Apple Sues Qualcomm for $1 Billion in Unpaid Royalty Rebates [Updated]

Following an FTC complaint alleging Qualcomm engaged in anticompetitive patent licensing practices, Apple has filed a lawsuit against Qualcomm claiming the company has charged unfair royalties for "technologies they have nothing to do with."

qualcomm_logo
According to a statement Apple shared with several news sites, Qualcomm "reinforces its dominance" through exclusionary tactics and high patent licensing fees. Apple's full statement is below:

"For many years Qualcomm has unfairly insisted on charging royalties for technologies they have nothing to do with. The more Apple innovates with unique features such as TouchID, advanced displays, and cameras, to name just a few, the more money Qualcomm collects for no reason and the more expensive it becomes for Apple to fund these innovations. Qualcomm built its business on older, legacy, standards but reinforces its dominance through exclusionary tactics and excessive royalties. Despite being just one of over a dozen companies who contributed to basic cellular standards, Qualcomm insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined.

To protect this business scheme Qualcomm has taken increasingly radical steps, most recently withholding nearly $1B in payments from Apple as retaliation for responding truthfully to law enforcement agencies investigating them.

Apple believes deeply in innovation and we have always been willing to pay fair and reasonable rates for patents we use. 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."

In the lawsuit, filed in a federal district court in the Southern District of California, Apple accuses Qualcomm of using its position as the supplier of a key iPhone component to drive up patent licensing fees.

Qualcomm supplies the LTE modems used in Apple's line of iPhones, and up until 2016, the company was Apple's sole supplier. The iPhone 7 and the iPhone 7 Plus use modems from both Qualcomm and Intel.

Qualcomm reportedly forced Apple to use its LTE chips exclusively in iOS devices and pay a percentage of the total average selling price of an iPhone for access to Qualcomm patents.

Qualcomm is supposed to provide Apple with quarterly rebates, but has failed to do so for the past year because of Apple's participation in an antitrust investigation against Qualcomm in South Korea. That investigation led to an $850+ million fine against Qualcomm for anticompetitive licensing practices.

Apple is seeking $1 billion in rebate payments that have been withheld.

Earlier this week, the United States Federal Trade Commission filed a lawsuit against Qualcomm that focused in part on Apple and Qualcomm's licensing deals. According to the FTC, Qualcomm imposes "onerous and anticompetitive supply and licensing terms" on its smartphone partners by abusing its patent portfolio.

Qualcomm has said it has "grave concerns" about the lack of evidence supporting the FTC's allegations and has promised to defend itself in federal court.

Update 1/25: Apple has also filed two lawsuits against Qualcomm in Beijing. The first, which seeks 1 billion yuan ($145.32 million) in damages accuses Qualcomm of abusing its clout in the chip industry. The second claims Qualcomm has not fulfilled promises to license standard essential patents fairly.

Top Rated Comments

(View all)
Avatar
49 months ago

Lol, Apple, hustling till it's last breath. Get a life

Get a life? Any person or company worth its salt should expect a contract to be honored. If the payments are due, then they should be paid, period. Maybe your word is mud, but to normal people a deal is a deal.
Score: 34 Votes (Like | Disagree)
Avatar
49 months ago

I hope these bullies get a comeuppance!

Both companies are bullies.
Score: 24 Votes (Like | Disagree)
Avatar
49 months ago

Good on Apple for taking a stand.

Funny how when Apple sues someone, people like you say "Good for Apple", then when people/companies sue Apple it's "frivolous case".
Score: 23 Votes (Like | Disagree)
Avatar
49 months ago

That's purposefully misleading.
Qualcomm is not charging Apple royalties for Apple's own technologies.

Well, they are to an extent. Qualcomm is getting royalties based on the selling price. The more non-Qualcomm tech they put into the iPhone, potentially driving up the price, the more Qualcomm receives, even though the cost of their components in the phone is likely decreasing.
Score: 19 Votes (Like | Disagree)
Avatar
49 months ago

That's purposefully misleading.
Qualcomm is not charging Apple royalties for Apple's own technologies.

If their royalties are based on a percentage of the phone, they actually are.

If I introduce a new phone and the only difference is has a bigger screen for example, why should any patent company get more $$$ for the exact same chip used?
Score: 16 Votes (Like | Disagree)
Avatar
49 months ago
RE: charging royalties by price of phone.

This is actually not unusual for patent royalties; they can be a percentage of a company's revenue. More to the point, it's EXTREMELY common for cellular SEPs (standard-essential patents).

This was done partly in order to encourage lower prices on phones, to get more phones into the hands of the public. (In essence, companies with bigger profits subsidize cheaper phones, where $2 profit on a $40 phone cannot possibly pay full royalties.) And it worked. In a fairly short period, billions on the planet had phones.

Guess who took advantage of that huge infrastructure and market that they had no part in creating? Yep, Apple, who has made many billions in profit even after paying royalties.

--

Besides the fact that percentage of price is the normal contract for these kind of FRAND patents, here are two important notes that people need to know:

1. Royalty as a percentage of sales was specifically allowed by the DOJ. I tracked down the original approval document back when this was originally questioned:



2. Just as with taxes, Apple cleverly avoided paying full royalties anyway, by lowering the "price of the phone". Insiders claim that Apple only pays Qualcomm a percentage of the price Apple pays for each iPhone AT THE FOXCONN FACTORY, which was around $250 last time I checked on this a few years ago.... NOT on what Apple themselves resell the phone for later on, which is of course hundreds of dollars higher.

