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

[Carnegie]

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.

It depends on whether we believe the factual allegations made by Apple and to a great extent mirrored by the findings of several regulatory bodies (in, e.g., the U.S., China, and South Korea). If we believe those allegations, then there shouldn't be much argument as to whom the bad actor in this situation is - it's Qualcomm. It has acted improperly and perhaps illegally. If you'd like to get into the specifics of the allegations and what they mean - e.g., how certain legal aspects of the situation work, at least in the United States - then I'd be happy to go over some of that with you. We've touched on it some in other threads, but I don't think we've gone into much detail.
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Messy... Messy messy messy.

Apple needs to resolve this ASAP.

At this point it's likely Apple that doesn't really need to resolve this ASAP. It's more so Qualcomm, if anyone, that does.

If we believe the factual allegations made against Qualcomm by Apple and others, there was a time when Qualcomm had all the leverage and could force Apple (and perhaps others) to do what it wanted. But that time seems to have passed.
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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.

Yeah, at this point Qualcomm can't really afford to stop supplying whatever modems it's supplying to Apple. Its stock price has been battered as it is (justifiably so if the allegations made against it are true). And these recent developments are likely to do major damage to its earnings (even more so than its revenues) going forward. Refusing to sell modems to Apple would do even more damage, especially considering how much of its total revenue (as well as its licensing revenue) likely (based on things it reports in its SEC filings) comes from Apple.
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...

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?

It wouldn't be a criminal matter, it would be a civil matter.

And when it comes to it being a civil matter, Apple is (legally) fine not paying licensing fees even while it continues to produce and sell products which make use of Qualcomm's SEPs. So long as Apple has acted in good faith in trying to negotiate licensing terms, Qualcomm shouldn't be able to (legally) stop Apple from producing and selling such products. That's how it works when it comes to SEPs.

At this point Apple is seemingly happy to let a court (or other third party) decide what licensing terms would be appropriate. That, or Qualcomm will eventually offer what Apple considers more appropriate terms. Apple believes any terms decided upon by a court would be better than what Qualcomm has been demanding. And, if its factual allegations are true, then based on legal precedents I think Apple is probably right about that.

Apple apparently feels that Qualcomm no longer has the leverage that it previously did to be able to force Apple to agree to terms which Apple believes are improper. Apple is no longer worried about Qualcomm cutting off its supply of certain modems if Apple doesn't acquiesce to Qualcomm's licensing demands with regard to the SEPs used in those modems and other patents. The worm, it seems, has turned. And, piling on metaphors, Qualcomm no longer has Apple over a barrel.
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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.

It's not a case of double standards so much as different situations. Qualcomm has a contractual obligation, one that it freely agreed to (and for which it got consideration). If the factual allegations made against Qualcomm by Apple and others are true, then Qualcomm has repeatedly violated its contractual commitments (and, perhaps, acted illegally).

If Apple agreed to do things particular ways when it comes to sales it makes to consumers, and got something in return for agreeing to do things those ways, then by all means... it should do things those ways, even if that meant selling products for considerably lower prices than it currently does.
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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

If the allegations made by Apple and others are true, then Apple had little choice but to go along. That is, assuming it wanted to be able to sell certain kinds of iPhones. It of course wasn't happy about the situation and believed that Qualcomm was behaving improperly (i.e. violating commitments it made and, perhaps, acting illegally). But previously Apple wasn't in a position to resist without doing huge damage to its own business. As I suggested in an earlier response, the worm seems to have turned - at least, Apple seems to think that it is Apple, rather than Qualcomm, that now has the leverage. And Apple seems determined to demand what it believes to be appropriate (e.g. FRAND compliant) licensing terms.

 

[kdarling]

And when it comes to it being a civil matter, Apple is (legally) fine not paying licensing fees even while it continues to produce and sell products which make use of Qualcomm's SEPs. So long as Apple has acted in good faith in trying to negotiate licensing terms, Qualcomm shouldn't be able to (legally) stop Apple from producing and selling such products. That's how it works when it comes to SEPs.

