Chip maker seeks bar on some iPhone and iPad imports, alleging
patent infringement
By Ted Greenwald and Tripp Mickle
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 7, 2017).
Qualcomm Inc. is asking federal trade authorities to block
imports of some iPhones and iPads, opening a new front in its
dispute with Apple Inc. and exposing both companies to further
risks to their most profitable businesses.
Qualcomm said it plans to file a complaint Friday with the U.S.
International Trade Commission to halt imports of Apple handsets
and tablets that don't include Qualcomm chips, and to bar sales of
those products already in the U.S.
Qualcomm said Apple has been infringing several of its patents
on wireless technology in iPhones and iPads generally, but that it
limited the scope of its request in part to avoid the broad
economic impact of blocking sales of the products entirely.
Qualcomm said it separately filed similar patent-infringement
claims Thursday against Apple in federal district court in Southern
California.
The moves escalate a legal feud Apple initiated with a federal
lawsuit in January accusing Qualcomm of using its dominance in
cellular chips unfairly to thwart competitors and extract high
patent royalties.
Apple in its suit complains that Qualcomm's royalty -- because
it is calculated as a percentage of the handset price -- rewards
the chip maker unfairly when Apple charges higher prices for
capabilities that aren't based on Qualcomm patents.
An Apple spokesman said Thursday that the company stands by its
previous statement that Qualcomm is seeking payments on innovations
it didn't make.
Apple has launched international legal actions and supported
regulatory proceedings against Qualcomm in multiple countries,
threatening the San Diego, Calif., company's patent-licensing
business, which in 2016 accounted for roughly 80% of its pretax
profit.
Qualcomm's latest move isn't likely to disrupt iPhone sales in
the near term, if ever, because the trade commission -- an
independent, bipartisan federal agency -- generally takes about 16
months to reach a conclusion, according to Lyle Vander Schaaf, a
former commission general counsel now with law firm Brinks Gilson
& Lione. If the commission were to rule against Apple, the
iPhone maker could appeal.
Still, Qualcomm's complaint represents its strongest effort to
threaten Apple. It comes as Apple, the world's most profitable
smartphone maker, finalizes plans for the next versions of the
iPhone, which accounts for two-thirds of Apple's sales and
three-quarters of its gross profit. Those plans are expected to
include a new model to mark the product's 10th anniversary,
investor anticipation of which has triggered a jump in Apple's
stock this year.
Apple is finalizing the features and components for those new
models, expected to be released in the fall. Despite the legal
fight, Qualcomm is vying with Intel Corp. to supply modem chips for
the next-generation iPhones. Apple started including Intel's chips
in some units of the iPhone 7 launched last year. Apple accounts
for as much as 30% of Qualcomm's per-share earnings, according to
Macquarie Capital.
Qualcomm has two main businesses: selling chips that are used in
many smartphones and licensing patents it owns on key cellular
technology used in nearly all smartphones sold globally, even those
that don't use its chips.
That business model has been increasingly under attack. In
addition to the Apple fight, Qualcomm is under investigation by the
U.S. Federal Trade Commission for anticompetitive practices, and
late last year was fined by the South Korean Fair Trade Commission
over similar claims. It also previously paid a fine to settle with
Chinese regulators.
Complaints against Qualcomm largely have focused on its
licensing practices for a category of patents that are generally
acknowledged to be essential to cellular communications. Standards
organizations require that holders of such patents offer licenses
widely. Qualcomm's critics claim that the company evades its
obligation by refusing to license those patents to rival chip
makers.
In the new complaint, Qualcomm said the six patents at issue
cover technologies not in that essential category and are related
to boosting performance while conserving battery life. It said
Apple has used the technologies without purchasing a license
despite Qualcomm's efforts to negotiate one.
Accusing Apple of violating such nonessential patents reinforces
Qualcomm's position that its patents cover a broad range of
valuable technologies beyond its communications chips. Basing the
complaint on such patents also dodges pitfalls around the ITC,
which in the past has been steered away from decisions bearing on
essential patents, Mr. Vander Schaaf said.
Still, Qualcomm's request to the trade commission risks muddying
its arguments. By seeking to block only Apple products that don't
contain Qualcomm chips, it could reinforce Apple's claim that
Qualcomm wields its dominance in chips unfairly. Moreover, pressing
for a ban on imports of iPhones that don't include Qualcomm chips
as a punishment for patent infringement may appear to contradict
Qualcomm's repeated claims that it strictly separates its chip
sales and patent-licensing businesses, and that it doesn't use its
ownership of technology essential to cellular standards to put
competitors at a disadvantage.
Qualcomm said one reason it is seeking to block only products
that don't include Qualcomm chips is that the commission is
mandated to protect the public interest, and blocking all iPhone
and iPad imports would affect not only Apple and Intel but telecom
carriers and retailers that distribute the iPhone.
"You want to not affect in unnecessary ways competitive
conditions in the U.S. economy," said Qualcomm general counsel Don
Rosenberg. "We're trying to toe the line. We believe in the public
interest."
Apple and Qualcomm each have come before the trade commission in
other cases. The agency in 2013 ruled against Apple in a case
brought by Samsung Electronics Co. but the Obama administration
vetoed a ruling that would have blocked some iPhone imports. The
commission in 2007 ruled against Qualcomm in a case brought by
then-rival Broadcom Corp., but an appeals court later lifted a ban
on imports of some Qualcomm cellphone chips.
Write to Ted Greenwald at Ted.Greenwald@wsj.com and Tripp Mickle
at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
July 07, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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