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

[kdarling]

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?

Apple has spent years doing this.

Think back to their complaints and lawsuits about Motorola's rates. I'm not sure Apple ever paid them. Too bad, it might've kept Moto a US company.

Apple did the same to Nokia, who then sued them in Delaware for a jury trial. Apple, not having the advantage of a home California jury, saw the light and settled out of court.

Mind you, it's considered normal to do this for a short while (using ETSI FRAND patents until a deal is made). But Apple's lawyers have turned it into a delay art form. After all, the worst case is they pay back royalties after denying funds to their patent holding competitors for years. The best case is, they find a sympathetic court which sets a much lower rate.

 

[apolloa]

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.

I think some on here are qualified. But it's common sense when you have an on going court case to know you can't take matters into your own hands like Apple has, Apples history is to screw everyone over to maximise their own greed.
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Apple has spent years doing this.

Think back to their complaints and lawsuits about Motorola's rates. I'm not sure Apple ever paid them. Too bad, it might've kept Moto a US company.

Apple did the same to Nokia, who then sued them in Delaware for a jury trial. Apple, not having the advantage of a home California jury, saw the light and settled out of court.

Mind you, it's considered normal to do this for a short while (using ETSI FRAND patents until a deal is made). But Apple's lawyers have turned it into a delay art form. After all, the worst case is they pay back royalties after denying funds to their patent holding competitors for years. The best case is, they find a sympathetic court which sets a much lower rate.

Apples business model is literally to screw everyone over, and they seem for the most part to get away with it until they are taken to courts outside the US, they they suddenly settle. It's stinks of corruption shown towards foreign companies. And no one cares so long as money is thrown around.
The Ericsson case was the worst perfect example of how big Apples arrogance is when they tried this model on them.

 

[Razeus]

All I know is that had better be sorted out before iPhone 8. I refused to use inferior technology and will only use a device with Qualcomm tech.

I'm long Qualcomm so I'm highly interested in how this turns out in more ways that one. QCOM's royalty scheme is flat out genius.

 

[ryanwarsaw]

I think some on here are qualified. But it's common sense when you have an on going court case to know you can't take matters into your own hands like Apple has, Apples history is to screw everyone over to maximise their own greed.
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Apples business model is literally to screw everyone over, and they seem for the most part to get away with it until they are taken to courts outside the US, they they suddenly settle. It's stinks of corruption shown towards foreign companies. And no one cares so long as money is thrown around.
The Ericsson case was the worst perfect example of how big Apples arrogance is when they tried this model on them.

I give up. You win.

 

[ani4ani]

From what I understand, Qualcomm sells the same chip to other manufactures for 5 times less than what they charge apple. That isn't fair. Imagine your in line with a chocolate bar and so is the person in front of you. The person in front pays a dollar, but when they see it's you the cashier charges you five. You would be pissed too lol

Most of the agreements are for a % of the phones selling price, so if Apple wants to sell the most expensive phone.....I get it that Apple realise that wasn't a great deal to have signed, but hey that's the agreement they have.

 

[tooltalk]

From what I understand, Qualcomm sells the same chip to other manufactures for 5 times less than what they charge apple. That isn't fair. Imagine your in line with a chocolate bar and so is the person in front of you. The person in front pays a dollar, but when they see it's you the cashier charges you five. You would be pissed too lol

No, There is absolutely zero evidence that Apple is paying 5 x other customers with the same terms and conditions. Apple has made accusations like this before without a shred of evidence -- eg, USITC case against Samsung where Samsung provided over 30+ contracts involving varying prices, cross-licensing, etc to contradict Apple's baseless accusation and Apple provided zero to support their claim.

 

[kdarling]

From what I understand, Qualcomm sells the same chip to other manufactures for 5 times less than what they charge apple.

Nope, you misunderstood, just as Apple's PR department no doubt hoped you would.

Qualcomm charges everyone a higher rate than other patent holders do, that's what Apple meant.

But ironically, Apple pays less to Qualcomm than some others. See post #96:

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

 

[ani4ani]

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

It is when it has the same modem chip in it

 

[tongxinshe]

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.

