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Apple Sues Qualcomm For $1 Billion, Alleging Extortion

Just days after the United States Federal Trade Commission sued Qualcomm for antitrust violations, Apple is joining in.

On Friday, Apple said it was suing the San Diego-based chipmaker, seeking $1 billion in damages. Apple said Qualcomm “has unfairly insisted on charging royalties for technologies they have nothing to do with.”

“The more Apple innovates with unique features such as TouchID, advanced displays, and cameras, to name just a few, the more money Qualcomm collects for no reason and the more expensive it becomes for Apple to fund these innovations,” Apple said in a statement. “Qualcomm built its business on older, legacy, standards but reinforces its dominance through exclusionary tactics and excessive royalties. Despite being just one of over a dozen companies who contributed to basic cellular standards, Qualcomm insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined.”
In the lawsuit, Apple said even upgrading something like the iPhone’s memory — from 128GB to 256GB — would result in Qualcomm collecting a larger royalty.

Apple said it has been overcharged billions of dollars on “Qualcomm’s illegal scheme.”

The lawsuit follows a complaint against Qualcomm earlier this week by the FTC that centered around its licensing business. Qualcomm is the dominant supplier of modem chips that enable phones to connect to cellular networks, and the company extracts licensing fees for nearly every modern phone in the world. The FTC said the San Diego-based chipmaker uses its dominant position to maintain an illegal monopoly at the expense of partners like Apple.

A major part of the FTC’s allegations focused on Qualcomm’s relations with Apple. The FTC said Qualcomm established an exclusivity agreement with Apple from 2011 until 2016. Qualcomm provided “billions” in rebates to Apple for the arrangement. But if Apple bought modem chips from another chip supplier during that time, the FTC said, Apple would face large penalties by losing out on Qualcomm’s rebate payments.

Apple’s lawsuit agrees with the FTC’s claims about the modem business. Qualcomm has a monopoly on modem chips that support a cellular standard called CDMA (or code division multiple access), which Verizon and Sprint networks use. Since Apple first launched its CDMA-supported version of the iPhone in 2011, “Qualcomm has charged Apple a monopolistic premium for access to CDMA chipsets,” the lawsuit said.

With the iPhone 7, Apple was finally able to introduce Intel modems in some of the phone. But that choice cost Apple in lost rebate money from Qualcomm — the exact figure has been redacted in the lawsuit document.

Apple also claimed on Friday that Qualcomm has retaliated for cooperating with a South Korean investigation against the chipmaker. “To protect this business scheme Qualcomm has taken increasingly radical steps, most recently withholding nearly $1B in payments from Apple as retaliation for responding truthfully to law enforcement agencies investigating them,” Apple claimed.

Last month, South Korea fined Qualcomm $890 million for what it described as monopolistic tactics.

“It looks like Qualcomm’s business is now under attack from all fronts,” said Stacy Rasgon, a senior analyst at Bernstein Research. “It’s not just from the government but from its largest customers now.”

While licensing royalties consist of only about a third of Qualcomm’s over all revenues, the business provides the company with about two-thirds of its profits.

“Apple believes deeply in innovation and we have always been willing to pay fair and reasonable rates for patents we use,” Apple said in the statement. “We are extremely disappointed in the way Qualcomm is conducting its business with us and unfortunately after years of disagreement over what constitutes a fair and reasonable royalty we have no choice left but to turn to the courts.”

Qualcomm’s stock dropped nearly 2.5% Friday following Apple’s announcement.

In response to Apple’s lawsuit, Qualcomm denied the charges, and claims Apple has been encouraging various regulatory bodies to “attack” the company.

Qualcomm general counsel Don Rosenberg wrote in a statement:

“While we are still in the process of reviewing the complaint in detail, it is quite clear that Apple’s claims are baseless. Apple has intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed and shared with all mobile device makers through our licensing program. Apple has been actively encouraging regulatory attacks on Qualcomm’s business in various jurisdictions around the world, as reflected in the recent KFTC decision and FTC complaint, by misrepresenting facts and withholding information. We welcome the opportunity to have these meritless claims heard in court where we will be entitled to full discovery of Apple’s practices and a robust examination of the merits.”

 

Here’s Apple’s original full statement:

For many years Qualcomm has unfairly insisted on charging royalties for technologies they have nothing to do with. The more Apple innovates with unique features such as TouchID, advanced displays, and cameras, to name just a few, the more money Qualcomm collects for no reason and the more expensive it becomes for Apple to fund these innovations. Qualcomm built its business on older, legacy, standards but reinforces its dominance through exclusionary tactics and excessive royalties. Despite being just one of over a dozen companies who contributed to basic cellular standards, Qualcomm insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined.

To protect this business scheme Qualcomm has taken increasingly radical steps, most recently withholding nearly $1B in payments from Apple as retaliation for responding truthfully to law enforcement agencies investigating them.

Apple believes deeply in innovation and we have always been willing to pay fair and reasonable rates for patents we use. We are extremely disappointed in the way Qualcomm is conducting its business with us and unfortunately after years of disagreement over what constitutes a fair and reasonable royalty we have no choice left but to turn to the courts.

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