AAPL Apple Inc

By Ted Greenwald 

Qualcomm Inc. fired back at Apple Inc. in their legal battle, defending its business model and seeking damages from Apple over withheld payments for technology used in iPhones.

Qualcomm, whose chips and patents are widely used in smartphones, accused Apple of mischaracterizing the chip maker's business and encouraging international regulators to attack it.

The filing, which Qualcomm said it made late Monday in a federal court in Southern California, argues that Apple's iPhone business wouldn't exist if Qualcomm hadn't developed essential technologies and agreed to license them fairly. The iPhone accounted for three-fourths of Apple's estimated $84 billion gross profit in its latest fiscal year, according to investment bank CLSA.

Apple didn't immediately respond to request for comment late Monday.

Apple opened its legal battle in January by suing Qualcomm in the U.S., and later in China and the U. K. -- building on international resistance to Qualcomm's patent-licensing business that has included antitrust investigations and fines in China, Europe, South Korea and the U.S.

Apple's U.S. suit claimed that Qualcomm abused its monopoly position in cellular chips to impose "onerous, unreasonable and costly" terms on customers and competitors. It also said that Qualcomm charged too much for its patents and refused to sell chips to phone makers that didn't license its patent portfolio.

Qualcomm's filing denies Apple's allegations, and says Qualcomm went out of its way to offer Apple alternatives in its licensing terms, which Apple rejected.

Qualcomm general counsel Don Rosenberg said his company believes Apple's suit was motivated by a need to reduce the cost of making iPhones. Qualcomm's licensing business "is a nice target for them to pursue to get that input cost lower. That's really what this is about," he said in an interview.

The stakes for both Apple and Qualcomm are high. Apple, facing competitive pressure from Chinese smartphone makers and others, would benefit from reducing costs. Qualcomm, meanwhile, gets most of its pretax profit from licensing its intellectual property.

Qualcomm typically charges handset makers up to 5% of the selling price of a wireless device to use its patents. Apple charges between $400 and $1,000 for an iPhone, implying that it pays Qualcomm as much as $20 to $50 for every unit it sells.

Apple, in its lawsuit, claimed that Qualcomm withheld $1 billion in payments that Apple referred to as rebates on royalties paid to Qualcomm by contract manufacturers that build iPhones. Qualcomm's response denies the allegation and charges that Apple caused those manufacturers, which previously had agreed to and complied with Qualcomm's licensing terms, to withhold royalty payments.

Qualcomm didn't specify the amount it believes it is owed by contract manufacturers of iPhones or the amount it seeks in damages.

Apple sued Qualcomm in the U.S. days after the U.S. Federal Trade Commission filed an antitrust lawsuit against the chip maker alleging anticompetitive behavior. Qualcomm last week filed a motion to dismiss the FTC's case.

A favorable judgment on that motion could undermine Apple's suit, said Mark Lemley, director of the Stanford University program in Law, Science & Technology, since "they're based on similar allegations."

If Apple's case proceeds, it may take as much as two years to reach a judgment, Mr. Lemley said, after which appeals might begin.

Qualcomm is also fighting a judgment by South Korea's antitrust authority, which in December imposed a $853 million fine, the largest in its history, for alleged violations.

Last year, Qualcomm agreed to a settlement with Chinese antitrust authorities that included a $975 million fine and required the company to base its royalty rates in that country on a percentage of handset prices rather than the full price.

--Tripp Mickle contributed to this article.

Write to Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

April 11, 2017 00:01 ET (04:01 GMT)

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