Apple and Qualcomm Settle Sweeping Patent Suits
- Paul Thurrott
- Apr 16, 2019
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41
In a sudden and unexpected move, Apple and Qualcomm announced today that they have ended all ongoing litigation and have reached global patent license and chipset supply agreements.
“Qualcomm and Apple today announced an agreement to dismiss all litigation between the two companies worldwide,” an Apple announcement reads. (Qualcomm has posted the same announcement.) “The settlement includes a payment from Apple to Qualcomm. The companies also have reached a six-year license agreement, effective as of April 1, 2019, including a two-year option to extend, and a multiyear chipset supply agreement.”
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This is blockbuster news, folks, and an implicit agreement from Apple that it did, in fact, owe Qualcomm significant patent-based royalties. Furthermore, it shows how hamstrung Apple was without Qualcomm: Its agreement with Intel to supply mobile chipsets, especially for modems, has been a disaster.
Interestingly, I started writing an editorial on Monday called Apple and Qualcomm Need Each Other in which I would have argued that these companies shouldn’t be fighting but should instead be each other’s biggest partner.
Now, of course, they are.
I’m curious to see whether the details of this agreement are made public. But I’ve long felt that it was Apple that was at fault here. And the only issue facing Qualcomm now is that Apple is racing to produce its own chipsets, especially for 5G networking, to ensure it’s never held hostage to a third party like this again.
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Conversation 41 comments
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provision l-3
<p>Apple never denied owing royalties it was the amount/royalty rate that was in dispute. So while I'd say this a big deal I'd also say anyone spinning it as win for either company sans understanding of the agreement is just telling the story they want to believe. What is interesting is that while they are dropping all lawsuits against each other, which were largely going nowhere anyway, this has no baring on Qualcomm antitrust trial in the U.S. Also, Apple's chip development is really irrelevant. If Apple makes its own chips, buys them from intel or anyone else they still have to pay the licensing fee to Qualcomm which is what this agreement is about. </p>
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skane2600
<blockquote><em><a href="#421242">In reply to provision l-3:</a></em></blockquote><p>"Apple never denied owing royalties it was the amount that they owed that was in dispute."</p><p><br></p><p>I don't think that's quite it. What you describe would be an accounting discrepancy between the two companies. Apple thought the royalty rate was unreasonable, not that the calculation of royalties was incorrect. </p>
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skane2600
<blockquote><em><a href="#421259">In reply to lvthunder:</a></em></blockquote><p>Of course, but the rate Qualcomm was charging was never in doubt, just what Apple considered fair.</p>
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provision l-3
<blockquote><em><a href="#421248">In reply to skane2600:</a></em></blockquote><p>The amount they owed is based on the licensing rate. Apple felt the listening rate was too high. Apple was disputing the amount they owed or they were disputing the licensing rate. For the purposes of the conversation I see it as a distinction without a difference but happy to edit my original post to make it clearer. </p>
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skane2600
<blockquote><em><a href="#421271">In reply to provision l-3:</a></em></blockquote><p>There really is a difference between the two IMO and thus I believe your revised statement is more accurate.</p>
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Stooks
<blockquote><em><a href="#421248">In reply to skane2600:</a></em></blockquote><p>Semantecs. Apple thought the cost per phone was too much. They did not want to pay that and they with held the payment. They are paying that (back pay) for sure and probably more. </p><p><br></p><p>It would not surprise me if they got a better deal at the end of the day either. Less than what Qualcom orginally was asking but more than what Apple wanted to pay. </p>
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Stooks
<blockquote><em><a href="#421242">In reply to provision l-3:</a></em></blockquote><p>If Apple makes its own chips I doubt they would use any of Qualcom's patented tech. That is kind of the point is it not?</p>
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provision l-3
<blockquote><em><a href="#421329">In reply to Stooks:</a></em></blockquote><p>Qualcomm owns the patents for 2G, 3G, 4G LTE and 5G LTE. They handle licensing of the technology by allowing others to make modems based on their patents and not pay a royalty fee. So Intel, Samsung, that company that Paul is all excited about that offered Apple 5G chips can make modems without paying Qualcomm. Qualcomm does require the device maker that used a modem based on their technology to pay a royalty fee for its use. So in the case of Apple, they would by Intel modems and were then required to Qualcomm a fee for every product they were used in. </p><p><br></p><p>In principal what Qualcomm is doing is good as it is intended to avoid anti-trust issues. By separating their patent licensing fees business from their hardware business everyone would pay the same licensing fee irrespective of where they got the modem from and Qualcomm's hardware would play on the same level playing field as hardware prices would be set separate from licensing fees. In this lawsuit and in the one brought by the federal government, the claim is that Qualcomm was in fact not keeping the businesses separate and they were colluding. I make no claims on if what Qualcomm is doing is actually anti-competitive. Apple also claimed the way the licensing fee was derived was wonky as it was a percentage of the cost of the device. The argument being Qualcomm is getting revenue for innovations and features that drive up the price of the unit (better screens, larger memory sizes, better cameras) that have nothing to do with Qualcomm or their patents. </p><p><br></p><p>Anyway, that means that even if Apple develops its own modem it would likely save some money on the pricing of the hardware but would still have to pay the royalty per device they were used in. </p><p><br></p>
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skane2600
<p>Sounds like Apple caved and probably for good reason. </p>
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skane2600
<blockquote><em><a href="#421258">In reply to FactoryOptimizr:</a></em></blockquote><p>Huawei was a long shot anyway given the US government's opposition, but Huawei doesn't really need Apple's business.</p>
