Feud Between Apple and Qualcomm Continues as Apple Stops Paying iPhone Royalties Completely [Updated]

About two weeks ago, Qualcomm reported that Apple suppliers were underpaying royalties in the second fiscal quarter of 2017, as a way for Apple to regain the unpaid royalties owed to the company by Qualcomm. At the time, Qualcomm wasn't sure whether or not Apple would continue to pay royalties at all, and today the manufacturer -- which provides LTE modems for iPhones -- has said that Apple will not pay its iPhone suppliers for royalties related to sales in Q1 2017.

Furthermore, Qualcomm stated that Apple has "indicated it will continue this behavior until its dispute with Qualcomm is resolved." The royalty cut-off hurts Qualcomm because the manufacturer's licensing deals are directly with iPhone suppliers.

qualcomm logo
The total loss of royalty revenue is estimated by Qualcomm to be about $500 million, which is expected to hit the company hard in terms of share prices and investors watching the dispute between the two companies. In its report adjusting the financial guidance for the third quarter of 2017, Qualcomm's previous estimate of $5.3 billion - $6.1 billion in revenue has been marked down to $4.8 billion - $5.6 billion, amid the ongoing suing and counter-suing actions taking place between Qualcomm and Apple.

In a statement, Qualcomm general counsel Don Rosenberg said that the company will continue to "vigorously" defend its business model as the legal dispute continues.

Qualcomm Incorporated today announced that it has been informed by Apple Inc. that Apple is withholding payments to its contract manufacturers for the royalties those contract manufacturers owe under their licenses with Qualcomm for sales during the quarter ended March 31, 2017. Apple has indicated it will continue this behavior until its dispute with Qualcomm is resolved.

"Apple is improperly interfering with Qualcomm's long-standing agreements with Qualcomm's licensees," said Don Rosenberg, executive vice president and general counsel of Qualcomm. "These license agreements remain valid and enforceable. While Apple has acknowledged that payment is owed for the use of Qualcomm's valuable intellectual property, it nevertheless continues to interfere with our contracts. Apple has now unilaterally declared the contract terms unacceptable; the same terms that have applied to iPhones and cellular-enabled iPads for a decade. Apple's continued interference with Qualcomm's agreements to which Apple is not a party is wrongful and the latest step in Apple's global attack on Qualcomm. We will continue vigorously to defend our business model, and pursue our right to protect and receive fair value for our technological contributions to the industry."

The legal dispute between the two companies follows a complaint filed by the Federal Trade Commission, stating that Qualcomm used anticompetitive tactics to remain on top of the LTE modem supply chain for smartphones. Another contributing factor to the bad blood between the companies centers around Apple's decision to start using modem chips from Intel in some of the iPhone 7 devices launched last year, instead of tapping Qualcomm exclusively like it usually does.

Apple claimed that Qualcomm was charging unfair royalties "for technologies they have nothing to do with," since the manufacturer provides only one part of the whole of the iPhone. "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," the Cupertino company stated in its lawsuit.

Update: In a statement to Axios, Apple confirmed that it will not make further royalty payments to Qualcomm until a court steps in to figure out how much is owed.

"We've been trying to reach a licensing agreement with Qualcomm for more than five years but they have refused to negotiate fair terms," Apple told Axios in a statement. "Without an agreed-upon rate to determine how much is owed, we have suspended payments until the correct amount can be determined by the court. As we've said before, Qualcomm's demands are unreasonable and they have been charging higher rates based on our innovation, not their own."

Top Rated Comments

justperry Avatar
47 months ago

Messy... Messy messy messy.

Apple needs to resolve this ASAP.

Or Qualcomm.
Score: 20 Votes (Like | Disagree)
Kaibelf Avatar
47 months ago

Yeah. I guess I just don't understand...they've had this working relationship for years. Why a dustup now? And recently there was that ugly breakup with Imagination Technologies. And their epic lawsuit with Samsung. Then there's the feuding with Jay Z, the FBI, the EU, to name the ones I recall this moment. If Apple keeps this up they're going to need to ask Taylor Swift to write them a song.

I swear I read these articles lately and think the only ones Apple is all smiles and sunshine with these days are China and India.

The dustup is because Qualcomm didn't pay Apple for a pre-agreed rebate, and owes them about a billion dollars. As for the Imagination Technologies situation, Apple simply let them know they are going to go their own way and let them know very well in advance, and Imagination freaked out and started accusing Apple of some kind of infringement even though nothing has happened yet, so that's their poor management.

