Blockbuster court ruling will force Qualcomm to change the way it does business

Blockbuster court ruling will force Qualcomm to change the way it does business
Ever since April 16th, things had been going swimmingly for Qualcomm. From the moment that the company announced its settlement with Apple, once again allowing it to supply modem chips for the iPhone, things were looking up for the chip maker. For example, the stock had soared from $57 to $89 in weeks. But then, Qualcomm's luck drastically changed. Last week, Huawei was put on the Entity List preventing it from easily obtaining parts and components from U.S. firms like Qualcomm. And today, CNET reports that Qualcomm was socked by a blockbuster legal ruling made by Judge Lucy Koh.

Judge Koh (who presided over the Apple v. Samsung circus trial) announced today a ruling in the FTC v. Qualcomm non-jury trial, and she found in favor of the independent U.S. agency. The judge said that the way Qualcomm does business, including its infamous "no license, no chips" policy, prevented competition in the chip industry. The ruling also pointed out that Qualcomm refused to license some of its standard essential patents with other chip makers. These are patents that other companies need to license so that their products can meet technical standards. As a result, royalties for such patents are charged on a fair, reasonable and non-discriminatory (FRAND) basis.

In her written ruling, Judge Koh says that she ignored the testimony of  Qualcomm executives like Chief Executive Officer Steve Mollenkopf and company president Cristiano R. Amon. The judge noted that what they said on the stand was contradicted by emails and notes written by others at Qualcomm. The judge also ordered Qualcomm to file an annual compliance report with U.S. trade regulators for the next seven years.

Qualcomm is asking for a stay of the ruling and an expedited appeal

But more importantly, the ruling means that Qualcomm will need to change the way it does business with manufacturers. The company has been criticized, not only for its "no license, no chips" policy but also for basing royalties on the retail price of each handset sold by its customers. Even a company as big as Apple, which exclusively used Qualcomm modem chips in the iPhone from 2011-2016, felt that it had to play Qualcomm's game in order to have access to its chips.

Qualcomm will have to renegotiate new deals with the smartphone manufacturers that use its components. The chip maker had defended its business practices by pointing out the expense of developing new chips, but now the company will have to go back to the drawing board. Qualcomm designs chips like the Snapdragon SoCs and modem chips used by the vast majority of Android handsets. The current flagship chipset, the Snapdragon 855, is found inside phones like the Samsung Galaxy S10 and the OnePlus 7 Pro.

The San Diego based company said that it had requested a stay of the district court ruling, and also filed with the US Court of Appeals for the 9th Circuit for an expedited appeal. Qualcomm also released a statement from Don Rosenberg, executive vice president and general counsel of Qualcomm that said, "We strongly disagree with the judge's conclusions, her interpretation of the facts and her application of the law."

The terms of the settlement between Apple and Qualcomm were never released. Apple paid Qualcomm a lump sum of money believed to be in the area of $4.5 billion to $4.8 billion. Apple received a six-year licensing agreement with an additional two-year option, and a multi-year chip supply agreement. Both sides dropped the numerous lawsuits that each had filed against the other. One analyst believes that Apple will pay Qualcomm a royalty of as much as $9 per iPhone to use its 5G modem chips. In light of today's ruling, the agreement will probably have to be revisited by both firms.

While the news today, if upheld by higher courts, is good for phone manufacturers and could lower their costs of manufacturing handsets, consumers might not benefit at all. It will all come down to whether these companies pass along their windfall to their customers.

Investors have been dumping Qualcomm's shares since the decision was announced. The stock is now trading at $69.30, down $8.45 or 10.9% on the day.



1. toukale

Posts: 645; Member since: Jun 10, 2015

About time, anyone who looked at this case with no color glasses on would come to the same conclusion. I know there are plenty of folks who sided with Qualcomm simply because of Apple, not because of the merit of the case. Qualcomm was double dipping and had this "no chips, no license" That is crazy when you consider a lot of those patents were FRAND patents. They won the battle but lost the war.

3. oldskool50 unregistered

Only Apple biased fans would ever come to the same conclusion.

4. toukale

Posts: 645; Member since: Jun 10, 2015

Now, who is showing their bias?

10. blingblingthing

Posts: 975; Member since: Oct 23, 2012

This isn't an Apple vs QC case. Also, I believe even LG was against QC's practice.

45. shm224

Posts: 295; Member since: Mar 19, 2015

Yes, it was. Apple and the FTC also had evidence sharing agreement, so they were pretty much controling the whole process.

21. Dr.Phil

Posts: 2442; Member since: Feb 14, 2011

There were several manufacturers including Samsung and Apple that were against Qualcomm in this case. The only reason both Samsung and Apple dropped their case was because Qualcomm made a deal with both of them.