The thing is, Apple is not renowned for negotiating FRAND patents in good faith. On the contrary, judges have dissed Apple for trying to use the courts to force lower rates. The ITC ruled that Apple had failed to negotiate at all (and failed to follow ETSI rules about arbitration).

Apple apparently feels that Qualcomm no longer has the leverage that it previously did to be able to force Apple to agree to terms which Apple believes are improper. Apple is no longer worried about Qualcomm cutting of its supply of certain modems if Apple doesn't acquiesce to Qualcomm's licensing demands with regard to the SEPs relating to those modems and other patents. The worm, it seems, has turned. And, piling on metaphors, Qualcomm no longer has Apple over a barrel.

Except, to use the same metaphor, the worm has turned once again, now that the FTC Commissioner who wrote a strong opposing opinion to the charges against Qualcomm, has since been appointed as the new FTC Chief by Trump.

1. She said there was no evidence that Qualcomm charged customers more for using other chips.
2. She said that it was not up to customers to determine what is a "fair" rate (something Apple loves to try to do unilaterally).

Many observers think the new, more patent holder friendly, FTC will drop their case against Qualcomm. That wouldn't bode well for Apple's own case. E.g.

Qualcomm's FTC Defender Just Got a Major Promotion - The Motley Fool

Her quotes in that article are worth reading, to see how she thinks.

 

[alphaod]

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.

Your logic here is flawed in that Apple is charging all their customers the same right? Whereas Qualcomm has decided to just charge Apple more. This is not the same. It would only be a double standard if say Apple decided if you made $100k/year the iPhone costs 200% retail and if you made less than that then you would pay retail.

 

[tooltalk]

Your logic here is flawed in that Apple is charging all their customers the same right? Whereas Qualcomm has decided to just charge Apple more. This is not the same. It would only be a double standard if say Apple decided if you made $100k/year the iPhone costs 200% retail and if you made less than that then you would pay retail.

This has been answered at least couple of times here. No, Apple is not alleging that Qualcomm is charging Apple more than other customers for the same patent portfolio, but that, according to their complaint: (a) Qualcomm is charging for patents not only owned by Qualcomm, but also those cross-licensed by other contributing members of SSO (eg, Samsung's wireless patents) (see Nature of Action 2); (b) Qualcomm is no longer the single most important market driver of smartphones and likewise their royalty rate is too high (see Nature of Action 3).

Apple here is alleging that they are paying more than what they should. Period. Apple believes that their utterly generic UI/utility patents (some invalidated now) are worth $8 per device while, while wireless SEPs are worth $0.000000x. That's essentially where Apple's problem is here.

Apple testified against Qualcomm in South Korea (KFTC) last year in their efforts to depict Qualcomm's licensing practices in a bad light -- and Qualcomm was fined $800M. Apple is now hoping that they could jumpstart their case here in US with the KFTC's latest findings against Qualcomm and negotiate better rates. Apple does this court battle dancing with every wireless patent holders, such as Nokia, Ericsson, etc.. Apple simply believes that everyone's else patents are worth nothing and doesn't want to pay.

 

[HiRez]

Have you seen their RAM prices lately?

Apple's RAM prices are still higher that what you can buy and install the RAM for yourself (if the computer supports upgrading), and higher than I'd like, but they're actually much more reasonable than they were 5, 10, 15 years ago. To the point where I'll usually spring for extra RAM at purchase in BTO Apple machines now.

 

[Tech198]

You would had hoped a company cares where their own chips will be used and prices it accordingly. Pay me price,or u loose. I'm surprised Qualcomm kept feeding Apple if Apple treated them this way. or at least "said" so...

Apple's RAM prices are still higher that what you can buy and install the RAM for yourself (if the computer supports upgrading), and higher than I'd like, but they're actually much more reasonable than they were 5, 10, 15 years ago. To the point where I'll usually spring for extra RAM at purchase in BTO Apple machines now.

Yea, and Apple's a premium seller, easy to single the big (company out), but if Apple had it their way they would verify its *only* their ram u use and no other third party.

Weather Apple's decision could be because it would hurt too many users, that's the price u can pay for being in a limited eco-system. The fact, Apple doesn't do more, it doesn't wanna let on being a 'grinch' But its perfectly do-able.

 

[szw-mapple fan]

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.

