Qualcomm Inc. accused Apple Inc. of lying to regulators to spur investigations of the chipmaker, and threatening it to cover up the use of inferior parts in some iPhones. The world’s largest maker of phone semiconductors responded to a January lawsuit from Apple with counterclaims for damages late Monday, alleging the iPhone maker breached contractual pledges, mischaracterized their agreements and misrepresented facts.
“We were really stunned by some of the things that they included in their suit,” said Qualcomm General Counsel Don Rosenberg,. “This is our attempt to respond to some disturbing elements in their complaint.”
At the heart of the worsening standoff is a commercial dispute over how much Qualcomm is entitled to charge phone makers to use its patented technology, whether or not they use its chips. The San Diego, California-based company gets the majority of its profit from licensing technology that covers the fundamentals of all modern mobile phone systems. Qualcomm shares are down 12 percent since Apple sued Jan. 20, wiping more than $10 billion off the chipmaker’s market value.
Apple spokesman Josh Rosenstock declined to comment on the filing, saying the company’s lawsuit explains its position on the matter. “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 Jan. 20 statement.
Apple is alone among major handset makers in not paying Qualcomm directly and has instead paid through contract manufacturers in Asia who build the iPhone. It’s now meddling in the legal agreements Qualcomm has with those suppliers, including Foxconn Technology Co. as it pressures the chipmaker to cut a more favorable deal on licensing fees, Rosenberg said.
According to Qualcomm, Apple is behind regulatory investigations of its business practices worldwide. Cupertino, California-based Apple has lobbied with “false and misleading statements to induce regulators to take action against us because it would be in their commercial interests,” Rosenberg said.
In December South Korea’s antitrust regulator slapped a record 1.03 trillion won ($902 million) fine on Qualcomm for violating antitrust laws. Then, in January, the US Federal Trade Commission accused it in a lawsuit of forcing Apple to use its chips exclusively in return for lower licensing fees and unfairly cutting out competitors. It’s also facing investigations in Europe and Taiwan.
Apple filed its antitrust complaint Jan. 20 in Qualcomm’s hometown of San Diego, accusing the chipmaker of illegally trying to control the market for chips and improperly withholding more than $1 billion in “rebates” to punish the iPhone-maker for talking to Korean regulators.
Apple sought to have its case joined with one filed by the U.S. Federal Trade Commission in Northern California. The FTC has also accused Qualcomm of illegally maintaining a monopoly for semiconductors in mobile phones. Apple’s request was denied April 5. Qualcomm is now trying to have the FTC case dismissed.
In addition to the $1 billion in withheld fees, Apple is seeking billions more in compensation for what it calls past overcharges, and lower royalties going forward.
Qualcomm says Apple has soured a decade worth of working together and has threatened Qualcomm, to try to prevent it from publicly speaking about the performance of the iPhone 7. Some models of that device rely on Intel Corp. modems for their connections to phone networks and, according to Qualcomm, aren’t as good as the ones that use its modems. “We didn’t ask for this fight. Apple is a customer,” said Rosenberg. “We, of course, would like to continue to and will continue to do business with Apple.”
While Apple’s iPhone revolutionized the smartphone industry in 2007 with its sleek design and user-friendly apps, none of them would have worked without the foundational technology developed by Qualcomm and other companies, Rosenberg said. He said Qualcomm gets “a small fraction” of the price of an iPhone, and contrasted that with the more than $1 billion Apple sought from rival Samsung Electronics Co. over the use of patented features like a pinching motion to expand or contract images.
Qualcomm said it’s been the biggest contributor to the standardized technology that forms the foundation of all modern telecommunications. All companies that developed the standards pledged to license patents on those standards on fair, reasonable and non-discriminatory terms. Regulators and courts worldwide have been struggling with how to interpret that pledge, including how to calculate royalties and what rights the patent owners retain when it comes to recalcitrant would-be licensees.
Qualcomm is seeking court rulings that it complied with its obligations and that its agreements with contractors follow licensing commitments. It also wants the court to rule that it’s Apple who’s been in breach of contract and that it’s engaged in unfair competition.