Apple sues Qualcomm, saying chipmaker withheld $1B as “extortion”

Joe Mullin

Apple's shiny logo outside its San Francisco store.

Apple sued Qualcomm today, alleging that the chip company charges billions in patent royalties "for technologies they have nothing to do with."
In its complaint, Apple says that Qualcomm actually withheld $1 billion in payments it owes to Apple because Apple cooperated with the Korea Fair Trade Commission, or KFTC. Apple lawyers go on to make an extraordinary claim: that Qualcomm "attempted to extort Apple into changing its responses and providing false information to the KFTC in exchange for Qualcomm's release of those payments to Apple," but Apple refused.
Apple's lawsuit seeks unspecified damages while stating it has been "overcharged billions" by Qualcomm. The lawsuit notes that law enforcement agencies around the world are investigating Qualcomm, which "has been declared a monopolist by three separate governments" in the past two years. Last month, Korean regulators slapped Qualcomm with a $850 million fine over its patent-licensing practices. The US Federal Trade Commission sued Qualcomm earlier this week, again over patent issues.
An Apple spokesperson provided an e-mailed statement on the lawsuit, which reads in full:
For many years Qualcomm has unfairly insisted on charging royalties for technologies they have nothing to do with. The more Apple innovates with unique features such as TouchID, advanced displays, and cameras, to name just a few, the more money Qualcomm collects for no reason and the more expensive it becomes for Apple to fund these innovations. Qualcomm built its business on older, legacy standards but reinforces its dominance through exclusionary tactics and excessive royalties. Despite being just one of over a dozen companies who contributed to basic cellular standards, Qualcomm insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined.
To protect this business scheme Qualcomm has taken increasingly radical steps, most recently withholding nearly $1B in payments from Apple as retaliation for responding truthfully to law enforcement agencies investigating them.
Apple believes deeply in innovation and we have always been willing to pay fair and reasonable rates for patents we use. We are extremely disappointed in the way Qualcomm is conducting its business with us and unfortunately after years of disagreement over what constitutes a fair and reasonable royalty we have no choice left but to turn to the courts.
Qualcomm hasn't immediately responded to Apple's allegations.

“Monopoly power”

Qualcomm has told ETSI, a standard-setting organization for telecommunications, that it has more than 30,000 global patents that are "essential" to modern cell phones. Submitting those patents to ETSI obligates Qualcomm to license them on a "fair, reasonable, and non-discriminatory" (FRAND) basis.
By refusing to sell chipsets to customers who don't license their patents, Qualcomm "forced purchasers of its chipsets to take a license to its SEPs at extortion-level royalties," Apple claims. "And by foreclosing competitors from dealing with Apple, a key purchaser of chipsets, Qualcomm facilitated the marginalization and exit of many of those competitors, enhancing its own monopoly power."
In Apple's view, Qualcomm has "monopoly power" in the market for both CDMA and LTE-enabled chipsets. That lets the company extract payments from Apple that are "anticompetitive" on both its products and its patent licenses.
The lawsuit also states that Qualcomm "double-dips" royalty payments. Apple's contracted manufacturers buy Qualcomm chips and take a patent license, and then Apple must take a separate license.
Apple claims that Qualcomm's strategy is to gouge it on royalty rates, then offer billions in royalty rebates for "exclusivity or de facto exclusivity" from Apple. "It was only with the iPhone 7, released in September, that Apple was able to use a competitor's chipsets (Intel's) as well as Qualcomm chipsets," write Apple lawyers. That choice cost Apple, which didn't get its usual exclusivity "rebate" from Qualcomm. The amount it cost Apple is redacted from the complaint.
The lawsuit accuses Qualcomm of breach of contract, monopolization, and violations of California contract law. The lawsuit also mentions nine specific patents for which Apple was overcharged and says Apple didn't infringe those patents.
Apple sues Qualcomm, saying chipmaker withheld $1B as “extortion” Reviewed by Bizpodia on 20:21 Rating: 5

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