Where does Apple actually charge 5 times more? Besides, if customers are unhappy with the price, they can simply not buy Apple and let the market negotiate a lower price for them. Not seeing that at all so far. Apple has the right to negotiate and switch suppliers, just like we can switch to other tech companies.

 

[I7guy]

You would had hoped a company cares where their own chips will be used and prices it accordingly. Pay me price,or u loose. I'm surprised Qualcomm kept feeding Apple if Apple treated them this way. or at least "said" so...



Yea, and Apple's a premium seller, easy to single the big (company out), but if Apple had it their way they would verify its *only* their ram u use and no other third party.

Weather Apple's decision could be because it would hurt too many users, that's the price u can pay for being in a limited eco-system. The fact, Apple doesn't do more, it doesn't wanna let on being a 'grinch' But its perfectly do-able.

Your statement about the "ecosystem" doesn't follow any logic. And what is "doable". Sure all companies could afford to pay more to the patent holders. Maybe Samsung ought to increase the fees to Kodak for oled. Is that what you are saying?

 

[Carnegie]

Simplified explanation:

Apple pays Qualcomm a percentage of every iPhone sold.
Average selling price of iPhone goes up based on larger screen and camera (nothing to do with Qualcomm, but they reap the benefits in royalties because of the percentage based royalties owed).
Apple gets mad that they're paying millions extra to Qualcomm for upgrades that they had nothing to do with and sues.

At the end of the day Apple is wrong here. They agreed to a percentage based royalty payment. They only have themselves to blame for continuing to ignore the fact that there is a large demand for larger screened phones which would drive up the ASP.

If Apple's assertions (and those of others) are accurate, Apple only agreed to Qualcomm's terms because it had to if it wanted to be able to build certain kinds of iPhones. Qualcomm on the other hand acted in violation of agreements which it had made and acted, arguably, illegally.

The reason Apple needs to license SEPs is because those SEPs are parts of industry standards which any cell phone maker has to comply with. And the reason Qualcomm and others have SEPs (which cell phone makers need to license) is, among other reasons, that Qualcomm agreed to do things certain ways if its patents were included in those industry standards. If Qualcomm hadn't agreed to those terms (and thus made what were, in effect, contractual commitments to future license seekers), then its patents wouldn't be included as part of the various standards. There wouldn't be the standard-inclusion-created demand for those patents that there is. Qualcomm got something in return for agreeing to certain terms. If the factual allegations made against it are accurate, it has repeatedly violated those terms.
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If Apple's position translates to legal rulings, Qualcomm received in effect 4x the revenue they were entitled to, resulting in a 80% refund due plus costs, interest and damages. Wow. Qualcomm has had "magical" numbers for years. I guess this is why.

At least Apple funded Qualcomm shareholders in advance to bring its growth. SELL! (take profits)

If it turns out that the factual allegations made against Qualcomm are true, I believe it will face shareholder lawsuits in the future. It will mean that its business model - which has allowed it to be as profitable as it has in recent years - has been built in part on contract-violative and perhaps illegal practices. Further, it should have known (and most likely did know) that that model was likely to fall apart at some point, resulting in significant degradation of its ability to produce similar earnings going forward. It had a duty to clearly disclose that likelihood to investors. I believe some of the reaction that we've seen from Qualcomm has been largely about after-the-fact CYA in anticipation of investor lawsuits.
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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.

I can't be certain what you're referring to when you say that the DOJ approved basing royalties for FRAND patents on the price of phones. I think however that I know what you're referring to. If you're actually referring to something else, please let me know.

That said, what I think you're referring to wasn't the DOJ saying that those kinds of terms are proper in an IP law sense or that they are FRAND compliant. It was the DOJ saying that doing things a certain way wouldn't, based on its (then) current assessment, be an anti-trust violation. What happens is someone lays out for the DOJ how they (or clients) might operate and asks the DOJ to review those identified practices for possible anti-trust concerns. The DOJ then says, basically... as we understand it you might do this and that and the other and, best we can tell for now, that wouldn't (or would) create an anti-trust problem that might cause us to come after you.

