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May 4, 2017

Apple vs. Qualcomm: Everything you need to know

by John_A

Why it matters to you

Qualcomm is king of the mobile processor industry, but back-to-back-to-back lawsuits by Apple may take a bite.

Apple and Qualcomm are engaged in what will likely be a yearslong and epic battle. Following news that Qualcomm had been charging heightened royalties for use of its tech, as well as reports indicating Qualcomm required Apple to pay a percentage of the iPhone’s revenue in return for the use of Qualcomm patents, Apple has sued the company in three countries.

In the United States, Apple is suing Qualcomm for a hefty $1 billion — but it has also filed a lawsuit in China for $145 million, as well as in the United Kingdom. Now, Qualcomm is following with its own countersuit (but losing quite a bit of money).

Here’s everything you need to know about the lawsuit battle so far.

Qualcomm reportedly seeking iPhone import ban

Qualcomm is back on the offensive after Apple decided to suspend royalty payments to the chip manufacturer. Bloomberg reports the company will soon make a request to the International Trade Commission to prevent the importation of iPhones into the U.S.

The American market comprises 40 percent of Apple’s total sales, Bloomberg notes, and the iPhone is responsible for 60 percent of its global revenue.

However, on a Tuesday conference call, Apple CEO Tim Cook appeared confident that an injunction against Apple on the basis of iPhone imports wouldn’t stand because, as he put it, Qualcomm never issued fair terms to the iPhone maker that are required for patent licensing.

“Qualcomm has not made such an offer to Apple,” Cook said. “I don’t believe anyone’s going to decide to enjoin the iPhone based on that. There’s plenty of case law around that subject. But we shall see.”

Qualcomm cuts profit forecasts

As a result of Apple’s decision to stop paying all royalties as both companies wait to hear the outcomes of their respective lawsuits, Qualcomm has slashed its profit forecasts. On April 28, Reuters reported that Qualcomm would not receive any royalties from Apple’s contract manufacturers for sales that took place in the first quarter of 2017.

“Without an agreed-upon rate to determine how much is owed, we have suspended payments until the correct amount can be determined by the court,” an Apple spokesman said in an email on Friday.

Consequently, Qualcomm has adjusted its revenue estimates, and now is citing a revenue of $4.8 billion to $5.6 billion for its third fiscal quarter, a decrease from its originally anticipated $5.3 billion to $6.1 billion.

“(Apple’s) contract manufacturers may make some form of partial payment, but initial indications are that any payment would likely be insignificant,” Qualcomm said.

Qualcomm files countersuit against Apple

Qualcomm has followed Apple’s lawsuits with one of its own. You can read the full lawsuit here, but it is centered around five complaints against Apple. For example, Qualcomm suggests Apple deliberately didn’t take advantage of the full potential of Qualcomm’s chips in the iPhone 7 in an attempt to prevent them from outperforming Intel’s modems. The iPhone 7 marks the first time in several years that Qualcomm chips are not found in all iPhone variants.

According to Qualcomm, Apple “chose not to utilize certain high-performance features of the Qualcomm chipsets for the iPhone 7 (preventing consumers from enjoying the full extent of Qualcomm’s innovation).” On top of that, when iPhones with Qualcomm chips outperformed devices with Intel’s chips, Apple claimed there was “no discernible difference” between the two.

Another big part of Qualcomm’s suit revolves around Apple’s role in various regulatory suits, and that, according to Qualcomm, Apple has been “misrepresenting facts and making false statements.”

Apple files a third lawsuit against Qualcomm

Apple has filed yet another lawsuit against Qualcomm. The two companies were already at war in both the U.S. and in China and now they will be going head to head in the U.K. According to reports, the U.K. lawsuit was actually filed in January, but it’s only now being noticed after being refiled.

While we don’t yet know specifics about the new lawsuit, it does have something to do with patents and designs, according to a report from Bloomberg. It’s likely that it’s similar to the lawsuits Apple has filed in the U.S. and China.

