for Apple. No one else has iOS. Android OEM's pay less, because QC has hundreds on Android OEM's to sell to, and this the volume brings down price. Apple is one OEM and they should pay more. Qualcomm did nothign illegal. They drew up a contract and Apple signed it. Apple broke the deal. How you gonna break a deal, and then try to sue too?

6. darkkjedii

Posts: 31290; Member since: Feb 05, 2011

Leo mc and Venom currently fuming.

8. Vancetastic

Posts: 1541; Member since: May 17, 2017

Leo is angry that Qualcomm NOTCHED a victory.

10. darkkjedii

Posts: 31290; Member since: Feb 05, 2011

LMAOOOO! Good one man lol. He's currently at Intel HQ, with a pitchfork, and a torch demanding to be let in.

23. Vancetastic

Posts: 1541; Member since: May 17, 2017

He’s mad. Evidence right here!

37. darkkjedii

Posts: 31290; Member since: Feb 05, 2011

Very lol.

12. Seatech21

Posts: 68; Member since: Jan 01, 2018

Good for Qualcomm. James Brown song (The big payback).... hahaha.

20. shm224

Posts: 295; Member since: Mar 19, 2015

It's really too bad that Qualcomm agreed to settle; instead of allowing legal discovery to reveal Apple's scummy business practices.

25. oldskool50 unregistered

Funny how hypocritical and wishy-washy Apple is. So in court they ridiculed QC chip-sets, but praise them in private. In court - We hate Microsoft, Samsung, Intel, Qualcomm, Cisco and others. In public - We love them!https://www.cnet.com/g00/news/apple-dismissed-qualcomms-tech-in-public-while-praising-it-in-private/?i10c.ua=1&i10c.encReferrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8%3d&i10c.dv=15https://www.businesstimes.com.sg/technology/apple-slammed-qualcomm-in-public-but-praised-it-in-private

27. oldskool50 unregistered

This is how shady Apple is. In the contarct they signed, it clearly showed that if Apple sourced hardware from another OEM, Qualcomm would no longer pay Apple the $1B incentive. So how the hell you gonna sue them for doing exactly what the contract said? You sourced modems from Intel Phone 7, breaking your contract and thus QC stop giving you the money. I think once the discovery process was done, Qualcomm's lawyers was like, "We got 'em." You lied to the judge claiming and I quote; ""Apple called Qualcomm's chips worthless in arguments it made to lawmakers, regulators, judges, and juries" so they can try to win in court, but then their own documents show them praising Qualcomm everywhere else. If I was Qualcomm, I would have just told them, we are done. Ks move ahead with trial; so we can end you. Not only would I not sell them anything no matter what they offer, I will give a $1B discount on my hardware to any OEM's who buys our stuff and don't sell it to Apple. Qualcomm has made significant stride in modem tech. They have technology no one else has, because QC sits with carriers an work with them on the backend, to make sure their modems offer 1005 compatibiity with their networks. No other OEM can claim this. and when you have the technology no one else has, you have a right to charge whatever you want. wait, isn't that what apple fans say? And Apple doesn't even have the best tech. There isn't a court on this planet that can tell you what you can charge. if the patents in question were actually FRAND, which they were not; and QC was charging too much, then Apple would have had a leg to stand on. Now Apple fans, all that waste money on litigation? Look forward to Apple iPhone prices going up next year to recoup those loses. Which means they will lose more money when their hardware sales fall another 25%.

* Some comments have been hidden, because they don't meet the discussions rules.

Latest Stories

This copy is for your personal, non-commercial use only. You can order presentation-ready copies for distribution to your colleagues, clients or customers at https://www.parsintl.com/phonearena or use the Reprints & Permissions tool that appears at the bottom of each web page. Visit https://www.parsintl.com/ for samples and additional information.