More generally, yes, licensees and licensors can - and in some cases do - agree to base royalties on the total value (e.g. the wholesale value, though perhaps even the retail value) of consumer products. There's nothing wrong with that, even when it comes to SEPs, so long as both parties wish to do it that way. But recent court decisions, in keeping with general principles laid down by court decisions going back at least a century, have made it clear that patent holders are not (except under particular circumstances which don't exist here) entitled to royalties based on the entire value of consumer products. Qualcomm can not refuse to license SEPs to Apple, or most anyone else, unless they agree to pay royalties based on the entire value of the consumer products they produce.

As for the relationship between Apple and its contract partners and how that affects patent royalties: Yeah, it is Apple's contract manufacturers that are actually licensing various SEPs (at least in some cases). And once they've licensed those SEPs, patent exhaustion applies in so far as their selling licensed products to Apple and Apple then selling those licensed products to others. Qualcomm has no legal claim to collect royalties based on those later sales of, e.g., iPhones.

I don't want to get too sidetracked by it as it isn't all that important for this general discussion, but the $240 for an iPhone (i.e. Apple paying Foxconn that much) is likely low - at least if we're talking about the average cost. We can't say for sure what it is, but based on what we can glean from Apple's financial reporting as well as Foxconn's, it's likely higher than that.

 

[341328]

What would Apple do if they were in Qualcomm's shoes?

 

[Carnegie]

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.

The claim that Qualcomm charges Apple (at least) 5 times more than other cellular patent holders didn't relate to an individual patent holder, it related to all other cellular patent holders which Apple has agreements with combined. And, more relevant to the claim that was actually made, Qualcomm does not own 7.5 times more cellular SEPs than all other companies combined (not even if we were to limit the consideration to 3G, though Apple's claim was not so limited).

Qualcomm is a dominant player in cellular SEPs, that shouldn't be denied. But Qualcomm is a significantly less dominant player in 4G SEPs than it is when it comes to 3G. There Apple claims that it (effectively) pays Qualcomm more in licensing fees than it does four SEP holders combined even though those other holders (combined) own significantly more SEPs. That's not necessarily improper. I'm just suggesting that we should understand the claims that are actually made and address them as they are offered - and your juxtaposition of 7.5 times the patents with 5 times the payment doesn't do that.

When it comes to Apple skirting royalty payments by buying iPhones from Foxconn: First, Apple doesn't sell iPhones to consumers at 3-4X what it pays Foxconn for them. Second, Qualcomm charges a royalty based on the price Foxconn sells iPhones (to Apple) at because that is who Qualcomm has license agreements with. It is Qualcomm's choice to do licensing agreements with Foxconn. And once it does, it has no legal claim to charge royalties on further sales of iPhones.

Apple would prefer to do direct licenses with Qualcomm. Qualcomm may prefer that as well. But they haven't been able to agree on terms. That's why Qualcomm chooses to do licensing agreements with Foxconn and others. Apple and Foxconn disagree on why they haven't been able to agree on direct licensing terms. Apple claims it's because Qualcomm hasn't offered FRAND terms, Qualcomm (at least effectively) denies that. If, however, they did agree on direct licensing terms , then perhaps Qualcomm could charge royalties based on the price Apple sells iPhones (to, e.g., third-party retailers or in come cases directly to consumers) at. I doubt Apple would agree to that (and that's part of why the companies don't have a direct licensing agreement), but it could be done that way. As it is, it isn't done that way so first sale doctrine prevents Qualcomm from collecting royalties based on the price that Apple sells iPhones at.
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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?

No, they don't need to stop using components which incorporate Qualcomm's SEPs. That's not how it works, or is supposed to work, when it comes to SEPs.

When patent holders ask (or agree) to allow their IP to be incorporated within industry standards, they understand that others will be allowed to use that IP unless those others act in bad faith when it comes to trying to negotiate terms. That is something that patent holders effectively give up in exchange for having their IP incorporated into standards (and thus having additional demand created for the licensing of that IP).

That's really how it has to work, otherwise it would be too easy for patent holders to promise certain things in order to get their patents used in standards and then extort unreasonable fees or terms from the industry players that (because those patents are used in standards) have to use that IP. It's part of a concept referred to as patent hold-up which courts pay considerable attention to when considering how to deal with various licensing and infringement issues. SEP holders can't be allowed to stop others from using their IP while they are trying to agree on terms or while courts are deciding what terms would be appropriate.
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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.