Qualcomm is ready for a fight

Qualcomm had some fighting words against Apple during a call on its quarterly earnings report. The chipset manufacturer’s CEO, Steve Mollenkopf, said Apple just wants to grab as much money as possible from the lawsuits.

“Apple’s complaint contains a lot of assertions, but in the end, this is a commercial dispute over the price of intellectual property,” Mollenkopf said, according to CNET. “They want to pay less for the fair value that Qualcomm has established in the marketplace for our technology, even though Apple has generated billions in profits from using that technology.”

More: Report: Apple will join Google, Microsoft, and IBM in the Partnership on AI

He said Qualcomm’s patents have “tangibly and meaningfully increased over time,” but the company has never raised its royalty rates. Derek Aberle, president of Qualcomm, chimed in.

“If you peel apart all of the arguments Apple’s making, we believe firmly they’re all without merit,” Aberle said. “At the end of the day, they essentially want to pay less for the technology they’re using. It’s pretty simple.”

But the CEO said Qualcomm will keep supplying chips to the Cupertino company, even while the legal battle rages on.

Apple files patent lawsuit against Qualcomm in China for $145 million

Just a few days after Apple filed a lawsuit against Qualcomm in the U.S. for $1 billion, Apple announces it will also take Qualcomm to court in China — this time for “only” $145 million.

The motive behind the lawsuit is similar to the motive behind the U.S. lawsuit — Apple is basically accusing Qualcomm of not delivering on patent-related promises. Qualcomm isn’t being silent about the suit.

“These filings by Apple’s Chinese subsidiary are just part of Apple’s efforts to find ways to pay less for Qualcomm’s technology,” said Don Rosenberg, Qualcomm general counsel, in an interview with TechCrunch. “Apple was offered terms consistent with terms accepted by more than 100 other Chinese companies, and refused to even consider them. These terms were consistent with our NDRC Rectification plan.”

The U.S. lawsuit

Apple has followed in the Federal Trade Commission’s footsteps by suing Qualcomm for $1 billion for “royalties that they had nothing to do with,” according to a report from CNBC.

The Cupertino, California, company claims in the U.S. suit that Qualcomm demanded onerous terms for the use of its patented technology and even sought to punish Apple for cooperating in a South Korean regulatory probe that dove into Qualcomm’s licensing practices — practices that are now under the microscope once again.

More: Federal Trade Commission hits Qualcomm with a lawsuit over its licensing practices

Apple’s documents also mentioned that Qualcomm required Apple pay a percentage of the selling price of the iPhone in return for the use of Qualcomm patents, and demanded that Apple use Qualcomm chips exclusively between 2011 and 2016. While Apple did get so-called “quarterly rebates” under the agreement, Qualcomm began withholding those rebates when Apple agreed to work with the Korean Fair Trade Commission. According to the suit, Qualcomm even told Apple that Apple had forfeited almost $1 billion in rebates by working with regulators.

“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,” Apple said in a statement.

Qualcomm responded to Apple’s lawsuit by calling its claims “baseless.”

“While we are still in the process of reviewing the complaint in detail, it is quite clear that Apple’s claims are baseless,” according to Rosenberg. “Apple has intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed. and shared with all mobile device makers through our licensing program.”

Rosenberg said Apple has been “encouraging regulatory attacks” on Qualcomm with meritless claims and by withholding information. The chipset manufacturer is referring to the Korean Fair Trade Commission, which placed a hefty $853 million fine on Qualcomm in December for its alleged anti-competitive practices. As with the FTC lawsuit, Qualcomm said it would fight the fine.

It’s possible this could be a long and brutal legal battle, like the one between Apple and Samsung. We’ll keep this article updated with more information as we find out more.

Article originally published in January 2017. Updated on 05-03-2017 by Adam Ismail: Added Bloomberg report that Qualcomm will seek import ban.

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