46. shm224

Posts: 295; Member since: Mar 19, 2015

There was no lawsuit between Qualcomm and Samsung. Samsung was just a witness and was never involved as a defendant or plaintiff.

44. shm224

Posts: 295; Member since: Mar 19, 2015

First, it's "no license, no chips," not "no chips, no license."

2. oldskool50 unregistered

Well we already knew what Koh was gonna say. She is a Pro-Apple judge, even against Samsung who is from her own country. Apple is likely paying her under the table. Qualcomm has a right to sell their product they created for whatever price they feel they can get. This isn't gonna result in lower prices, they are simply gonna get higher. Qualcomm business practices, didn't stop anyone else from trying to make a better product. The reason they can't is because Qualcomm holds all the patents for their inventions and they don't have to license them to anyone they don't want too. US laws state that a business has a right to not service any one they choose. Even if OEM's saved money, they aren't goona pass the cost savings to you. Apple is proof of this because we know exactly what their phone costs to make, we know how much it costs to buy PC parts ff the shelf on retail and we know they pay a significantly less price. Yet Apple and others charge as much as 500%-1000% markups. Qualcomm is a business, they will simply change the wording on contracts and still charge the same or even more money. As far as FRAND, if QC didn't allow for licesing under FRAND, then they are in the wrong. But as far as no license no chips, either way you have to pay for the chip. The technology inside requires you to liense it usage. It's no different than you licensing Windows or iOS, Mac OS or even Android. When you use someone else technology that you can't make on your own, you have to adhere to their policy for usage. Once phones start costing $1500+ because Qualcomm will get their money one way or another, you all will see.

5. toukale

Posts: 645; Member since: Jun 10, 2015

You are showing you actually don't understand the merit of this case. You even wrote this "As far as FRAND, if QC didn't allow for licesing under FRAND, then they are in the wrong." Which is one of the thing at the center of this case. Do yourself a favor, educate yourself on the subject matter because your ignorance in this is showing.

14. oldskool50 unregistered

I know what FRAND is fool. It just meansd Qualcomm, when it comes to technology that is require and essential for a component wo work, has to be offered in a fair and non-discrimintory manner. It is exactly what Internet for all. where we all get the same internet and no one is allowed to pay more ot get better service. FRAND prevents Qualcomm from telling one OEM, I will charge you $5 while I charge another $10 for the exact same prat, where they will have to product roughly the same quantities. How does Qualcomm get around this? SIMPLE. They don't have to sell there tech to anyone they don't want too. if Qualcomm was a deck of cards, so that I make it more simple for you to understand, not only do they hold all the Aces, they have the Jokers, Kings, Queens, and Jacks too. To deal with this ruling, all they have to do is not sell anything to any OEM they don't want too. So we already know who the big buyers are, so lets look at the smaller buyers. Most businesses will charge more money lets say to a company who may need less product. Appel for example, likely pays more than Samsung. Why? because Apple may nonly need poduct for 100M devices, while Samsung will need product for 200M devices. Because Samsung has a larger run, for product that si the same, they get a lower cost. Apple pays more, because factories have to be retooled specifically to hanle Apple's run, ths they pay more. But them now you have 20 other companies who may only need 1/3 the product Apple needs. The factories all have to be tooled to make the chip at the size and requirement for each. This also drivers up cost. If Qualcomm simply just says no, I don't want to sell you anythig, that is not iscrimination. Because they ahve less costs, they can increase profit by charging the other big guys just a few extra dollars. After all when you are their only option, it makes it easy to do so. Doesn't Apple do it? if Samsung had IOS, an iPhone would never cost $1000 because other OEM's would be selling IOS devices for 1/2 the cost. This is why Jobs bought back all Mac OS licenses when he returned to eliminate competition which allows them to set whatever price they want. Qualcomm can do the same because they hold ALL the patents for said technology and they can control price by not licensing it for others to create competition which would drive down costs. You're he one that stupid because you don't understand how when you hold all the cards, the courts can't force you to do business with who you don't want too. What this court case does, is force Qualcomm to be fair to whomever they do business with which is right. But the fact is, they don't have to sell any outfit anything, regardless of how much they are willing to pay.