I've read a number of comments along these lines, so I'd like to clear up something which seems to be misunderstood by some. Apple hasn't signed the kind of deal you're referring to with Qualcomm. That's part of the issue and part of the complaint that Apple is making.

Apple does have some deals with Qualcomm. Among other things, Apple purchases modems from Qualcomm and there are agreements in place relating to them. But it doesn't have a deal in place regarding licensing of the cellular SEPs that are at issue. It didn't, e.g., agree to pay a certain percentage of the price of iPhones such that it is now violating that agreement. It had previously effectively been going along and paying those licensing fees (because it claims that at the time it really didn't have much choice), but not based on an agreement it signed with Qualcomm.

Apple has wanted a direct licensing deal with Qualcomm. I suspect that Qualcomm has genuinely wanted that as well. But they haven't been able to agree on terms. So Qualcomm has done licensing deals with Apple's contract manufacturers - e.g., Foxconn. Those companies, supposedly, have agreements in place which they are now violating. Apple claims that it isn't allowed to know the terms of those deals, that Qualcomm requires confidentiality regarding them. The claim is that Foxconn has less incentive to negotiate fair deals than Apple does, as it just passes whatever costs are associated along to Apple, and that's why Qualcomm has gone directly to Foxconn.

Now, the reality is that those deals with Foxconn have meant that Apple has been paying (though indirectly) whatever licensing costs are created in accordance with them. But that's because of agreements which existed between Apple and Foxconn. Apple is not now disregarding agreements it made with Qualcomm. It's either disregarding or, more likely, has now changed agreements which it has with Foxconn.

This is one of the long list of things which Apple has complained about. It wants a direct licensing deal with Qualcomm. Among many other things... it wants to be able to know what patents its actually (effectively) licensing, it wants to not have to license non-SEPs in order to be allowed to (effectively) license the SEPs it needs to. It doesn't have a direct licensing deal with Qualcomm because, it claims, Qualcomm won't agree to FRAND terms.
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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]

Apple has claimed both things: (1) That it pays more to Qualcomm than all other cellular patent holders comined and (2) that, in some cases, it pays Qualcomm multiples of what others pay Qualcomm for the same licenses.

The latter is (as has been discussed) obviously because of the royalty base being the price of, e.g., iPhones rather than, e.g., modems.

Anyway, what you're referring back to in post #96 is Qualcomm's choice. It chooses to do licensing deals with Foxconn and others, and thus base royalties on what Foxconn and others charge Apple for iPhones, so that it can get the terms that it wants. It can't get those terms licensing directly to Apple.
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...and if Qualcomm stops shipping their chip to apple?

A shareholder revolt? Among other things, even greater lost income for certain executives relating to their performance-based compensation?

So much of Qualcomm's business comes from Apple (on both the licensing side and the component sales side), it can't really afford to stop supplying modems to Apple. At least, Apple is apparently fairly confident that that is the case.

 

[Carnegie]

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.

I think the amount of royalties withheld by Apple's contract manufacturers in the 1st calendar quarter may be larger than $500 million. Qualcomm has been a little vague in what it has reported around this issue. (That isn't improper and it's what I would expect.) Five hundred million dollars is what we can reasonably take as minimum for what was withheld. Based on some of what Qualcomm has said in its guidance and otherwise, it's possible that the number is larger than that. And my best guess is that the number is actually larger than that. How much? Maybe a hundred million dollars, maybe three hundred million dollars.

Qualcomm has reported that Apple's contract manufacturers had withheld about $1 billion in the December quarter. The March quarter likely would have been considerably less, but I wouldn't necessarily expect it to be half as much.

Also, putting together different pieces of data that have been reported by the different companies (i.e. Foxconn, Qualcomm, and Apple), a higher rate (e.g. 3%-ish) fits. On the other side, the base has to be considerably lower than $700 per iPhone.