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wocowboy
Premium Member<blockquote><em><a href="#421260">In reply to lvthunder:</a></em></blockquote><blockquote><em>That's Qualcomm. A few other companies make modems for use in various devices, but they all are affected by Qualcomm's patents and have to pay some allegiance to them. Qualcomm owns pretty much every patent relating to cellular radios, that's just a fact of life now, and is partly the reason they are being sued around the world. Their settlement with Apple is just the beginning, a lot of other chips must fall before the dust completely settles with Qualcomm. </em></blockquote><p><br></p>
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BrianEricFord
<p>This is a bad take.</p><p><br></p><p>They settled because taking a case like this to a jury is basically a coin flip. If the coin doesn’t land your way, it’s a world of pain and years and years of costly appeals.</p><p><br></p><p>Apple went into this wanting a better licensing deal.</p><p><br></p><p>Now they have what they wanted and several years of breathing room to develop their way out of having to rely on someone else for chips.</p><p><br></p><p>The only real loser here is Intel.</p><p><br></p><p>(For the record: Everyone with pre-conceived notions about the evidence will assume a settlement means they were right all along, but this is a nonsense layperson take on what feeds into legal settlements.)</p><p><br></p>
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Stooks
<blockquote><em><a href="#421268">In reply to BrianEricFord:</a></em></blockquote><p>Good post. </p><p><br></p><p>I personally do not think this was a huge deal that Paul makes it out to be. I bet not one of my non-tech friends even knows who Qualcomm is or what they make. They all know Apple for sure. I think they both got something out of the deal at the end of the day. Apple will make their own modems at some point and ditch Qualcomm in the end and a big part of that was Qualcomm pushing this so hard.</p><p><br></p><p>Paul's take on this is SSDD. He does not like Apple, never has, and has constantly taken jabs at them whenever he can remotely bring them into the conversation.</p>
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skane2600
<blockquote><em><a href="#421268">In reply to BrianEricFord:</a></em></blockquote><p>Back before Apple sued Qualcomm, Apple could have just fulfilled the contract under the terms they agreed to originally and then reconsider/renegotiate it after it expired. Thus the lawsuit and the settlement was never a necessary component to be able to renegotiate at a later date.</p><p><br></p><p>The danger for Apple was that their argument was most fundamentally that they shouldn't have to follow the terms they previously agreed to. Apple would have presented their justifications but whether those justifications were valid or not, it's unlikely that a jury would easily understand those arguments. On the other hand having to follow a contract one signs even if they don't like it later is well understood by almost all adults who have purchased a car, a house, or rented an apartment. A jury might very well have seen that as Apple asking for special privileges.</p>
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BrianEricFord
<blockquote><em><a href="#421348">In reply to skane2600:</a></em></blockquote><p><br></p><p>A jury might have, but a jury might also have decided Qualcomm was abusing its portfolio. Guess which outcome would have been worse from a long-term standpoint and, as I said, these sort of matters are often a coin flip.</p><p><br></p><p><br></p>
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skane2600
<blockquote><em><a href="#421358">In reply to BrianEricFord:</a></em></blockquote><p>Anything is possible but one can easily imagine a juror wondering "what does abusing a portfolio mean?" Perhaps if this were a little guy stuck with a contract mandated by a corporation a juror might give him a break out of sympathy regardless of the merits, but these are both powerful companies and if there's a "little guy" involved, it would be Qualcomm not Apple.</p>
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BrianEricFord
<blockquote><em><a href="#421374">In reply to skane2600:</a></em></blockquote><p><br></p><p>If only experts were going to be hired to come in and explain these matters!</p>
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skane2600
<blockquote><em><a href="#421518">In reply to BrianEricFord:</a></em></blockquote><p>You mean like experts in math teach high school students mathematics and then all of them understand it? Of course teachers have spent years training to teach and tech experts, not so much.</p>
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provision l-3
<blockquote><em><a href="#421298">In reply to glenn8878:</a></em></blockquote><p>Qualcomm lost most of patent lawsuits with Apple and even had a few patents invalidated. Trying to build the argument that Apple was a flagrant patent violator prior to going into this case was a reasonable strategy but in the end it didn't work out the way Qualcomm had hoped and really didn't provide them any leverage. That isn't to say their defense was going to be weak, Qualcomm has the resources required to hire top notch lawyers. It just means this part of their defense strategy didn't really pan out. </p>
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PeterC
<p>Well that’s a total let down. I was looking forward to some proper legal courtroom cut and thrust! Darn…..!</p>
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dontbe evil
<p>Rotfl… Time to give up for apple</p>
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PeterC
<blockquote><em><a href="#421414">In reply to dontbe_evil:</a></em></blockquote><p>I think you’ll find Apple had no choice as INTEL have withdrawn from the 5g mobile chip manufacture business, once again this is a story about intel continuing to decline rapidly letting its hardware customers down. </p>
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wocowboy
Premium Member<p>I think before a final judgement as to who was to blame, if there really needs to be such a judgement in the first place, we will have to wait until all the other lawsuits around the world, filed by governments, the EU, and other device manufacturers play out. Don't forget that Qualcomm is under fire around the world for bad business practices and for not abiding by FRAND with regard to their patents, so Qualcomm cannot be automatically dismissed from any blame yet. </p>
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BrianEricFord
<blockquote><em><a href="#421470">In reply to Brett_B:</a></em></blockquote><p><br></p><p>On the flip side, Qualcomm suddenly finds itself in a more precarious legal situation as the only real option for something that is a necessary component. Harder to play hardball while regulators are breathing down their neck.</p>