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

[a.gomez]

So basically apple wants to set the value of their stuff and everyone else. What I love is that Apple Is just became a deadbeat and keep using it without paying anything.

 

[kdarling]

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.

 

[MrX8503]

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.

I bought my iPhone 7 for $650. It's not 5x more than an equivalent Android phone

 

[apolloa]

If you want to stay profitable it is hard to do that these days with out Apple. I think maybe that is the point of this. Having your product inside Apple devices tends to be good for the health of your stock.

Why? Apple are hardly the ONLY consumer electronics company in existence. Their are more then plenty of other avenues to make a profit from.

 

[ryanwarsaw]

Why? Apple are hardly the ONLY consumer electronics company in existence. Their are more then plenty of other avenues to make a profit from.

Not when you are in the business of LTE chips. That limits it down to a handful of companies of which Apple and Samsung have the lion's share of the market.

I misspoke there. There are obviously hundreds of companies but Samsung and Apple are the biggest there is.

 

[apolloa]

Not when you are in the business of LTE chips. That limits it down to a handful of companies of which Apple and Samsung have the lion's share of the market.

Well when Android has a massive global market share compared to Apple, then yes I do firmly believe their are plenty of other ways to make money. And they probably won't deliberately slow down your chips performance to match that of your other supplier either.

 

[bollman]

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

Problem is: Qualcomm developed and owns the patents on the technology. Exactly how are they supposed to make money otherwise?
Does anyone really think that the hard work that goes on behind the scenes regarding the fundamental tech that powers todays units should be done for free?
If Apple had developed UMTS, do you really, really think that they would let anyone use that tech for free?
As I recall Apple gladly receives royalties for any unit that sells with FireWire.
Qualcomm made a smart move to base the royalties on the price of the unit, not a flat price.
Nokia and Ericsson who owns most of the patents concerning GSM and 3G obviously made a less profitable move.

 

[ryanwarsaw]

Well when Android has a massive global market share compared to Apple, then yes I do firmly believe their are plenty of other ways to make money. And they probably won't deliberately slow down your chips performance to match that of your other supplier either.

Anyway Apple is completely with in their rights to with hold payments for royalties of which the amount is not determined. That is what this story is about. If the judge rules in favor of Qualcomm then Apple will have to pay the full amount. Apple will also be assessed penalties in that case.

It probably seems like I am defending Apple but not really. Any big corporation would use the same tactics.

 

[agsystems]

I think the reason, in this case, is that the royalty is based on the selling price of the phones, not the price of the chips. This means the royalty cannot be automatically calculated by the chip fab. Apple likely has to report the selling price to the chip fab (information they'd rather not divulge, of course) so that the fab can then calculate the royalty. Under the circumstances it's completely understandable that the royalty would be a separate line item on the invoice.

If the royalty was a flat, per-chip percentage, then it would be this simple.

I don't know what's typical these days, though I suspect most patent holders don't have the leverage to demand royalties based on the selling price of the final goods. Apparently, Qualcomm has been particularly aggressive in exploiting its leverage. So much so, that various government agencies around the world (including the US Federal Trade Commission) have found those practices to be anti-competitive. Now, those agencies generally don't take action unless "consumers" complain to the agency. Considering how long it can take the wheels of government agencies to turn, the dispute over Qualcomm's royalty practices has probably been simmering for many years.

At the moment, yes. However, since Apple claims that Qualcomm owes them $1 billion in rebates, there's a bit of money in the bank.

Or perhaps Apple can get Qualcomm's executives arrested for withholding that $1 billion?

The reason neither side can call the police is that this is a matter of civil law (contract and or patent violations), not criminal law.

Disputes like this are always more complex than the media is able to report. Who knows who really fired the first shot? Here's my speculative "take:"

Apple enters the cell phone business as a new, small player. They don't have the leverage to demand better license terms from Qualcomm, no matter how much they dislike those terms (imagine how Steve might have felt about divulging those sales figures).

iPhone becomes a huge success, Apple gains leverage, and is not shy about applying that leverage. It begs the question, did Apple negotiate those rebates from Qualcomm, or are rebates available to any major customer? If it was a special deal with Apple, it's likely that Qualcomm hasn't been exactly happy with Apple.

One thing seems likely, which is that, if the currently-due rebate is $1 billion, the actual royalty rate per phone has to be pretty steep. Is the rebate on the sale of 100 million iPhones? 200 million? If so, that's a rebate of $5-$10 per phone. That can pay for a fair amount of component upgrades in other parts of the phone while maintaining the current price point (or, yes, more money in Apple's pocket, depending on what you think of Apple's motives).

great analysis...and unless the upcoming Intel XMM7650 is not competitive with Qualcomm, Apple will be saying goodbye to those royalty payments - I am sure Intel is so desperate to get on the iPhone party train that they will give Apple very good pricing.