 

[kdarling]

As for the relationship between Apple and its contract partners and how that affects patent royalties: Yeah, it is Apple's contract manufacturers that are actually licensing various SEPs (at least in some cases).

That's because Apple has repeatedly refused to make a direct deal with Qualcomm, which would clearly be Qualcomm's preference so to get a higher royalty. Heck, it was probably originally Apple's idea, in order to save money.

The reason Apple has no contract themselves, is of course because they don't want to pay royalties based on the full device price. They claim such rates are "not FRAND", an argument that they have attempted to use several times before, to no avail. The ITC for one ruled that this was standard ETSI member practice and Apple thus had no right to complain. The Federal Circuit has likewise ruled several times that past contracts can be used to help determine what the current fair rates are. After all, if every other phone maker has been paying a certain rate, Apple cannot claim they're being singled out or that the method is imminently unfair, especially after twenty plus years of use.

Mind you, Samsung and many others would love it if Apple found a sympathetic jury and managed to get Qualcomm rates down. The trouble is, a primary reason we all have 3G and 4G right now is because Qualcomm saw a chance to make money, and put huge efforts into helping to create such technology. No one else really had the same incentive. So it's a valid concern that without strong payback, such fast paced innovation might disappear.

Hopefully somewhere there's a happy medium between Qualcomm's and Apple's positions.

And once they've licensed those SEPs, patent exhaustion applies in so far as their selling licensed products to Apple and Apple then selling those licensed products to others. Qualcomm has no legal claim to collect royalties based on those later sales of, e.g., iPhones.

Qualcomm is not claiming any royalties on later iPhone sales. They only charge the contract manufacturers on the factory price.

Nor do they claim double royalties on chips as Apple claims. Physical chips are sold separately from licenses, because so many chips are multi-protocol capable, and thus you only pay a license for the comm protocols you wish to use.

--

Apple also misleadingly claims that Qualcomm has prevented other companies from making CDMA capable broadband chips. On the contrary, what has happened is that everyone else has switched to making single-chip CPU + broadband solutions.

For example, Samsung, MediaTek, Huawei, and Via Technologies all make CDMA capable chipsets. They need them for the US and China markets. But the CDMA processor section is now integrated into a total app CPU + broadband chipset that also includes GSM, WCDMA, SCTDMA, LTE, etc.

The problem is that Apple wants to use their own CPU, and is therefore nearly alone in needing a separate broadband chip nowadays.

Thus Intel bought into Via Telecom in 2015 explicitly to get access to its CDMA patent licenses. So reportedly Intel could (and might yet) build CDMA into one of its coming modems. They're just starting out behind the others.

 

[cmaier]

Messy... Messy messy messy.

Apple needs to resolve this ASAP.

Why? The sooner it is resolved, the sooner they have to start paying Qualcomm.
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That's because Apple has repeatedly refused to make a direct deal with Qualcomm, which would clearly be Qualcomm's preference so to get a higher royalty. Heck, it was probably originally Apple's idea, in order to save money.

The reason Apple has no contract themselves, is of course because they don't want to pay royalties based on the full device price. They claim such rates are "not FRAND", an argument that they have attempted to use several times before, to no avail. The ITC for one ruled that this was standard ETSI member practice and Apple thus had no right to complain. The Federal Circuit has likewise ruled several times that past contracts can be used to help determine what the current fair rates are. After all, if every other phone maker has been paying a certain rate, Apple cannot claim they're being singled out or that the method is imminently unfair, especially after twenty plus years of use.

Mind you, Samsung and many others would love it if Apple found a sympathetic jury and managed to get Qualcomm rates down. The trouble is, a primary reason we all have 3G and 4G right now is because Qualcomm saw a chance to make money, and put huge efforts into helping to create such technology. No one else really had the same incentive. So it's a valid concern that without strong payback, such fast paced innovation might disappear.

Hopefully somewhere there's a happy medium between Qualcomm's and Apple's positions.



Qualcomm is not claiming any royalties on later iPhone sales. They only charge the contract manufacturers on the factory price.

Nor do they claim double royalties on chips as Apple claims. Physical chips are sold separately from licenses, because so many chips are multi-protocol capable, and thus you only pay a license for the comm protocols you wish to use.

