Qualcomm Fires Back at Apple in Legal Battle Over Smartphone Technology -- Update
April 11 2017 - 1:29AM
Dow Jones News
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 stood by its statement in January when it said Qualcomm
charges excessive royalties and benefits from Apple innovations
unrelated to its patents, such as advanced displays and
cameras.
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 01:14 ET (05:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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