When your so-called "NORMAL" method was established, phones were just phones, and the cellular chip / technology is THE (only) core of those products. Nowadays, smartphones are more of a computer than a phone, so it's obviously improper for the cellular technology to get a percentage style of cut of the whole product, because there are several MORE IMPORTANT components in the smartphones.

 

[lazard]

When your so-called "NORMAL" method was established, phones were just phones, and the cellular chip / technology is THE (only) core of those products. Nowadays, smartphones are more of a computer than a phone, so it's obviously improper for the cellular technology to get a percentage style of cut of the whole product, because there are several MORE IMPORTANT components in the smartphones.

huh? The modem is one of the most important components in smartphones. Always has and always will.

 

[Rob_2811]

When your so-called "NORMAL" method was established, phones were just phones, and the cellular chip / technology is THE (only) core of those products. Nowadays, smartphones are more of a computer than a phone, so it's obviously improper for the cellular technology to get a percentage style of cut of the whole product, because there are several MORE IMPORTANT components in the smartphones.

Good luck using your "computer" without a modem.

 

[apolloa]

And here you go, a statement has been added to the story which is the EXACT SAME EXCUSE Apple has used against every supplier it's gone to court with, and as highlighted in this thread already they are paying far less then anyone else.
This is nothing more then Apples business model, plain and simple, it screws over everyone to get as cheap a deal as possible and far less then anyone else. All about the profit, nothing to do with a 'fair price', Apples idea of a fair price is zero!......

"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."

Now if I remember correctly, Ericsson offered to allow the courts to set the license fee from Apple, and Apple flatly refused the offer and counter sued, most likely because they felt they'd get more money that way. Morals don't fit in Apples business model..

 

[I7guy]

Nope, you misunderstood, just as Apple's PR department no doubt hoped you would.

Qualcomm charges everyone a higher rate than other patent holders do, that's what Apple meant.

But ironically, Apple pays less to Qualcomm than some others. See post #96:

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

Where the source to what Apple pays? That graph "says nothing" definitive about what anybody pays.

 

[techwhiz]

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.

So actually they won't and I think that's what makes them mad.
Even with Intel there is licensing to be paid to Qualcomm.
Qualcomm own the fundamental patents for CDMA and GSM.
You also can't do LTE without Qualcomm licensing.

Viterbi was Qualcomm founder and invented the algorithms that make any efficient cellphone communication possible. This also applies to dial up modems, satellite transmission, 802.11, speech recognition.
It's a probability algorithm. It can also be used in the area or machine medical diagnosis.

Apple is going to pay. No way around it.
They were getting rebates as long as they only used Qualcomm. The rebates stopped when they started using Intel.

Also, this is about a grab to increase profits.You can believe they will not be passing any savings to you. Most companies don't complain and just pass the cost to the consumer.

 

[MrX8503]

It is when it has the same modem chip in it

There are Android phones just as expensive as the iPhone.

 

[Le Big Mac]

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.

That's why Apple has Qualcomm over a bit of a barrel, plus Qualcomm can't stop Apple from using the IP any faster than Apple can get a resolution on royalties.

Yeah. I guess I just don't understand...they've had this working relationship for years. Why a dustup now?

They've been arguing for years, but kept it out of the public eye. Plus, Apple was stuck with Qualcomm until they got Intel to design a comparable chip, so now they're less stuck.
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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?

That's the crux of a complex argument. Qualcomm has licensing terms it demands that allow them to get around the exhaustion rule, which otherwise would mean once the chip is sold they can't keep charging for it. Qualcomm's rationale is (a) that's legal and (b) they need to structure contracts that way so they can be compensated for their IP, as otherwise they couldn't keep track of who sold chips where and what royalties they were due. Apple on the other hand argues that by charging royalties based on the handset value, Qualcomm gets paid for Apple's innovation on other aspects of the iPhone (i.e., why should Apple pay more than an Android phone maker when Apple has a more innovative software in the phone that consumers are willing to pay more for)
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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?

And that's going to be the next fight for IoT devices - should a company pay the same royalties for a wireless chip that goes in a phone, a refrigerator, or a car? Or should they pay in each case based on the value of the item its embedded in?