Apple also misleadingly claims that Qualcomm has prevented other companies from making CDMA capable broadband chips. On the contrary, what has happened is that everyone else has switched to making single-chip CPU + broadband solutions.

For example, Samsung, MediaTek, Huawei, and Via Technologies all make CDMA capable chipsets. They need them for the US and China markets. But the CDMA processor section is now incorporated into a total CPU design that also includes GSM, WCDMA, SCTDMA, LTE, etc.

Trouble is, Apple only wants to use their own CPU, and is thus alone in needing a separate broadband chip nowadays.

Thus Intel bought into Via Telecom in 2015 explicitly to get access to its CDMA patent licenses. So reportedly Intel could (and might yet) build CDMA into one of its coming modems. They're just starting out behind the others.

I often agree with you. But I don't agree with much of your legal analysis.

 

[jack5150]

^kdarling

"Thus Intel bought into Via Telecom in 2015 explicitly to get access to its CDMA patent licenses. So reportedly Intel could (and might yet) build CDMA into one of its coming modems. They're just starting out behind the others."

Intel's XMM 7560 (the first modem with CDMA support) will be ready 2018, it's sampling to clients now. I expect Apple to again dual source modems from Intel and Qualcomm for 2017 (the iphone 7 refreshes get Intel; the flagship iphone x gets qualcomm) and to move completely to Intel in 2018. Disclosure: I'm long Qualcomm.

 

[kdarling]

I often agree with you. But I don't agree with much of your legal analysis.

Then, sir, hopefully you can find spare time to at least indicate which parts you disagree with. Problem is that we all have to cut down our responses to not be a wall of text, and end up with "sound bites" that might sound overly simplistic.

Umm. I suspect that you're talking about defining FRAND terms? If so...

It's true that recently some judges have fallen back on the idea of determining royalties from the smallest salable piece, especially in jury trials, but that's really meant only for infringement base royalty determinations... not as a bright line rule for determining what constitutes a fair rate for SEPs.

Instead of repeating all the arguments against using smallest unit, I direct interested readers to this recent 2017 paper:

The Smallest Salable Patent-Practicing Unit: Observations on Its Origins, Development, and Future

I think with the new US administration, and the wide backlash against smallest unit, we'll see the tide begin to go the other way, away from forcing everyone to give away their IP for peanuts.

--

Re: patent exhaustion in general. Not that it applies here, but it especially does not apply to Apple anyway, because that's only applicable to products purchased in the USA. To avoid taxes, Apple avoids buying parts here. Thus they have not earned the protection of that law.

For that matter, since Apple is not a Qualcomm licensee, but instead only reimburses their contracted factories who DO have licenses, I'm not sure why Apple thinks they have a foot to stand on complaining about license secrecy and costs. NDAs are NDAs, and Apple would fight tooth and nail if someone else wanted to see inside an Apple contract.

As for their complaint that Qualcomm wants a "tribute" from the full price of a device with others' innovations in it, that's richly ironic, since Apple has its own percentage-of-full-price rates that are based off the work of others. One example of course is the App store, where Apple collects more "tribute" on higher priced apps which Apple did not write. An even better example is how Apple demands a percentage "tribute" of the full amount of each contactless credit card purchase done via Apple Pay, even though Apple itself takes no active part of the transaction.

--

Basically, it looks like the trigger for this lawsuit was when Qualcomm stopped giving Apple billions in "rebates" for being a loyal customer. Probably not Qualcomm's best move ever. At the same time, it's hypocritical of Apple to complain about being "forced" to get rebates in return for such things as exclusivity and using Qualcomm chips.

Apple is infamous for its own "put on your big boy pants" negotiations with other companies. I think this time Qualcomm had the bigger pants and Apple really hated that

Regards as always.

 

[cmaier]

Then, sir, hopefully you can find spare time to at least indicate which parts you disagree with. Problem is that we all have to cut down our responses to not be a wall of text, and end up with "sound bites" that might sound overly simplistic.

Umm. I suspect that you're talking about defining FRAND terms? If so...

It's true that recently some judges have fallen back on the idea of determining royalties from the smallest salable piece, especially in jury trials, but that's really meant only for infringement base royalty determinations... not as a bright line rule for determining what constitutes a fair rate for SEPs.

