Qualcomm takes assemblers of the iPhone to court over royalties
New York — Qualcomm’s battle with Apple is heating up as the chip company hauls assemblers of the iPhone into a US court, on claims they are failing to pay patent royalties.
Four Asian contract manufacturers, including Foxconn Technology and Pegatron aren’t complying with obligations to pay for the use of patented technology, according to a complaint Qualcomm said it filed in federal court in San Diego. The other two companies sued are Wistron and Compal Electronics.
Unlike other smartphone companies, Apple doesn’t have a direct licence with Qualcomm and instead pays contractors to make its devices, parts of which are used to cover royalties such as those owed under agreements struck before the first iPhone appeared. The chipmaker blamed Apple for dragging its contract manufacturers into the dispute, saying the decision not to give them money for royalties had stopped them from paying Qualcomm, according to the complaint.
"Their gripe, their issue, appears to be with Apple," said Qualcomm general counsel Don Rosenberg. "We’re suing to make the point that others shouldn’t be used by Apple to advance this agenda they have of attacking us."
Qualcomm said Apple has agreed to cover the costs incurred by the contract manufacturers.
Asked for comment, the company referred to an earnings call earlier in May in which Apple CEO Tim Cook said that the company was taking a "principled stand" because Qualcomm’s "really great work" was only "one small part of what an iPhone is".
The company also repeated a statement it has given in the past. "We’ve been trying to reach a licensing agreement with Qualcomm for more than five years but they have refused to negotiate fair terms," Apple said in the statement. "Without an agreed-upon rate to determine how much is owed, we have suspended payments until the correct amount can be determined by the court. As we’ve said before, Qualcomm’s demands are unreasonable and they have been charging higher rates based on our innovation, not their own."
In addition to being one of the world’s largest maker of chips for mobile devices, Qualcomm also owns thousands of patents on fundamental technology that ensures all phones work. That means Qualcomm can collect money on every smartphone, even those that have chips made by other companies.
Apple and other companies claim Qualcomm is charging unfairly high rates in violation of pledges to license inventions that are essential to comply with industry standards
In a separate agreement, Qualcomm pays Apple under a deal that the iPhone maker has described as a sort of "rebate" to lower the cost of royalties. Qualcomm said those payments were really part of a complex series of agreements meant to ensure peace between the two.
In Apple’s antitrust lawsuit against Qualcomm, the iPhone maker claimed $1bn worth of those payments were being withheld as punishment for talking to regulators who were investigating Qualcomm — an allegation the San Diego-based company denies.
Apple has said it would not give royalty payments to contract manufacturers until the dispute is resolved, according to Qualcomm. With the contractors in turn not paying Qualcomm — at Apple’s direction, Qualcomm says — the chipmaker was forced to slash third-quarter forecasts in April because it was unclear when the royalties would be paid.
Qualcomm, which gets the bulk of its profit from licensing revenue, has been under investigation worldwide by regulators over its negotiation tactics. Apple and other companies claim Qualcomm is charging unfairly high rates in violation of pledges to license inventions that are essential to comply with industry standards.
Samsung Electronics and Intel, two competing chipmakers, were backing a US Federal Trade Commission antitrust suit against Qualcomm that was filed just before the Apple case.
Rosenberg said manufacturers such as Foxconn had been put in the middle — they were paying royalties on nonApple products as they had for a decade or more. It was just the royalties on Apple products that were not getting paid.
"We are suing to get our money," Rosenberg said. He likened the resistance to pay for the use of Qualcomm technology to someone walking into an Apple shop and refusing to pay full price for a smartphone.
"Pay for what you take and if you don’t want to pay for it, don’t take it," he said.
The case was filed in Qualcomm’s hometown because the contracts establish that as the location for any disputes to be resolved, he said.