US chipmaker Qualcomm has fired back in a bitter legal battle with Apple, accusing the smartphone maker of interfering with royalty payments and hobbling the performance of its modems in the iPhone.
In a 134-page legal response filed late on Monday in California, Qualcomm also accused Apple of encouraging regulatory attacks by “misrepresenting facts and making false statements”. After Apple sued it for at least $1bn in January, the world’s second-largest chipmaker is now seeking “significant” damages from the world’s most valuable public company.
“We intend to vigorously defend our business model, and pursue our right to protect and receive fair value for our technological contributions to the industry,” said Don Rosenberg, Qualcomm’s general counsel.
That defence includes accusing Apple of attempting to gag its response to third-party reports late last year that found Qualcomm’s chips outperformed rival Intel’s when both were included in different models of the iPhone 7.
Qualcomm claims that Apple “effectively chose to limit the performance of the Qualcomm-based iPhones” so that consumers would not realise its chips performed “far better” than Intel’s. It alleges that Apple told reporters there was “no discernible difference in the wireless performance of any of the models”, but subsequently threatened that Qualcomm’s “standing as an Apple chip set supplier would be jeopardised” if the processor provider attempted to dispute the statement.
San Diego-based Qualcomm is seeking to establish itself as a pioneer of cellular technology that has invested $40bn in R&D over three decades to create wireless networking standards that are used across the industry.
“Apple has built the most successful consumer products in history by relying significantly on cellular technologies pioneered by Qualcomm. Now, Apple wants to pay far less than fair value for a licence to Qualcomm’s patents,” its legal team wrote.
Monday’s filing describes a long history of difficult negotiations between the two companies over the value of that intellectual property.
Apple has never held a direct licence for Qualcomm’s IP, instead relying on agreements between contract manufacturers such as Foxconn, and Qualcomm alleges that Apple has “directly interfered” with these deals as part of an effort to pressure its business.
Apple has held “on and off negotiations” for years about a direct licence, Qualcomm said, including as recently as 2015, until the iPhone maker filed its lawsuit in January.
Apple contends that it has been “overcharged billions of dollars” over several years by Qualcomm. Its litigation includes a demand for $1bn that the iPhone maker claims Qualcomm owes it and withheld after Apple participated in an investigation by the Korean Fair Trade Commission.
Qualcomm has now accused Apple of withholding a similar figure from four contract manufacturers which they, in turn, have held back from paying to Qualcomm.
“The prospect of Apple’s continued interference threatens significant additional injury to Qualcomm,” the chipmaker said in Monday’s filing.
That news could unsettle Qualcomm’s investors, given analysts expect around $1.9bn or 8 per cent of the chipmaker’s overall revenues this year and an even greater portion of its earnings to come from Apple-related royalties.
Analysts at Citi in January described the prospect of Apple withholding royalties from Qualcomm as a “Doomsday scenario”.
While some amount does now appear to have been withheld by Apple’s manufacturers, the exact sums involved were redacted from the public version of Qualcomm’s latest legal documents.
In response to Monday’s filing, Apple reiterated its earlier statement, accusing Qualcomm of “exclusionary tactics and excessive royalties”.
“We are extremely disappointed in the way Qualcomm is conducting its business with us and...?we have no choice left but to turn to the courts,” the iPhone maker said in January.
Apple is also suing Qualcomm in China, the UK and Japan, and the chipmaker is simultaneously fighting allegations of anti-competitive behaviour by the US Federal Trade Commission. Last week, Qualcomm asked a judge in California to dismiss the FTC’s case altogether.
(Published by Financial Times - April 11, 2017)