 

[mytdave]

I'm not really sure which company is the bully here. This is definitely not cut-n-dry like some other disputes. On the one hand, if Apple has a legal contract in place, they should follow it. On the other hand, if Qualcomm has been involved in anti-competitive practices, there is grounds for Apple to seek remedy or end of the contract (and change suppliers). I think Qualcomm's hands are dirty here, but I also think Apple should meet it's obligations until the dispute is over.

 

[spacemnspiff]

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.

I don't how that could be considered fair, if a product such as the $17,000 Apple Watch Gold Edition contained Qualcomm's chip, the percentage royalty would be far higher than an $50 Android phone. Mind you, this is for the same product in a different application.

One analog that I can think of is the tires for a car, imagine if the tire manufacturers charge a feed based on the price of the car, same tire going on the wheels of different cars gets a different fee based on the pricing of the car. Would that be considered fair?
If not, what are the differences here?

 

[apolloa]

Anyway Apple is completely with in their rights to with hold payments for royalties of which the amount is not determined. That is what this story is about. If the judge rules in favor of Qualcomm then Apple will have to pay the full amount. Apple will also be assessed penalties in that case.

It probably seems like I am defending Apple but not really. Any big corporation would use the same tactics.

Actually I think you'll it's not legal in the slightest because it's up to the courts and the legal case that is on going to decide, not for Apple to simply 'stop paying whilst still making personal profits of patents involved'

And this will impact all the other suppliers in this story not just Qualcomm, yeah why should Apple care who they impact no matter how innocent they are eh?

 

[I7guy]

Actually I think you'll it's not legal in the slightest because it's up to the courts and the legal case that is on going to decide, not for Apple to simply 'stop paying whilst still making personal profits of patents involved'

And this will impact all the other suppliers in this story not just Qualcomm, yeah why should Apple care who they impact no matter how innocent they are eh?

This is for the courts to decide. And I agree in business it's every "person" for themselves.

 

[kdarling]

I don't how that could be considered fair, if a product such as the $17,000 Apple Watch Gold Edition contained Qualcomm's chip, the percentage royalty would be far higher than an $50 Android phone. Mind you, this is for the same product in a different application.

Good question.

The answer is that there's an upper limit. I can't recall it offhand, but it's not very big.

Again, there's a specific purpose for this royalty method, and it has worked extremely well to create a worldwide cellular infrastructure and marketplace, without which Apple could not have made almost a quarter trillion dollars in raw profit. And without which the third world would not have phones available for $30. (You cannot pay $10 in royalties when you only make $3 per unit!!)

Mind you, many old time phone makers pay much less than the usual rate because they cross licensed a lot of their tech. This is one of Apple's primary complaints. They want the lower rates that others get, but without sharing any patents. In other words, Apple wants an unfair advantage over other licensees. They want to be treated special. Even though they already make ~80% of the smartphone profits worldwide.

I would add that this royalty method is not unique to cellular. Other patents and forms of IP also use the percentage-of-product-value method. See Royalty Rate Assessment here. At least it's better than percentage of profits, which is another common method, e.g. for franchises who pay for using trademarked names and patented operating methods.

 

[ApfelKuchen]

I don't how that could be considered fair, if a product such as the $17,000 Apple Watch Gold Edition contained Qualcomm's chip, the percentage royalty would be far higher than an $50 Android phone. Mind you, this is for the same product in a different application.

One analog that I can think of is the tires for a car, imagine if the tire manufacturers charge a feed based on the price of the car, same tire going on the wheels of different cars gets a different fee based on the pricing of the car. Would that be considered fair?
If not, what are the differences here?

This is the same argument as "flat tax" proposals - it's "fair" to charge the same to everyone, regardless of the ability to pay. As with that debate, "fairness" depends on how much money you have.

The person quoted explained why the royalty is structured as it is - a low rate for low-priced phones, and a higher rate for higher-priced phones - the patent holder gets the money it wants, the consumers get the products they want, at prices they can afford to pay. People who can afford to spend more pay more (actually, though, this is a flat tax, since it is a fixed percentage).

One can argue whether the percentage is too high overall. One can argue that the use of the cellular patents adds no more value to the price of an expensive phone than to a cheap one (a phone call or internet connection presumably has a similar value, regardless of whether it's made from a phone with a plastic case or solid gold). In fact, that's what's happening. This will be argued in court, and we'll see how it all turns out.

 

[CarlJ]

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.

You're glossing over of major differences there, comparing apples and oranges. Do you 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. Charging one company 5 times more than others for something the company has to license to meet a standard is violating FRAND. Standards are necessary for interoperability and to provide choice - imagine if Toyota cars would only run on Toyota gas, Ford cars could only drive on Ford roads, etc. Imagine if the government decided to only build Ford-branded roads and every other car company had to pay Ford whatever Ford asked in order to license the technology to drive on those roads. Standards prevent the headaches of the former case, and FRAND prevents the unfairness of the latter case.