16. oldskool50 unregistered

Since QC doesn't have it's own factories, they are at the mercy o how much business they can effectively farm out. TSMC and Samsung are their made options, even they can only handle so many requests. So basically QC can't fill everyone order. So since they can't its first come first serve and those who agreed to pay more, get preference. Now QC can basically shut the door on whomever they want, because now they are forced to charge all those guys the same amount of money. So Qualcomm can just say...door closed and jack up the cost on the guys they know will always come back liek Apple and Samsung, who they can raise the price, because they don't have an alternative. Now Samsung has their own 5G modem. But it only works great on non-CDMA carriers. Samsung only uses QC for CDMA technology which only QC has that is the most compatible. Without QC license, Samsung or Apple won't be able to make a 100% CDMA compatible modem. Because of this, QC can charge a higher cost for the part, because no one else has it. This is without requiring the OEM license the tech. They can just sell them a chip for the same or higher price. Licensing on FRAND and selling a chip are 2 differnt things. QC can simply not license any tech and just sell chips like Intel does. ARM makes and sells chips, and they also license. Under the license, you can make your own chip using the platform. Samsung could license and buy chips too, but they havce fgactories and make their own. Appel doesn't and thuis has to pay someone else to make them. if Samsung and TSMC can't make a chip for Apple, then Apple has zero option which is why they cved to QC to begin with. If QC had their own factories, they wouldn't need to license tech, they could just fabricate and sell the chip themselves. Watch what happens with QC pricing and watch who is right and who is wrong.

18. toukale

Posts: 645; Member since: Jun 10, 2015

Are you on something, because you are not making any sense.

28. kplayon

Posts: 56; Member since: Mar 02, 2018

learned a lot from your post. Thanks!

20. apple-rulz

Posts: 2195; Member since: Dec 27, 2016

“Apple is likely paying her under the table.” Techiexp you lose even more credibility when you inject conspiracy theory into your essays.

6. User123456789

Posts: 1006; Member since: Feb 22, 2019

Apple will never lose court in USA. Most people use iphones.

7. toukale

Posts: 645; Member since: Jun 10, 2015

Apple was not the plaintiff in this case, the FTC was. Apple just testify, although they were the star witness in this case for sure. This was an easy case to predict, Qualcomm has lost that same case in several countries before this verdict. All those people and countries can't be wrong.

12. monkeyb

Posts: 413; Member since: Jan 17, 2018

@toukale, its very clear that most haters have nothing better to do than make every topic about Apple just for fun. They just want to irritate other readers with random, un-related statements. So there is no point in you trying to explain to them.

40. mootu

Posts: 1527; Member since: Mar 16, 2017

This case came about because Apple complained to the FTC. So indirectly Apple was the plaintive. Samsung had settled with Qualcomm in Jan 2017, well before Apple complained to the FTC.

47. shm224

Posts: 295; Member since: Mar 19, 2015

You are absolutely right, the outcome was expected. That's why the FTC had to go on shipping for forum in Apple's own backyard in the Northern District of California.

52. shm224

Posts: 295; Member since: Mar 19, 2015

> Apple was not the plaintiff in this case, the FTC was. Apple just testify, Apple was not just key witness, they also evidence sharing agreement in which Apple lawyers were privy to gov't docs that would never have been available to other "plain" witness. > This was an easy case to predict, ... Only in the sense that, it finally explained why the FTC shopped around for forum in Apple's backyard. We know from Apple's quick settlement from the second case that Apple had zero chance of such slam dunk outside Lucy Koh's court in the Northern District of California.

8. monkeyb

Posts: 413; Member since: Jan 17, 2018

Ahhh the number of times I have tried explaining haters about what FRAND means. Everything is not about Apple, yet every hater will make it a point to drag Apple into this. QC had this coming. Now lets look at how this will affect the industry: - If I am correct, it is the CDMA portion that is mainly related to the FRAND agreement. This means only a portion of the US phones will be affected by this change. - GSM and CDMA "might" be shut down in favor of LTE in the next few years so consumers might not reap many benefits. - If QC makes standalone 5G chips for CMDA Devices. I am guessing they could license them out separately and thereby complying with FRAND rules and charging more at the same time. - Majority of the world has nothing to do with CDMA. So this ruling could be useless on a larger scale. I am making a lot of assumptions here. So please correct me in a meaningful way rather than letting your hatred about Apple come in the way :).

9. blingblingthing

Posts: 975; Member since: Oct 23, 2012

I'm an Android fan and this is a fair ruling. Your chip should have a fixed value, not a final price based on the amount the phone maker charges. Also, standard essential patents need to be licensed and a fair and none discretionary way to anyone.

53. shm224

Posts: 295; Member since: Mar 19, 2015

> I'm an Android fan and this is a fair ruling. LOL! What are you, a spokesperson for Android Users of the World, Unite? Your lack of knowledge in various licensing models used in various industries doesn't entitle you to make that ignorant proclamation.

11. mdorno

Posts: 47; Member since: Aug 17, 2011

"While the news today, if upheld by higher courts, is good for phone manufacturers and could lower their costs of manufacturing handsets" 100% guarantee there will be no lowering of prices, it just means more money in their pockets.

