Apple expands legal war against Qualcomm’s cellular patents into China
Apple has taken its legal attack on Qualcomm’s patent licensing business global, filing two complaints in Chinese courts challenging the way Qualcomm gets paid for its cellular intellectual property.
The move comes after Apple sued Qualcomm last week in San Diego federal court over its patent licensing, among other things. It comes on the heels of the U.S. Federal Trade Commission taking legal action on similar issues three days earlier.
Qualcomm hasn’t seen the Chinese complaints but learned about them from a Beijing Intellectual Property Court press release, which says Apple is seeking $145 million in damages.
Apple has yet to respond to an email seeking comment.
In an earnings conference call with analysts on Wednesday, Qualcomm served up its most thorough defense to date against Apple’s claims.
“Apple’s complaint contains a lot of assertions, but in the end this is a commercial dispute over the price of intellectual property,” said Qualcomm Chief Executive Steve Mollenkopf. “They want to pay less than the fair value that Qualcomm has established in the marketplace for our technology — even though Apple has generated billions in profits from using that technology.”
Qualcomm has negotiated more than 250 licensing agreements over the years — including more than 100 in the past two years — that reaffirmed the value of its patents, said Mollenkopf.
He added that Qualcomm’s intellectual property portfolio has expanded by thousands of patents over the past two decades, yet the company has never raised royalty rates.
According to Qualcomm, Apple has been agitating for regulators to derail the San Diego company’s patent licensing business model. Starting last week, Apple joined the legal fray itself
In the China lawsuits, Apple alleges a violation of China’s anti-monopoly law and the other requests a determination of the terms of a patent license between Qualcomm and Apple over cellular standard essential patents.
In early 2015, Qualcomm paid a $975 million fine and lower patent royalty rates for certain smartphones sold only in China as part of a settlement with the National Development and Reform Commission – China’s anti-monopoly regulator. But the deal kept Qualcomm’s licensing business model intact.
Qualcomm offered a patent license to Apple for Chinese sales based on terms of the NDRC settlement — which 120 Chinese devices makers have agreed to.
Apple refused, claiming the San Diego company was still charging too much for key cellular patents.
Qualcomm President Derek Aberle said Qualcomm cellular inventions enabled mobile services ranging from Uber to Snapchat, Instagram to WhatsApp, Spotify to Instagram, Siri to Google’s Assistant.
“Apple has been among the largest beneficiaries of our efforts and investments by being able to easily enter the smartphone space with little or no investment in core technology,” said Aberle.
Steven Re, president of Fairbanks Capital Management and a shareholder of both companies, said smartphone makers that have fought Qualcomm in the past over patents — such as Nokia — have seen competitors pass them by.
He hopes Qualcomm continues to “take a strident stance against Apple.”
“Qualcomm had a habit of working through these things and as long as their business model doesn’t change, they’ll pay some money or maybe a slightly lower royalty rate to whomever brought the most recent action,” said Re. “This time I detect more firmness on Qualcomm’s part. I think they are finally getting sufficiently disgusted with this.”
Re added that Qualcomm could sue Apple for patent infringement. In the conference call with analysts, Qualcomm mentioned “patents that they obviously feel Apple is using” that are not included in licensing deals.
In its lawsuits, Apple claims Qualcomm’s practice of charging royalties based on a percentage of the wholesale price of the entire smartphone — not the chips inside it — results in Qualcomm getting paid for technologies it has nothing to do with.
Aberle said Qualcomm licensing agreements have per-smartphone royalty caps — perhaps as low as a couple hundred dollars — above which royalties aren’t applied. Apple’s average selling price for iPhones tops $600.
Charging royalties based on the price of the device has been the practice in mobile and other industries for more than two decades. According to Qualcomm, it’s fair in part because low price smartphones use less of the Qualcomm’s extensive patent portfolio than more expensive devices like iPhones.
Apple contends Qualcomm is withholding nearly $1 billion in royalty cap “rebates” to Apple in retaliation for Apple cooperating with South Korea’s anti-trust probe. Qualcomm says it did no such thing and doesn’t owe Apple money.
Business
mike.freeman@sduniontribune.com;
760-529-4973
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