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

Discussion in 'MacRumors.com News Discussion' started by MacRumors, Apr 28, 2017.

  1. lazard macrumors 68000

    Jul 23, 2012
    Foxconn wouldn't make out with anything. They sell at cost to AOI...which equals more billions for Apple.
  2. I7guy macrumors Core


    Nov 30, 2013
    Gotta be in it to win it
    Wouldn't this work the same way for Samsung?
  3. Rob_2811 macrumors 68000

    Mar 18, 2016
    United Kingdom
    Qualcomm reportedly now seeking a ban on iPhone imports into the US. Getting a bit messy this.
  4. Carnegie macrumors 6502a

    May 24, 2012
    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:

    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:

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

    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.
    --- Post Merged, May 3, 2017 ---
    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.
  5. kdarling macrumors P6


    Jun 9, 2007
    First university coding class = 47 years ago
    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.

    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.

    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.
  6. Joey2250 macrumors newbie

    Dec 5, 2009
    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.

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