By Tripp Mickle
BREAKING:
* Qualcomm and Apple Agree to Drop All Litigation
* Apple, Qualcomm Reached Global Patent License Agreement and
Chipset Supply Agreement
* Apple, Qualcomm Pact Also Ends All Ongoing Litigation With
Apple's Contract Manufacturers
* Apple, Qualcomm Settlement Includes a Payment From Apple to
Qualcomm
* Apple, Qualcomm License Pact Includes 2-Yr Option to Extend,
and Multiyear Chipset Supply Agreement
(Article below will update.)
SAN DIEGO -- Apple Inc. accused Qualcomm Inc. of forcing
customers to pay twice to gain access to its chips, as trial
arguments got under way in a long-brewing legal battle between the
tech giants over how royalties are collected on innovations in
smartphone technology.
During opening remarks in front of a nine-person jury about 15
miles from Qualcomm headquarters, Apple's lawyers sought to portray
the chip company as a monopolist that has used its patent portfolio
to charge onerous licensing fees of 5% of the sales price of
iPhones sold world-wide, capped at $400. They also have said the
chip company blocked Apple for years from using another supplier of
modem chips.
"Qualcomm has used their market power to set unfair prices to
stifle competition and to dictate terms to some of the most
powerful companies in the world," said attorney Ruffin Cordell of
Fish & Richardson, which is representing Apple. "This case is
about things we all know are wrong."
To press his case, he turned to the business of fried chicken.
He compared Qualcomm's licensing practices to someone showing up at
a KFC restaurant to order chicken but being told to get an "eating
license" from the fast-food chain first, because the chicken
includes Colonel Sanders's secret recipe. Imagine, he said, the
license cost $17 and the bucket of chicken costs $17.
Mr. Cordell said Apple paid $16.1 billion for chips from 2010 to
2016, but that the "eating-fee license" it also had to pay to get
any chips was $7.23 billion.
"Apple was having to double pay for these chips over and over
and over again," he said.
Qualcomm's opening arguments will follow. Its attorneys are
likely to paint Apple as a bully responding to a slowdown in its
core iPhone business by forcing Qualcomm to accept less money than
it deserves for its contributions to the smartphone era.
Apple Chief Executive Tim Cook and Qualcomm CEO Steve Mollenkopf
are expected to amplify those messages when they take the stand in
coming weeks, a testament to the chasm between the companies'
competing viewpoints on the value of smartphone innovations.
At stake is the future of Qualcomm's business. An unfavorable
ruling could force it to overhaul a licensing business that once
accounted for half of its profit.
Meanwhile, Apple's legal challenge has left it without access to
Qualcomm's market-leading 5G modem chips, putting its most
important product, the iPhone, a step behind Android competitors in
the race to the next big advance in wireless.
Billions of dollars in damages are up for grabs. Apple's
contract manufacturers, who paid the disputed royalties under the
Apple-Qualcomm licensing agreement, are seeking $9 billion in
alleged overpayments to Qualcomm -- a sum that could soar to $27
billion under U.S. antitrust law that allows a jury to increase
damages in cases involving anticompetitive behavior.
A lawyer representing four contract manufacturers that make
iPads and iPhones -- Foxconn Technology Group (formally known as
Hon Hai Precision Industry Co.), Pegatron Corp., Wistron Corp. and
Compal Electronics Inc. -- produced a copy of a contract he said
showed a patent license was required before Qualcomm chips could be
purchased or software could be used.
Qualcomm has countered by seeking $7 billion in royalties that
those Apple manufacturers started withholding as the legal battle
commenced more than two years ago. Qualcomm could also argue that
Apple, which it says encouraged the manufacturers to violate their
contractual obligations, should pay a penalty of as much as $14
billion.
Attorneys in the Apple-Qualcomm case must simplify their
clients' complex dispute and make it accessible to jurors
unfamiliar with intellectual-property law, said Michael Salzman, an
attorney with Hughes, Hubbard & Reed who specializes in
antitrust law related to intellectual property.
"This is up front and personal between the two parties," Mr.
Salzman said. "The jury is trying to figure out between the two who
has the white hat and who has the black hat."
The two-year feud started as global smartphone sales slowed,
pressuring both companies' businesses. Apple had paid Qualcomm
$7.50 in royalties on every iPhone it sold since 2007 -- a price
the parties reached with complex agreements that lowered Qualcomm's
standard royalty rate through rebate and incentive payments. Apple
also agreed to make Qualcomm the exclusive provider of modem chips
for iPhones from 2011 to 2016.
Apple added chips from Intel Corp. to some iPhone models in
2016, as its most recent contract with Qualcomm concluded. It then
slapped Qualcomm with a lawsuit in January 2017.
The companies were expected to settle their dispute long before
the trial began. However, they have been so at odds over royalties
that it has been difficult to make headway, people familiar with
the situation said.
Other issues have heightened the distrust. For example, Qualcomm
executives suspected Apple of supporting a hostile takeover bid by
Broadcom Inc., and Apple executives were angered that Qualcomm
hired an opposition-research firm with ties to a news outlet that
published articles calling the iPhone maker Silicon Valley's
biggest bully.
The companies are awaiting a ruling from a federal judge in an
antitrust case brought by the Federal Trade Commission against
Qualcomm that could weaken or strengthen Qualcomm's position -- by
deciding whether Qualcomm's pricing policy for chips stifled
competition.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
April 16, 2019 15:28 ET (19:28 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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