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

[lazard]

Foxconn would make out.

Foxconn wouldn't make out with anything. They sell at cost to AOI...which equals more billions for Apple.

 

[I7guy]

Foxconn wouldn't make out with anything. They sell at cost to AOI...which equals more billions for Apple.

Wouldn't this work the same way for Samsung?

 

[Rob_2811]

Qualcomm reportedly now seeking a ban on iPhone imports into the US. Getting a bit messy this.

 

[jack5150]

here's the link to the story: https://www.bloomberg.com/news/articles/2017-05-03/qualcomm-said-to-seek-u-s-import-ban-for-iphones

 

[Carnegie]

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 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.

Apple would prefer to have a direct licensing deal as well. But, as you indicate, Apple and Samsung haven't been able to agree to such a deal in part because Apple doesn't want to agree to pay royalties based on what it gets paid for iPhones. There are other reasons as well, other ways in which the terms that Apple claims Samsung has offered (or demanded) aren't FRAND.

Since the royalty base issue is what we've been discussing, I'll stick to that reason for now. I think I've offered some Federal Circuit and Supreme Court cites before. There are others which I either haven't referred to or have only referred to on a different forum. I'm happy to refer interested parties to more of them or discuss what the various cases said in more detail. But the bottom line is that they have been clear in that patent holders are not entitled to royalties based on the entire value of end products unless they can demonstrate that the entire value of those products is created by the patents in question. (Again, I can pull specific wording from different opinions if anyone would like; for now I'm just summarizing what the decisions mean in this regard.) That is true for patents in general and for SEPs. Some of the cases which have reached much the same conclusion on this particular legal point, that which I just summarized, have involved SEPs.

As I've acknowledged before, licensors and licensees absolutely can agree to base royalties on the entire value of end products if they both want to. But an SEP holder can't require a license seeker to agree to that in order to receive a license. I mean, they can insist on that. But if U.S. courts are required to decide the matter, they will ultimately lose (i.e., if not in a trial court then on appeal). That is, unless the Federal Circuit (or more likely the Supreme Court) decides to change the legal principle that applies or it's a situation where the entire market value rule applies. The latter would mean that the patent holder was able to demonstrate that the entire market value of the product was attributable to the patents in question. That's certainly not the case in this dispute between Apple and Samsung, especially considering that when it comes to SEPs the value being considered excludes that which is created by those patents having been included in an industry standard.

When it comes to past contracts being offered as evidence, yes, that is of course allowed under appropriate circumstances. The Federal Circuit's decision in Ericsson v D-Link (2014), e.g., tells us that. And that can be true even if the contracts introduced involved royalties based on the entire value of end products. But Ericsson also reiterates what other cases have said and what I summarized above:

Thus, where the entire value of a machine as a marketable article is “properly and legally attributable to the patented feature,” the damages owed to the patentee may be calculated by reference to that value. Id. Where it is not, however, courts must insist on a more realistic starting point for the royalty calculations by juries—often, the smallest salable unit and, at times, even less.

Ericsson goes on at considerable length discussing the instructions which should, if requested by the opposing party, be given to a jury (and why they should be given) if such past contracts evidence is introduced. Part of the point being, just because the introduced contracts based royalties on the entire value of end products, that doesn't mean that it is appropriate to do so in the present situation. Further, that isn't necessarily the reason those past contracts are being introduced - i.e., it isn't to demonstrate that such royalty bases are appropriate. Ericsson is a complicated, multi-aspect opinion. There's a lot to unpack there and there's no way to do it justice in a few paragraphs. But, to the extent it deals with the specific issue I'm discussing - appropriate royalty bases - it supports what I've been saying.

VirnetX v Cisco (Federal Circuit, 2014) says:

No matter what the form of the royalty, a patentee must take care to seek only those damages attributable to the infringing features. Indeed, the Supreme Court long ago observed that a patentee "must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the un-patented features, and such evidence must be reliable and tangible, and not conjectural or speculative; or he must show, by equally reliable and satisfactory evidence, that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature." Garretson v. Clark, 111 U.S. 120, 121 (1884).

LaserDynamics v Quanta Computer (Federal Circuit, 2012) says:

Importantly, the requirement to prove that the patented feature drives demand for the entire product may not be avoided by the use of a very small royalty rate. We recently rejected such a contention, raised again in this case by LaserDynamics, and clarified that “[t]he Supreme Court and this court's precedents do not allow consideration of the entire market value of accused products for minor patent improvements simply by asserting a low enough royalty rate.” Uniloc, 632 F.3d at 1319–20 (explaining that statements in Lucent suggesting otherwise were taken out of context). We reaffirm that in any case involving multi-component products, patentees may not calculate damages based on sales of the entire product, as opposed to the smallest salable patent-practicing unit, without showing that the demand for the entire product is attributable to the patented feature.

And just to be clear, Apple doesn't need to demonstrate that it's being singled out to demonstrate that the offered terms aren't FRAND. Others may choose not to challenge the offered terms, i.e. the same terms that Apple has been offered; they may even prefer those terms to other possibilities. That doesn't necessarily make them FRAND.

I've darkened too many pixels as it is, so I'll hold of for now on addressing some of the other points you bring up.
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Qualcomm reportedly now seeking a ban on iPhone imports into the US. Getting a bit messy this.

I think Qualcomm is desperate for whatever scrap of leverage it can pretend it has. I think it's extremely unlikely that it could get a ban on iPhone imports under these circumstances - at least, that it could get one that survived appeals.

 

[kdarling]

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

You're right, the Apple PR statement said "combined". In the lawsuit itself, I didn't see such a claim. Did the PR people get it wrong, I wonder?

Also, as I said, it was a broad stroke comment meant to point out how much Qualcomm contributed. Of course, the value of the patents involved can be more important than the quantity.

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.

I was partly remembering data from 2009, when the Qualcomm rate was 4% and Foxconn charged $240 per iPhone.

"...the royalties paid to Qualcomm are based on the price Apple pays Foxconn for each iPhone – about $244, they estimate – not the wholesale price that Apple charges carriers like AT&T for iPhones, which they say averages about $590. Assuming those prices and a 4% royalty rate, they estimate that Foxconn pays Qualcomm about $9.70 per iPhone–compared to $23.60 per phone that Apple might pay directly, based on the higher wholesale price." - WSJ - Does Apple enjoy a Licensing Loophole?

Plus it depends on the mixture of models, of course. Larger or higher-memory models would be a few dollars more. In any case, even if Foxconn charged Apple an astounding $300 per phone, at current Qualcomm rates that would only be about $10 in royalty.

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.

Qualcomm's rates are known because they publish the starting rate of 3.25%. This rate was recently re-affirmed when Qualcomm settled with the Chinese government for China made phones.

 

[Joey2250]

This is a bad image to use for the article thumbnail. Its cropped to look like "ALCO" and I keep thinking ALCOA is in a lawsuit with Apple.