Jay-Z? You mean Tidal, which isn't specific to Apple at all. They just want money and ownership of the content, but their business model is holding them back because, frankly, no one feels bad that these Tidal owners only have $100M in the bank instead of $102M.

FBI - Apple refused to kowtow to government overreach and provide backdoors in everyone's security just because the FBI were inept in an investigation, and refused to be drafted as an arm of law enforcement.

EU, god only know what's going on there. They are attacking Apple for a deal with one of their member states that no one complained about for 20 years.

In other words, running a huge company is complicated, but with Apple, for some reason, these very routine disputed become public spectacles because these other companies always insist on making a scene about it.
Score: 15 Votes (Like | Disagree)
Gasu E. Avatar
47 months ago

I don't quite follow this subject very well. The legalese is beyond my ability to comprehend this morning so I don't know who is playing the role of the bad guy in this one. I just know that we went out of our way to get iPhones with the Qualcomm modems for our at&t accounts and not the At&t iPhones with the Intel modems, based on warnings from fellow forum members. So I hope Apple gets this feud resolved.

There is no good or bad "guy" in this. It's an inconsistency over interpretations of terms and definitions, and resulting money, between two legal entities. There's no morality involved.

BTW, I would doubt Qualcomm would stop selling the actual chips to Apple. That additional revenue loss, on top of the loss of royalties mentioned, would destroy their business.
Score: 12 Votes (Like | Disagree)
bladerunner2000 Avatar
47 months ago

Why? Some things get better when you let them rot.

Like the Mac Pro?
Score: 10 Votes (Like | Disagree)
kdarling Avatar
47 months ago

The catch is that they want a percentage of the price for the complete phone. Whoever agreed to that is a total idiot or it is quite normal for phones.

Let's be clear. Charging a percentage of the phone price is NORMAL for FRAND cellular patents, has been for decades, and was even approved by the DOJ at the turn of the century.

The primary reason this was implemented this way, was so that higher profit phone makers could subsidize the super low profit phone makers. In other words, someone making $300 off a $650 phone can certainly afford more royalties than someone making $5 off a $50 phone.

This tiered method is what allowed the majority of the world to be able to buy a cheap cell phone, and thus caused the building of the worldwide cellular infrastructure that relative cellular newcomers like Apple have made billions in profit off of... without contributing any time or effort or money like others did.

--

As for Apple, they have even less reason to complain than others, since they claimed they're only resellers for iPhones made by Foxconn, and thus only paid a percentage (or had Foxconn do it) on the Foxconn cost per boxed unit (~$240) instead of the retail price like some other phone makers do.
Score: 8 Votes (Like | Disagree)
kdarling Avatar
47 months ago

Nice glossing over of major differences there, comparing apples and oranges. You apparently don't understand "FRAND". Standards bodies, when working out something like cellphone transmission standards, will refuse to use a company's technology unless that company agrees to "Fair, Reasonable, And Non-Discriminatory" licensing of said technology - they'll go with some other technology for that bit, even if it's not the best choice from a tech standpoint, because they don't want to create a situation where a company can hold everyone else (or just their competitors) hostage on royalty deals for something that is required to meet a national/international standard.

Correct. However, FRAND does not mean free. For example, the ETSI cellular standards organization allows percentage of price royalties, and even demands for cross licensing.

Charging one company 5 times more than others for something the company has to license to meet a standard is violating FRAND.

You might have misunderstood what Apple said.

Qualcomm is not charging Apple five times more than they charge anyone else. In fact, as I've pointed out, Apple pays a lot less than they should because they claim that their "device price" is what they pay Foxconn for a boxed iPhone. (~$240) So Apple likely pays Qualcomm up to 3% of that, or $7 a device.

What Apple is saying is that Qualcomm's royalty rate is five times more than the rates from other companies that Apple has made a deal with. (Of course, with some companies, Apple can cross license a few minor items, but Qualcomm does not make phones and does not care about Apple UI patents.)

This is undoubtedly partly due to the fact that Qualcomm practically invented CDMA, which is used by everyone for 3G (yes, you too, GSM users):



Look at that chart. Let's see, 340/45 = over seven times as many 3G patents as the next highest member. Heck, charging ONLY five times what anyone else charges, now seems like a bargain. (Yes, there are also 4G patents, but give me a break, I'm making a point here :D) I.e. Apple's statement is clever PR that sounds really bad until you know more.

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Score: 8 Votes (Like | Disagree)

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