13. oldskool50 unregistered

So let's do a price break down. Qualcomm was charging Apple 7.50 per device to get a chip and it's associated license. So let's just drop the licensing detail from the contact. What prevent them fom chargign the same 7.50 at the time? NOTHING. Now Apple is paying $9 per chip. Again let's drop the chip price for a moment. absed on other OEM's who sells chips, it seems the average price of a chip, hovers around $5 per chip, per 1M sold. So if Qualcomm is charging $5 for the chip and $4 for the license to use, what doie this court ruling actually change? NOTHING. Intel basically sells chips directly to OEM's at a flat cost. Even if Qualcomm does the same, they can still charge the same price. So now instead of Apple paying $9 per device, Qualcomm can just reword the agreement to say, $9 per chip. So changing the wording has zero effect on the price. Apple is not licensing Qualcomm patents, they were licensing the use of them. When you buy a chip from Qualcomm, you don't own it, you are licesing the use of the chip. Just liek when you buy a PC, you own the PC, but you don't own the copy of Windows, or OSX. When you buy an iPhone, yes you own the phone, but you don't own iOS. When you buy any of these products with a pre-installed OS, you license the use of it. This isn't gonna change the price of what Qualcomm can charge. It only requires changing the wording. So now you simply are directly buying the chip, with no license fee attached. So they will simply charge you the same price for the chip. Licensing the chip, actually keeps the chip price down, because likely on;y half the cost was the license, not the actual hardware. Now they can just charge you full puce for the hardware and still make the same money. This ruloing still does not force qualcomm to sell their products to any OEm they don't want too. When you control the volume, you control all costs. So Qualcomm can continue to sell chips to big names like Apple, Samsung and others liek them, and still leave out other companies because, when you sell to more companies, tis means more chips have to be made, this then forces costs to come down due to more volume, but this also creates more overhead. Qualcomm does not fabricate their chips, they pay others to do it. So if TSMC and Samsung already has huge orders to fill, they won't have the capacity to make Qualcomm's chips. So what happens? Qualcomm has to pay some other outfit, who may have smaller production capability, and those guys will charge a higher price, because they are too small to be able to charge less. This increases Qualcomm's costs. Then this means Qualcomm who doesn't want to lose a single dime on the bottom line, will increase chip costs to OEM's like Apple and Samsung, who will then push those costs onto consumers, because they too don't want to have negative effects on their bottom line. This Judge is stupid and isn't helping the situation at all. In fact she just made it worse.

17. toukale

Posts: 645; Member since: Jun 10, 2015

Number one, no one knows what Apple licensing terms is with Qualcomm. Number 2, Apple never had a Qualcomm license directly, but rather his contractors did. (Foxconn etc.). Now Apple has a direct license with Qualcomm with no middle man. Before, this decision, Qualcomm was charging their licensing fees base of the price of the device (which is ridiculous). You obviously are way over your head with this topic, stop while you can. If this ruling stands, it will fundamentally change Qualcomm's business. It's the reason Qualcomm stock is down 13% right now. It will mean Qualcomm income will be a lot lower in the future. Ex... right now Samsung could use their Exynos chips in all their phones but can't because of Qualcomm. They have to use Qualcomm chips in North America or they get no license that's the "No chip, no license" came from. With this ruling Samsung will be able to put Exynos chip in all their devices without fear. I told you before, educate yourself, you obviously don't understand this whole case and how it actually works.

25. Back_from_beyond

Posts: 1438; Member since: Sep 04, 2015

You're wrong, Apple did have a direct license agreement with Qualcomm and Apple violated it when they also started using Intel modems. Terms of that license agreement also meant that Apple's contractors were also substitute to royalty payments over repairs made using non Qualcomm components, as per terms of the agreement. Qualcomm also had licensing agreements with those contractors seperate from Apple, for work involving non Apple devices. Also the main reason Samsung previously didn't offer their Exynos modems in the USA was because of CDMA, which Qualcomm wouldn't give Samsung a license for. Samsung now does have a license covering the technology, but continues to offer SD variants because they're American SoCs, essentially. It also has to do with allowing their devices on more sensitive networks. Not just any devices are allowed for use by government and military personnel and a foreign country's chipset, even if it's a long time ally, remains a possible security risk.

15. briankeithmays

Posts: 34; Member since: Dec 18, 2013

This is all about Apple and the USA economy! It always the same judge.

27. Back_from_beyond

Posts: 1438; Member since: Sep 04, 2015

Personally I find that Judge Koh isn't particularly well-suited for these cases, it often comes down to her explanation of reaching her verdict that doesn't always show an understanding of the subjects and for someone that decides on cases involving hefty amounts of money and crucial technology, I find that rather unacceptable.

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