New Qualcomm Court Filing Wants iPhone Suppliers to Pay Royalties Amid Battle With Apple

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As the legal dispute between Apple and Qualcomm continues, Qualcomm this week has requested an injunction to force Apple's iPhone manufacturers to keep paying royalties during the legal battle (via Axios). Last week, Qualcomm sued four of Apple's suppliers -- Foxconn, Pegatron, Wistron, and Compal -- for "breaching their license agreements" by failing to pay royalties on the use of Qualcomm's technology in the assembly of Apple's devices.

Now, Qualcomm is trying to force the suppliers to continue to make royalty payments amid the legal scuffle with Apple. According to Qualcomm's general counsel, Don Rosenberg, the company believes that "it is only fair and equitable" that the suppliers pay for Qualcomm's licensed technology.

"We are confident that our contracts will be found valid and enforceable but in the interim it is only fair and equitable that our licensees pay for the property they are using," Qualcomm general counsel Don Rosenberg said in a statement to Axios.

In April, Apple decided to stop making royalty payments to its manufacturers in relation to Qualcomm technology, and said it would continue doing so until the conflict was resolved. Now, in an amended section of its earlier lawsuit, Qualcomm claims Apple has promised to compensate its suppliers for any monetary loss potentially faced during the lawsuit.

According to Qualcomm, this is a tactic enacted by Apple "to make litigation unbearable" and to force a settlement, because Qualcomm claims that Apple knows it would not win if the case eventually made it to court.

By withholding billions of dollars in royalties so long as Qualcomm defends itself against Apple's claims, Apple is hoping to make litigation unbearable for Qualcomm and, thereby, to extract through a forced settlement what it knows it cannot obtain through judicial process—a below-market direct license. Apple's tactics are egregious.

The lawsuit began with an FTC complaint regarding Qualcomm's anticompetitive patent licensing practices, for which Apple sued Qualcomm, accusing the company of charging unfair royalties for "technologies they have nothing to do with." The argument died down for a few months until Apple ceased royalty payments to its suppliers in April, which particularly hurt Qualcomm because the company's licensing deals are directly with iPhone suppliers and not Apple itself.

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45 months ago

No, it's pretty clear that just about everyone in the industry hates Qualcomm. The US FTC is suing them, Apple is suing them, even Samsung filed an amicus brief in support of Apple/FTC. Qualcomm demands royalty payments for the entire price of any device using their chips; they charge more for a $1000 iPhone 7 than for a $600 one, even though they use the same parts...does this seem fair to you? And of course it's the consumer who ends up paying more for the ludicrous royalties.

There is nothing at all unfair about a contract stipulating a percentage of the selling price as a royalty. Have you ever actually dealt with royalties? Every McDonalds franchise out there pays a royalty to McDonalds that is a percentage of gross sales. It doesn't matter how much you sell, you owe x% to McDonalds for the right to use their IP etc.

McDonalds corporate sets the price, not the franchise, and you will pay the same amount for your burger regardless of whether the franchise is paying McDonalds $100K/year in royalties or $500K/year in royalties.

On the flip side, this can also be beneficial to small manufacturers and lower-end consumers who want to have access to valuable IP in a more affordable product. Now someone buying a $200 phone can have the same technology in some respects as someone buying a $900 phone. That's great for consumers because luxury manufacturers are far less likely to pass savings on to consumers than low-end producers are to pass on cost.

Apple absolutely would not pass those savings onto the consumer. However, Samsung or Motorola might pass a new expense on to consumers. It's much easier for Apple not to lower the price than it is for a low cost phone to keep the price from going up.

At the end of the day, don't sign contracts you don't like. If Apple wants to pay less, then just lower the cost of the phone. Apple is not entitled to make a certain profit on their phone any more than Samsung or Motorola is.

Qualcomm says, "sell more phone for less money instead of less phones for more money, benefiting consumers, and we'll charge you less per phone." Sounds like a great deal for consumers. Apple doesn't want to operate on the strategy, so tough luck for them.
Score: 11 Votes (Like | Disagree)
Avatar
45 months ago

Correction, you don't like them. As for the the rest, yawn.

No, it's pretty clear that just about everyone in the industry hates Qualcomm. The US FTC is suing them, Apple is suing them, even Samsung filed an amicus brief in support of Apple/FTC. Qualcomm demands royalty payments for the entire price of any device using their chips; they charge more for a $1000 iPhone 7 than for a $600 one, even though they use the same parts...does this seem fair to you? And of course it's the consumer who ends up paying more for the ludicrous royalties.
Score: 11 Votes (Like | Disagree)
Avatar
45 months ago

Although I was wondering why they were making payments like that. It's all very weird. I wonder if the contracts are contingent on Apple providing the funds though?

Qualcomm has had contracts with some of the iPhone factories starting years before the iPhone even existed. I think some as far back as 2002, and Foxconn since about 2005, IIRC.

Basically part of the cost of a phone is paying the royalties to various patent holders. Then the factory sells the completed phone to the brand name wholesaler/retailer (e.g. Apple). In this case, the royalty is on the price the factory sells the phone to Apple for, which is a LOT less than the huge profit markup they make later on.

Note that these contracts did not change when the factories started making iPhones. Nor does the contract change if any other modem is used. So no, Apple was not singled out for higher payments, nor were they prevented from using any modem they wished.

Then why aren't supplies paying QCOM directly? Why is Apple making the payments?

The factories are supposed to be paying QCOM directly. They always have. But Apple told the factories that they would no longer pay them for the QCOM part of the iPhone cost.

That leaves the factories in the lurch with millions of iPhones. They would rather give into Apple by selling them iPhones for less, and instead tell QCOM that they cannot pay the royalties.

The reality is that the factories should be suing Apple for breach of contract, but they're too scared to do so.

