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Apple-Qualcomm patent spat leads to a possible iPhone import ban

FILE - In this Sept. 16, 2016, file photo, Lisa Gao, from Chicago, compares a new jet black iPhone 7
Apple, chafing under what it considers onerous and expensive licensing requirements, directed its contractors to stop paying Qualcomm until the two sides can reach a new deal.
(Kiichiro Sato / Associated Press)
Bloomberg

Qualcomm Inc. has fired multiple legal shots at Apple Inc., aiming to use patents to get a ban on importing the iPhone. In separate rulings Tuesday, one missed and one hit.

The U.S. International Trade Commission on Tuesday invalidated a Qualcomm patent for a battery-saving feature. Earlier in the day, a separate trade judge said Apple infringed a different Qualcomm patent and recommended certain older models of the iPhone be banned. The commission is scheduled to release a final decision in that case in July.

The cases are among about 80 worldwide between the companies in a dispute that has lasted more than two years. Qualcomm is hoping a victory, particularly an import ban, could give it greater leverage in technology licensing negotiations. Qualcomm says it’s due billions of dollars in unpaid royalties on the iPhone as the two tech giants argue over the value of the chipmaker’s patents.

Apple denied infringing any of the patents in the two cases and said Qualcomm is trying to shut its only U.S. competitor, Intel Corp., out of the market; Apple argues that would hinder the development of the fifth generation of mobile communications, known as 5G.

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In both cases at the trade commission, the Cupertino, Calif., company argued that no import ban should be imposed even if a patent violation is found.

Qualcomm argued that the opposite is true. If the San Diego company can’t enforce its patents, that will lessen the value of its innovation and give rivals — particularly China’s Huawei Technologies Co. — a chance to gain greater market share. Qualcomm has called Intel chips inferior to its own, and it has accused Intel and Apple of incorporating unlicensed Qualcomm inventions into the Intel chips to improve their quality.

In the earlier case Tuesday, International Trade Commission Judge MaryJoan McNamara said she would recommend an import ban on certain models of iPhones, which are made in China, a notice posted on the commission’s electronic docket says. The judge found no violation of two other Qualcomm patents in the case.

The earlier ruling sent Qualcomm shares up 2.4% to $58 in regular trading Tuesday. Apple shares fell 1% to $186.79. In after-hours trading, both stocks reflected the partial wins and losses after the commission decision. Apple was up less than 1%, while Qualcomm fell less than 1%.

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In the case before McNamara, Qualcomm contended that Apple iPhones with Intel chips infringed two patents related to ways to improve the speed and quality of data downloads and infringed one patent for a power-saving feature. It is seeking an order that would ban imports of those iPhones. The judge’s finding of infringement related to the power-saving feature, according to the notice. Her full findings aren’t yet public, and they won’t be until both sides get a chance to redact confidential information.

“We appreciate Judge McNamara’s recognition of Apple’s infringement of our hardware patent and that she will be recommending an import ban and cease and desist order,” Qualcomm General Counsel Don Rosenberg said in a statement when the earlier notice came out. The company had no immediate comment on the later-issued decision from the full commission.

The original complaint in the McNamara case linked that patent only to the iPhone 7 and iPhone 7 Plus, but it was unclear which models would be affected by McNamara’s decision. If the ban applies only to those models, it could have a multibillion-dollar effect on Apple each year Apple still offers those devices. The company will probably discontinue them in the next two years.

The second decision announced Tuesday targeted a broader range of iPhones, including the iPhone 7, iPhone 8 and iPhone X, and only ones that had Intel chips. Models with Qualcomm chips wouldn’t be affected. The commission’s full decision — which, for now, sidestepped arguments over whether the Apple-Qualcomm legal battle has broader implications for U.S. supremacy in 5G telecommunications — is not yet public.

Apple, chafing under what it considers onerous and expensive licensing requirements, has directed its contractors to stop paying Qualcomm until the two sides can reach a new deal. It also has turned to Intel to supply the modem chips on its newest models.

The iPhone probably generated about $58 billion in the United States in Apple’s 2018 fiscal year. The majority of iPhone sales last year were from newer models such as the iPhone X, iPhone 8 and iPhone 8 Plus.

By all accounts, Qualcomm’s technology underpins all modern communications. The company is a large player in the development of industry standards, spending billions of dollars on research each year. It’s also richly rewarded — it makes money off the chips in all mobile devices, and it also gets paid for the use of its inventions in chips made by others.

The Federal Trade Commission has accused Qualcomm of using its patents on industry standards to shut out competitors from the market and demand high licensing fees; the two sides await a judge’s ruling in that case. The patents in this case don’t relate to standardized technology, but Apple says Qualcomm is using the International Trade Commission to maintain monopoly power.

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