So all that whining about poor Apple "paying extra for their technology" amounts to a few dimes per device... and is nothing compared to how much Apple gouges its own customers.

For instance, Apple charges its customers hundreds of dollars for extra storage which only costs Apple a few dollars. Yet Apple only pays Qualcomm a few cents more because the percentage is based on Apple's Foxconn cost, not their final customer profit.

Score: 14 Votes (Like | Disagree)

Top Stories

New Photos Offer Better Look at iPhone 12 Color Options

Tuesday October 20, 2020 2:34 am PDT by
As we wait for the iPhone 12 review embargo to lift later today, more pictures are circulating of the devices in real-world lighting conditions, providing a better look at the different colors available. Leaker DuanRui has shared images on Twitter of the iPhone 12 in white, black, blue, green, and (PRODUCT)RED. The black and white colors are similar to the iPhone 11 colors, but the other...

iPhone 12 Pro in Graphite and iPhone 12 in Blue Shown Off in Unboxing Videos

Monday October 19, 2020 8:20 am PDT by
While the iPhone 12 Pro does not launch until Friday, we now have an early unboxing video of the device courtesy of Twitter account DuanRui, providing a closer look at the shiny new flat-edge design and sleek Graphite color option. Ben Geskin re-uploaded the unboxing video to YouTube, which we've embedded below: Geskin has also uploaded an unboxing video of the iPhone 12 in Blue: ...

Apple Releases iPadOS and iOS 14.1 With Multiple Bug Fixes Ahead of iPhone 12 Launch

Tuesday October 20, 2020 10:06 am PDT by
Apple today released iOS and iPadOS 14.1, the first major updates to the iOS and iPadOS 14 operating system updates that were released in September. iOS and iPadOS 14.1 come a week after Apple released the golden master versions of the updates to developers. The iOS 14.1 update can be downloaded for free and it is available on all eligible devices over-the-air in the Settings app. To access...

Watch: iPhone 12 and iPhone 12 Pro Unboxing Videos and First Impressions

Tuesday October 20, 2020 6:05 am PDT by
Apple's embargo has lifted for iPhone 12 and iPhone 12 Pro reviews. In addition to our detailed review roundups for each device, we've rounded up over a dozen unboxing videos and first impressions below. iPhone 12 in Blue on left and iPhone 12 Pro in Pacific Blue on right via Engadget Key new features of the iPhone 12 and iPhone 12 Pro include a flat-edge design, 5G support, a much faster A14 ...

Gold Version of iPhone 12 Pro Apparently Has a More Fingerprint Resistant Stainless Steel Frame

Tuesday October 20, 2020 11:56 am PDT by
iPhone 12 Pro reviews hit the web today, and one of the more interesting tidbits came from TechCrunch's Matthew Panzarino, who revealed that the Gold version of the device apparently has a more fingerprint resistant coating applied to the stainless steel frame. From his review:Most of the iPhone 12 Pro finishes still use a physical vapor deposition process for edge coating. But the new gold...

Photographer Austin Mann Tests the iPhone 12 Pro's Camera

Wednesday October 21, 2020 4:14 am PDT by
Travel photographer Austin Mann usually performs an in-depth review of new iPhone models to test their camera performance in real-world scenarios. To test Apple's new iPhone 12 Pro, Mann traveled to Glacier National Park, Montana. Mann focused on some of the biggest camera upgrades with the iPhone 12 Pro, including the upgraded Wide lens, Ultra Wide Night mode, and LiDAR autofocus, across a...

iPhone 12 Pro Max Has Smaller 3,687 mAh Battery According to Regulatory Filing

Tuesday October 20, 2020 8:48 pm PDT by
Apple's new iPhone 12 Pro Max is equipped with a 3,687 mAh battery, which is around 7% less capacity than the 3,969 mAh battery in the iPhone 11 Pro Max, according to a regulatory filing published by TENAA, the Chinese equivalent of the FCC. The regulatory filing, spotted by MacRumors, also lists the iPhone 12 Pro Max with 6GB of RAM as seen in benchmark results last week. Apple has filed ...

5G Drains iPhone 12 Battery 20% Faster Than 4G in Benchmark

Wednesday October 21, 2020 3:17 am PDT by
After the first reviews for the iPhone 12 and iPhone 12 Pro emerged yesterday, a new report by Tom's Guide reveals the extent of battery life reductions when using 5G. The report outlines a test wherein the iPhone surfs the web continuously at 150 nits of screen brightness, launching a new site every 30 seconds until the battery drains. Interestingly, the test was run on an iPhone 12 and...

Hands-On With Apple's iPhone 12 and 12 Pro MagSafe Cases

Tuesday October 20, 2020 1:33 pm PDT by
Apple's iPhone 12 and 12 Pro are launching this Friday, and ahead of that release date, Apple is shipping out various accessories like the MagSafe charger and MagSafe cases. Yesterday we took a look at the MagSafe charger, and today our MagSafe case came in the mail, so we thought we'd take another look at the charger to see how it works with the case and just how strong the case magnets are. S ...

Reliable Leaker Suggests AirTags 'Coming Soon' in Two Different Sizes

Tuesday October 20, 2020 1:53 am PDT by
Apple's rumored AirTags Bluetooth tracking devices could launch imminently and will be available in two size options, based on new tweets from cryptic-but-reliable leaker L0vetodream. In typical enigmatic style, the leaker first tweeted this morning that a "big one" and a "small one" are "coming soon," but withheld what they were referring to. However that was followed an hour later with the ...