 

[RickInHouston]

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

...and if Qualcomm stops shipping their chip to apple?

 

[ani4ani]

There are Android phones just as expensive as the iPhone.

No one is arguing that, but if the same chip exists in a cheap android phone as well as an iPhone then, if the royalty is paid on the sell price, then Apple will be paying 5 x as much ( read consumer is paying more)

 

[tongxinshe]

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.



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):

View attachment 697781

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.

You missed one word -- "combined"! So, 340/45 is TOTALLY wrong an equation, it's more like 340/220.

As Qualcomm says, Apple withheld $500 million royalty fees, which is the amount for the phones Apple sold in the first quarter of this year. So, the royalty rate is about $10 per phone. So, some part of your information is wrong, either the base phone price for the calculation, or the rate percentage. To my understanding, both of them are wrong, because I remember reading a document saying that the percentage Qualcomm asks for is something like 1.35%. $10 / 1.35% = ~$700, that is clearly around the average iPhone retail price.

 

[agsystems]

So actually they won't and I think that's what makes them mad.
Even with Intel there is licensing to be paid to Qualcomm.
Qualcomm own the fundamental patents for CDMA and GSM.
You also can't do LTE without Qualcomm licensing.

Viterbi was Qualcomm founder and invented the algorithms that make any efficient cellphone communication possible. This also applies to dial up modems, satellite transmission, 802.11, speech recognition.
It's a probability algorithm. It can also be used in the area or machine medical diagnosis.

Apple is going to pay. No way around it.
They were getting rebates as long as they only used Qualcomm. The rebates stopped when they started using Intel.

Also, this is about a grab to increase profits.You can believe they will not be passing any savings to you. Most companies don't complain and just pass the cost to the consumer.

thanks for the background...what you are saying is that even after Intel pays for licensing -
Apple will continue to pay both Intel and Qualcomm - I am very interesting to see how this goes after the next iphones are released.

 

[kdarling]

Where the source to what Apple pays? That graph "says nothing" definitive about what anybody pays.

Qualcomm's royalty rate is well known, and it's an open secret that Apple only pays according to the Foxconn price. I've posted sources here before; you can search if you wish.

As far as rates go, here is an older chart of the starting negotiation rates for LTE (which includes a 3G license):

The last I checked, I think most LTE licenses were capped by a licensing consortium at 15% or $10, whichever was less. Then there's Qualcomm which I think is at or below 3.0% now. Plus a smattering of other minor licenses for pennies.

No one is arguing that, but if the same chip exists in a cheap android phone as well as an iPhone then, if the royalty is paid on the sell price, then Apple will be paying 5 x as much ( read consumer is paying more)

No, because Apple made a different deal with Qualcomm. See above and post #96, please.

 

[I7guy]

Qualcomm's royalty rate is well known, and it's an open secret that Apple only pays according to the Foxconn price. I've posted sources here before; you can search if you wish.

As far as rates go, here is an older chart of the starting negotiation rates for LTE (which includes a 3G license):

View attachment 697813

The last I checked, I think most LTE licenses were capped by a licensing consortium at 15% or $10, whichever was more. Then there's Qualcomm which I think is at or below 3.0% now. Plus a smattering of other minor licenses for pennies.



No, because Apple made a different deal with Qualcomm. See above and post #96, please.

So this is from 2010?

 

[Juan007]

GREAT! Steve Jobs invented the iPhone, not Qualcomm!!! Don't give one dime to those lawyer leaches.

 

[prasand]

The upcoming iPhone release is anticipated to be a supercycle. The iPhone 8 is also expected to be the most expensive iPhone thus far. So not only will the number of sales go through the roof, the profit per sale compounds it and will push revenue through the roof. As a consequence, Apple would have in turn also been paying record-breaking royalties to Qualcomm, for technologies and cycles Qualcomm has nothing to do with.


Apple needed to push the matter before the next iPhone event.

 

[itsmilo]

Reminds me of our CEO who simply withholds payments from our suppliers/developers until something has been fixed ^^