But this is a risky move for Apple...what's to stop Qualcomm from withholding their chips from Foxconn/Pegatron? Especially during the iPhone 8 ramp-up that would be devastating.

Apple is indeed lucky that most others do not play as nasty as they do.

Qualcomm demands royalty payments for the entire price of any device using their chips; they charge more for a $1000 iPhone 7 than for a $600 one, even though they use the same parts...does this seem fair to you? And of course it's the consumer who ends up paying more for the ludicrous royalties.

On the contrary, this pro-rated system is what allows for cheap phones which have led to more users, which leads to more network, which leads to more sales for the profit hungry high priced makers like Apple.

As for "fair", this is exactly how every other cellular patent license has worked for decades. Moreover, Apple itself loves charging by percentage of a sale:

Is it "fair" that every iPhone app developer pay Apple 30%, even though the cost of storing and serving each app is basically the same? Is it "fair" that Apple charge banks a percentage of every Apple Pay purchase, even though the same NFC hardware is used every time?
Score: 6 Votes (Like | Disagree)
Avatar
45 months ago

There is nothing at all unfair about a contract stipulating a percentage of the selling price as a royalty. Have you ever actually dealt with royalties? Every McDonalds franchise out there pays a royalty to McDonalds that is a percentage of gross sales. It doesn't matter how much you sell, you owe x% to McDonalds for the right to use their IP etc.

McDonalds corporate sets the price, not the franchise, and you will pay the same amount for your burger regardless of whether the franchise is paying McDonalds $100K/year in royalties or $500K/year in royalties.

On the flip side, this can also be beneficial to small manufacturers and lower-end consumers who want to have access to valuable IP in a more affordable product. Now someone buying a $200 phone can have the same technology in some respects as someone buying a $900 phone. That's great for consumers because luxury manufacturers are far less likely to pass savings on to consumers than low-end producers are to pass on cost.

Apple absolutely would not pass those savings onto the consumer. However, Samsung or Motorola might pass a new expense on to consumers. It's much easier for Apple not to lower the price than it is for a low cost phone to keep the price from going up.

At the end of the day, don't sign contracts you don't like. If Apple wants to pay less, then just lower the cost of the phone. Apple is not entitled to make a certain profit on their phone any more than Samsung or Motorola is.

Qualcomm says, "sell more phone for less money instead of less phones for more money, benefiting consumers, and we'll charge you less per phone." Sounds like a great deal for consumers. Apple doesn't want to operate on the strategy, so tough luck for them.

Except that's not how the law works. Companies don't get to charge whatever they want and say "if you don't like it, don't sign it." That's why FRAND exists. Qualcomm gets priveleged status for its patents in exchange for fair royalties. Instead, they are literally extorting tech companies: if you don't pay Qualcomm exactly what they want, you get nothing and they'll sue you if you remotely infringe on their patents. Further, if you DO use Qualcomm chips you owe them royalties for those chips AND for competitors chips, as well as the screen, battery, cameras, housing, antennas, etc. that Qualcomm had nothing to do with. The fact that you're defending Qualcomm here is just ludicrous.

Also your McDonalds example is not at all relevant.
[doublepost=1495733892][/doublepost]

Qualcomm has had contracts with some of the iPhone factories starting years before the iPhone even existed. I think some as far back as 2002, and Foxconn since about 2005, IIRC.

Basically part of the cost of a phone is paying the royalties to various patent holders. Then the factory sells the completed phone to the brand name wholesaler/retailer (e.g. Apple). In this case, the royalty is on the price the factory sells the phone to Apple for, which is a LOT less than the huge profit markup they make later on.

Note that these contracts did not change when the factories started making iPhones. Nor does the contract change if any other modem is used. So no, Apple was not singled out for higher payments, nor were they prevented from using any modem they wished.



The factories are supposed to be paying QCOM directly. They always have. But Apple told the factories that they would no longer pay them for the QCOM part of the iPhone cost.

That leaves the factories in the lurch with millions of iPhones. They would rather give into Apple by selling them iPhones for less, and instead tell QCOM that they cannot pay the royalties.

The reality is that the factories should be suing Apple for breach of contract, but they're too scared to do so.



Apple is indeed lucky that most others do not play as nasty as they do.



On the contrary, this pro-rated system is what allows for cheap phones which have led to more users, which leads to more network, which leads to more sales for the profit hungry high priced makers like Apple.

As for "fair", this is exactly how every other cellular patent license has worked for decades. Moreover, Apple itself loves charging by percentage of a sale:

Is it "fair" that every iPhone app developer pay Apple 30%, even though the cost of storing and serving each app is basically the same? Is it "fair" that Apple charge banks a percentage of every Apple Pay purchase, even though the same NFC hardware is used every time?

Yeah, it makes total sense that the company with a stranglehold on standards-essential wireless communication patents demanding exorbitant royalties from companies like Apple and Samsung leads to "cheap phones." Try to square that circle for all of us here and at the FTC as well, since they seem (correctly) to see Qualcomm's terms as extortion.
Score: 6 Votes (Like | Disagree)
Avatar
45 months ago

LOL! Qualcomm, who has quite an extensive portfolio of patents that are USED in Apple products and others, are evil. Meanwhile, Apple tries to get out of paying anything to everyone they can but this is OK? Typical thinking.

Qualcomm uses anti-competitive practices to force high prices and compliance. It's not to fuel costs for innovation, it's because they're evil. Nobody likes them. They need to go.
Score: 5 Votes (Like | Disagree)
Avatar
45 months ago

Correction, you don't like them. As for the the rest, yawn.

Correction, you yawn, as for the rest - just look at any tech community android or Apple. Qualcomm sucks.
Score: 3 Votes (Like | Disagree)

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