New Article Delves Into Origins of Ongoing Legal Feud Between Apple and Qualcomm

[Alan Wynn]

I do t understand all these defense for apple. Apple does not like the license deal, buy from another company. This like saying I don't like Samsung charging 2000$ for a tv and I file a lawsuit against Samsung to lower the price of the tv. Ridiculous!

The issue here is that these patents are "standards essential" and are required to be licensed under a doctrine called Fair, Reasonable and Non-discriminatory (FRaND). Apple's argument is that Qualcomm is violating that requirement by charging based on the total profit of the phone. Their IP's value does not change based on other features of the device.

Unlike your example, Qualcomm agreed to these terms in order to have their IP included in the standard.

The courts will have to decide if these license terms fulfill the requirements to which they agreed as a condition of inclusion.
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Indeed. Plus Apple itself is no stranger to the idea of charging by percentage of product price, or wanting high royalties:

• Apple is quite happy to charge app developers 30% based upon the app price, instead of a flat hosting fee.

While true, no developer is required to sell in the App Store. Qualcomm's inclusion in the standard forces everyone to license these patents so there is no comparison.

• Apple is really happy to charge banks based upon the amount of each Apple Pay purchase (for doing nothing during the transaction), instead of a flat fee at most.

No bank is forced to offer Apple Pay for its cards. If they want access to Apple's customer and service they can decide if Apple's terms are worth it to them. Again no comparison to standards essential patents.

• Apple demanded in court, a percentage of the full profit of every phone that Samsung sold, for a few minor patents.

Samsung was not forced to steal this IP. For non-standards essential IP any company can charge whatever they wish with the market determining if they will get it.

• Apple's own initial royalty rate for MFi (Made for iPod/iPhone/iPad) devices was 10% of their retail price, with a $10 minimum.

No manufacture was required to make products using Apple's licensed IP. If they did not feel they would get a reasonable return, they were free not to do so.

• Qualcomm's ~3% of wholesale (with a maximum cap) for high speed comms sounds like a bargain in comparison to the above.

The courts will have to determine if Qualcomm's pricing meets the requirements of FRaND. If it does not, they will lose and be forced to change their terms. If it does, they will be fine.

especially when you do such pricing yourself.

When you can present an example of Apple doing that in a standards essential patent for which they agreed to FRaND pricing, we can continue the discussion.

 

[kdarling]

The issue here is that these patents are "standards essential" and are required to be licensed under a doctrine called Fair, Reasonable and Non-discriminatory (FRaND).

FRAND is defined by the standards group in question. Contributing patents to be FRAND under ETSI rules, does not bind any particular rate method, beyond the requirement that the same rate structures be available to all.

In fact, the ETSI FRAND contract, which most people talking about FRAND have never bothered to read, says nothing about pricing and even states that requiring cross-licensing is okay:

Billing by product price is considered neither an uncommon nor unreasonable method for patents. Being FRAND does not mean that billing method becomes unavailable. As the ITC noted against Apple when it banned iPhones, at another time that Apple tried to claim such pricing was unusual:

Even the Chinese government, who famously does pretty much whatever it wishes, has recently ruled that phonemakers must pay Qualcomm by percentage of device price.

Too many people mistakenly think that the issues that other companies and governments have, are all about pricing by device cost. Instead, the actual thrust is about changing other Qualcomm actions, such as not giving a pricing break for the value of cross licensed patents, and requiring purchase of their entire patent license even if only part is needed. (Although such was not uncommon in ETSI as well.)

When you can present an example of Apple doing that in a standards essential patent for which they agreed to FRaND pricing, we can continue the discussion.

When you can present a past court case where any judge agreed with Apple that pricing by device cost was not FRAND under ETSI rules, we can talk . Apple's lawyers like to talk about FRAND, but run away when the courts take them up on it.

For instance, when Wisconsin District Judge Crabb offered to determine a FRAND royalty rate for Apple to pay Motorola, Apple's lawyers backed off and said they'd only agree if her rate was $1 per phone or less.

So, just as Judge Posner had done a few months previously, Judge Crabb dismissed Apple's FRAND complaints with prejudice. She said it had become clear that Apple was only using the legal system to try to get lower rates, not to get fair rates.

Apple knows full well that charging a percentage of product price has been standard cellular FRAND licensing for over two decades. FRAND means being offered the same rates as everyone else. But Apple does not want to pay the same as everyone else has for years. They do not want to play by the same rules. They want to change the rules so they can make more profit.

 

[Alan Wynn]

FRAND is defined by the standards group in question.

True.

Contributing patents to be FRAND under ETSI rules, does not bind any particular rate method, beyond the requirement that the same rate structures be available to all.

Not sure why ETSI rules matter in a U.S. court case.

When you can present a past court case where any judge agreed with Apple that pricing by device cost was not FRAND under ETSI rules, we can talk .

Again, I am not sure why you think this case is about ETSI rules. Apple is suing Qualcomm here in the U.S., so I am not sure why the European Telecommunications Standards Institute's rules matter. Second, please show me where I have ever said Apple was right and that Qualcomm was wrong, or that charging by percentage of profit was not allowed. I have simply stated that none of your examples have the remotest connection to the the case at hand. Apple may win or lose, but that has nothing to do with Apple's decision to license its technology that is not standards essential in any way they choose.

