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

[MacRumors]

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.

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."

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

 

[newyorksole]

Messy... Messy messy messy.

Apple needs to resolve this ASAP.

 

[Rob_2811]

Oh dear, this is a bit of an unseemly mess.

 

[justperry]

Messy... Messy messy messy.

Apple needs to resolve this ASAP.

Or Qualcomm.

 

[5105973]

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.

 

[Rob_2811]

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.

Neither is covering themselves in glory.

 

[avanpelt]

Well, I'm sure this will get resolved after many months or years of litigation. There's no way Apple can switch to using Intel for all iPhone modems right now unless Intel has a CDMA modem we don't know about.

 

[69Mustang]

This is a big boy fight. Gives me that Mad Max vibe.
"Remember where you are. This is Thunderdome. Death is listening, and will take the first man that screams."
-Aunty Entity

"Two men enter, one man leaves... two men enter, one man leaves."
-MacRumors forum

 

[Gasu E.]

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.

 

[Kajje]

Don't mess with your big customers. And never, ever raise them pants or turn face forward. Sad but true

 

[meaning-matters]

Messy... Messy messy messy.

Apple needs to resolve this ASAP.

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

 

[Koodauw]

This seems like a Steve move.

 

[bladerunner2000]

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

Like the Mac Pro?

 

[hybroid]

Messy... Messy messy messy.

Apple needs to resolve this ASAP.

Genius. Wonder if Apple think the same. Maybe you should tell them.

 

[Rob_2811]

Like the Mac Pro?

Beat me to it ..

 

[thisisnotmyname]

Messy... Messy messy messy.

Apple needs to resolve this ASAP.

not really. Apple can play hardball, this just puts more pressure on Qualcomm to wrap this up as soon as possible.

 

[5105973]

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.

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.

 

[Zirel]

Like the Mac Pro?

Like most Qualcomm-powered Android devices.

Qualcomm only releases Linux blobs for the newer chips to force planed obsolescence.

Qualcomm is the biggest supplier of Android SOCs and thus the main reason less than 1% of Android devices run the latest version.

Qualcomm surely is a great company, which is pushing hard aptX Bluetooth headphones (they fully own aptX) versus the consortium-licensed AAC headphones. And used FUD against Apple and Intel.

They need to go down, it's a job for Apple.

 

[benroberts3]

Hope you're all are excited for Intel modems!!

 

[velocityg4]

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.

As I understand it. Qualcomm does not have any chip fabs.

Other manufacturers are licensed to build the chips. Those manufacturers pay a per unit license fee to Qualcomm for those rights. I don't know the details of these contracts. I assume those manufacturers are allowed to pass that onto the customer as a separate line item. Otherwise they would not be able to say "Apple isn't paying". I don't know why the licensing structure is like this anyway. Instead of the license simply part of the chip price and the fabricator being responsible for paying the license.

I always thought this part of the licensing system is screwy. Once someone buys the chips they should be able to do with it whatever they please without further license fees. Any license fees should be taken care of by the fab and included in the per unit price. Not as a separate line item.

Anyways, Apple is just paying for those chips from the manufacturer. Not the licensing fee to Qualcomm. So I assume Qualcomm is making bupkis.

Edit: On another note. If Apple is legally required to pay license fees and they said they won't but keep getting more chips. Why can't Qualcomm get Tim Cook and other high level executives arrested and charged with grand larceny?

 

[agsystems]

This little nugget explains everything "Patents controlled by Qualcomm cover the basics of all high-speed data capable mobile phone systems. It charges a percentage of the total selling price of the phone regardless of whether the device uses a Qualcomm chip or not."

I can't believe Apple went along with this- they will fight this to the end as Steve would say 'go nuclear'

https://www.bloomberg.com/news/arti...nsing-payments-to-qualcomm-as-fight-escalates

 

[Kaibelf]

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.

 

[mrow]

As I understand it. Qualcomm does not have any chip fabs.

Other manufacturers are licensed to build the chips. Those manufacturers pay a per unit license fee to Qualcomm for those rights. I don't know the details of these contracts. I assume those manufacturers are allowed to pass that onto the customer as a separate line item. Otherwise they would not be able to say "Apple isn't paying". I don't know why the licensing structure is like this anyway. Instead of the license simply part of the chip price and the fabricator being responsible for paying the license.

I always thought this part of the licensing system is screwy. Once someone buys the chips they should be able to do with it whatever they please without further license fees. Any license fees should be taken care of by the fab and included in the per unit price. Not as a separate line item.

Anyways, Apple is just paying for those chips from the manufacturer. Not the licensing fee to Qualcomm. So I assume Qualcomm is making bupkis.

That is the case for everything but the modem. Qualcomm sells the modems, which are manufactured for Qualcomm by a contract fab, directly to handset manufacturers.

 

[gigapocket1]

It's crazy how you will stop paying one of your main suppliers... like, how do they feel about continuing to process new orders for chips..

I think this just means Apple has a in-house solution ready to go for the iPhone 8..
If I could save 2 billion in payments over the course of the year. I would develop my own as well lol

 

[obiwan]

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.

So it's ok for Apple to charge it's customers 5 times more, yet when a company does the same to Apple they don't like it? Sounds like a case of double standards to me.