The other side - what Apple charges for phones - is entirely different. Precisely because of the existence of standards, you aren't required to buy a phone from Apple - you can buy a phone from any of dozens of different companies and still use it to talk on the same airwaves, send the same emails, play the same music, visit the same webpages. Apple is able to survive and prosper while charging high prices because apparently a whole lot of people perceive their phones to be worth the extra money, even while working on the same networks and such.

 

[ryanwarsaw]

Actually I think you'll it's not legal in the slightest because it's up to the courts and the legal case that is on going to decide, not for Apple to simply 'stop paying whilst still making personal profits of patents involved'

And this will impact all the other suppliers in this story not just Qualcomm, yeah why should Apple care who they impact no matter how innocent they are eh?

If it wasn't legal Apple wouldn't do it. These are after all legal maneuvers and posturing. If it was illegal Apple would be ordered to pay right now by the judge.

 

[apolloa]

If it wasn't legal Apple wouldn't do it. These are after all legal maneuvers and posturing. If it was illegal Apple would be ordered to pay right now by the judge.

Really? Your going to say that? Apple attempted to sue Samsung based on simple scetches of oblong shapes with round corners coloured black and white, they used the colours in their arguments in court... they told Ericsson they wouldn't pay then royalties, Ericsson the company who along with a few others built invented and developed celllular networks globally, your phone is not a phone without using their tech end off......

Yeah Apple is THE VERY LAST COMPANY I would expect to abide by any laws around patents! Slide to unlock...

As I said what about the other suppliers it's now refusing to pay? Is that legal? I doubt it.. that's what the courts are for.

 

[CarlJ]

One can argue whether the percentage is too high overall. One can argue that the use of the cellular patents adds no more value to the price of an expensive phone than to a cheap one (a phone call or internet connection presumably has a similar value, regardless of whether it's made from a phone with a plastic case or solid gold). In fact, that's what's happening. This will be argued in court, and we'll see how it all turns out.

It might be reasonable to charge a percentage up to a certain point, or looked at the other way, a flat rate modified to roll off on the lower end for especially low-priced products. Agreed, if someone builds the components of a phone into a half-million-dollar bar of gold, it's not like that bar-of-gold-phone is going to benefit more from the radio chips that make it a phone than a $200 smartphone does.

 

[ryanwarsaw]

Really? Your going to say that? Apple attempted to sue Samsung based on simple scetches of oblong shapes with round corners coloured black and white, they used the colours in their arguments in court... they told Ericsson they wouldn't pay then royalties, Ericsson the company who along with a few others built invented and developed celllular networks globally, your phone is not a phone without using their tech end off......

Yeah Apple is THE VERY LAST COMPANY I would expect to abide by any laws around patents! Slide to unlock...

As I said what about the other suppliers it's now refusing to pay? Is that legal? I doubt it.. that's what the courts are for.

You are exactly right these things are for the courts to decide. It could be Apple is punishing Qualcomm unfairly. Life isn't fair. Other than what a judge of the court hands down as a decision and it gets appealed and settled this as all idle speculation from a forum user base that are not privy to the case details and are not qualified to comment for the most part.

 

[kdarling]

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 ) I.e. Apple's statement is clever PR that sounds really bad until you know more.

 

[lederermc]

Qualcomm shot themselves in the foot by being too greedy. Apple now has another supplier - that's capitalism.

 

[tooltalk]

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.

Qualcomm essentially had a gag order on Apple and Apple was not allowed to talk about their contract to anyone. Last year Apple testified against Qualcomm in South Korea (KFTC). And in further defiance, Apple decided to source Intel as their baseband supplier, breaching their exclusive agreement to use Qualcomm chips in exchange for rebates -- Qualcomm is now withholding Apple's rebates.

I guess as Wilde said there is only thing worse than being talked about -- that is not being talked about. Apple wants to be on the spotlight constantly whether good or bad, or even when it isn't too relevant and they are getting plenty of free publicity.

 

[lazard]

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



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:

View attachment 697781

Look at that chart. Let's see, 340/45 = 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 )

exactly...Qualcomm owns 7.5x more patents than the next company (Nokia), yet only charges 5x more. Plus, Apple skirts the percentage of price royalty payments by buying the iphones from Foxconn at cost and then turns around and sells it to consumers at 3-4x.

 

[falainber]

What I don't understand is this. Obviously Apple has the right to stop paying royalties if they wish so. Should not they then stop using the components/technologies with Qualcomm IP in them? Do they feel entitled to the right to use Qualcomm IP regardless of whether they pay for it or not?