Instead of repeating all the arguments against using smallest unit, I direct interested readers to this recent 2017 paper:

The Smallest Salable Patent-Practicing Unit: Observations on Its Origins, Development, and Future

I think with the new US administration, and the wide backlash against smallest unit, we'll see the tide begin to go the other way, away from forcing everyone to give away their IP for peanuts.

--

Re: patent exhaustion in general. Not that it applies here, but it especially does not apply to Apple anyway, because that's only applicable to products purchased in the USA. To avoid taxes, Apple avoids buying parts here. Thus they have not earned the protection of that law.

For that matter, since Apple is not a Qualcomm licensee, but instead only reimburses their contracted factories who DO have licenses, I'm not sure why Apple thinks they have a foot to stand on complaining about license secrecy and costs. NDAs are NDAs, and Apple would fight tooth and nail if someone else wanted to see inside an Apple contract.

As for their complaint that Qualcomm wants a "tribute" from the full price of a device with others' innovations in it, that's richly ironic, since Apple has its own percentage-of-full-price rates that are based off the work of others. One example of course is the App store, where Apple collects more "tribute" on higher priced apps which Apple did not write. An even better example is how Apple demands a percentage "tribute" of the full amount of each contactless credit card purchase done via Apple Pay, even though Apple itself takes no active part of the transaction.

--

Basically, it looks like the trigger for this lawsuit was when Qualcomm stopped giving Apple billions in "rebates" for being a loyal customer. Probably not Qualcomm's best move ever. At the same time, it's hypocritical of Apple to complain about being "forced" to get rebates in return for such things as exclusivity and using Qualcomm chips.

Apple is infamous for its own "put on your big boy pants" negotiations with other companies. I think this time Qualcomm had the bigger pants and Apple really hated that

Regards as always.

Sadly, for obvious reasons, I cannot respond.

 

[grkm3]

What I font get is Qualcomm right now is building and designing 5g tech and trying to standardize a standard that the 3gpp group can use and is putting in all the damn research and technology and spending billions to do this while apple sits there and uses the tech for free.

 

[I7guy]

What I font get is Qualcomm right now is building and designing 5g tech and trying to standardize a standard that the 3gpp group can use and is putting in all the damn research and technology and spending billions to do this while apple sits there and uses the tech for free.

So apple uses the tech for free and never gave Qualcomm a dime. Seems to me this is now a matter for the courts.

 

[grkm3]

So apple uses the tech for free and never gave Qualcomm a dime. Seems to me this is now a matter for the courts.

Right now they are not paying.

Go on Qualcomm site and read about there involmnent of 5g technology and see how much they are investing on this tech.

It's pathetic how the richest company in the world is doing buisness.

 

[I7guy]

Right now they are not paying.

Go on Qualcomm site and read about there involmnent of 5g technology and see how much they are investing on this tech.

It's pathetic how the richest company in the world is doing buisness.

What does 5g have to do with this? I don't have an opinion on this as it's up to the courts to decide.

 

[grkm3]

What does 5g have to do with this? I don't have an opinion on this as it's up to the courts to decide.

Because it's there technology on 4g and cdma that apple is using. qualcomm spent billions on it and apple thinks it can get free lunch?

I hope Qualcomm tripples it's royalties on 5g patents.

 

[I7guy]

Because it's there technology on 4g and cdma that apple is using. qualcomm spent billions on it and apple thinks it can get free lunch?

I hope Qualcomm tripples it's royalties on 5g patents.

If Qualcomm triples its royalties we all will paying more. Well Apple things Qualcomm is wrong and nobody what is posted here, it's in the courts hands.

 

[kdarling]

If Qualcomm triples its royalties we all will paying more..

Conversely, if Qualcomm dropped its royalties, we sure wouldn't see that reflected in lower iPhone prices.

Instead, Apple would simply stash away even more billions in extra profit.

 

[I7guy]

Conversely, if Qualcomm dropped its royalties, we sure wouldn't see that reflected in lower iPhone prices.

Instead, Apple would simply stash away even more billions in extra profit.

Foxconn would make out.