 

[kdarling]

.Not sure why ETSI rules matter in a U.S. court case.

ETSI is the standards organization in question.

They've been brought up before by a US judge to point out that Apple never availed themselves of standard ETSI arbitration, but instead went straight to the courts hoping to get a lower rate.

I have simply stated that none of your examples have the remotest connection to the the case at hand.

I never said they did. They simply point out that Apple lawyers are hypocrites when they claim that pricing IP as a percentage of product price is "unfair."

Apple's lawyers are well known for arguing one way about royalties when they're suing others, but then understandably flipping 180 degrees when it's them being sued

 

[kdarling]

I thought patents had fixed time period, how is Qualcomm able to keep a legal monopoly for so long?

First off, Qualcomm has never stopped inventing. They get about 3,000 patents a year. Mostly concentrated on their specialty, which is also why people want to use their modem chips. They quite simply are the best at what they do.

As for monopoly, remember, Qualcomm is just one of many patent holders that Apple has to pay royalties to. Here are just the major LTE patent contributors:

If they charge Apple a small fee, nothing happens. If they charge Apple more than Apple wants to pay, Apple cries that the rate isn't FRAND... remember Apple complaining about Motorola's 2.25% starting negotiation rate? ... even if literally a thousand other companies have already taken a license (which happens with Nokia patents).

Like clockwork, every few years when contract renewals come up, Apple attempts the same argument that "device pricing is wrong" against Ericsson and Nokia. Then when threatened with a jury trial outside of California, Apple backs off and settles out of court, every time. But Apple is hoping to get a foot in the door sometime, and sooner or later they probably will.

And in some ways, maybe ETSI should change the way things are done. E.g. perhaps publication of FRAND deals would help, since many companies worry that someone else is getting a better deal, and the ND part of FRAND has been interpreted to imply that equal companies should not get a big advantage over another.

A better long term strategy for Apple would be to build a consortium of tech companies and create an open standard of digital wireless communications. Qualcomm would eventually be left in the dark.

Not likely. See above. Qualcomm is a major innovator. Readers here are concentrating on Qualcomm right now, but it's just one of many players in ETSI, which is a consortium that already exists.

Long term, it would be better if Apple contributed, instead of always trying to ride cheaply on the work of others who have spent many billions over decades, creating the very global infrastructure that later allowed Apple to make hundreds of billions from iPhone sales.

Apple also could learn to share. One reason others get lower rates is because they are willing to cross license.

 

[udayan81]

Apple is going to make me buy an iPhone X? How are they going to do that?

I did not say they will make you buy the phone.. Did I say that in what I wrote? What I said is, they will pass on the cost to the consumer. The key word here is "consumer".

 

[cyberslice]

This, coming from a company that charges 30 percent for everything that comes through the App Store?

 

[huperniketes]

Heed these words. Until patents and copyrights are done away with, you will never advance as a society.

People like this don't understand human behavior, especially with regards to knowledge transfer. In order to receive a patent for an invention, you have to disclose how the invention works so others with the appropriate skills can replicate your work. That knowledge of how the invention works, and understanding of its inner workings, can be applied to solving similar problems in other fields. Or, lead to developing another invention which solves the same problem using other techniques. More innovation!

There is a profit incentive tied to IP specifically to increase the inventions and arts in society. Would you work a full-time job if you aren't paid to do so? By tying the opportunity to make money to inventions and creative works, those that do so can spend more time inventing and creating works, and not flipping burgers.

Saying society would advance faster without patents and copyrights is like saying the Internet hampers technological and economic growth.

 

[SarcasticJoe]

But Qualcomm gets less money from Apple for the modems in the iPhone SE. I don't see Apple offering to pay more for the modems in the iPhone SE. That lower priced iPhone SE is possible because the modem tech in it is subsidized by other premium costing smartphones.

The lower price of the cheaper devices is not because of any subsidization by more expensive devices, it's because lower price devices simply cost less to make and are sold with a lower profit margin. Apple makes a profit on every single one they sell. Qualcomm can easily afford to sell their parts and IP at the same lower end device rate. Higher end devices have higher profit margins and Qualcomm knows it, so Qualcomm exploits it as hard as they can.

Stupid? So if I have an invention that makes another product "work," and that product is making billions in profits, I can't price my invention as a percentage? It has to be a flat fee? Is there a law that says this? If it's so stupid, then maybe the other company shouldn't license it.

Maybe they will go bankrupt. But in the end, this is how free markets work.

We're not talking about actual inventions here, the basic inventions relating to CDMA were originally made in the Soviet Union and published for everyone to use. What we're talking about a company simply creating the commonly used implementation everyone has to conform to and using that to squeeze as much money from companies, that are new essentially stuck between a rock and a hard place. Either pay whatever Qualcomm wants or not be able to sell any CMDA capable iPhones. We're talking about stuff that's technically under FRAND patents here.

You're right about this being how free markets work. When companies get the opportunity to exploit people and other companies to drive up their profits, they tend to take it.