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New Report Details Origins of Legal Feud Between Apple and Qualcomm

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A new in-depth story from Bloomberg about the ongoing legal battle between Apple and Qualcomm goes behind the scenes of the various accusations and rebuttals make by the two tech giants.

According to court documents reported by Bloomberg, the basic origin of the feud stems from the Allen & Co. Conference in Sun Valley, Idaho, just two summers ago.

At the meeting, a senior Apple executive (assumed to be Apple CEO Tim Cook) spoke to a Samsung executive (likely Vice Chairman Jay Y. Lee) and “urged” Samsung to put pressure on South Korean antitrust regulators into intensifying a Qualcomm investigation that had been open for about a year at the time.

Apple, a long-time Qualcomm customers, did not like the fact that Qualcomm asks for royalties worth 5% of a device’s price, which can amount to $30 for the iPhone, but much less for a cheap Android phone made in China.

“On another table behind [Apple SVP Bruce] Sewell, an Apple representative has laid out two versions of the iPhone 7: One model, which has 128 gigabytes of memory was sold by Apple for $750. The other, which has 256 GB, sold for $100 more,” reads the report. “How is it fair, Apple asks, for Qualcomm to charge as much as $5 more for the technology in the more expensive phone, given that the two devices are otherwise identical?”

Instead Apple is proposing paying based on the cost of modem. Sewell argued that the company shouldn’t owe more than $4 in royalties per device, which would be a dramatic reduction even versus the amounts that were offset by rebates.

Apple drove that price down to about $10 per phone, but one of the conditions it agreed to was not to challenge Qualcomm’s patents. That’s not including the actual cost of the modem, which can retail for $18 for the most recent iPhones.

Shortly after, Apple launched a lawsuit against Qualcomm claiming the latter withheld almost $1 billion in retaliation. The two corporations are now engaged in a global legal war, including countersuits. The U.S. Federal Trade Commission is pursuing a separate complaint against Qualcomm.

Apple has told its suppliers not to pay Qualcomm any royalties until the legal situation is resolved. In the report, Qualcomm CEO Steve Mollenkopf says that he expects Apple to settle soon. Sewell refutes this and says “there’s no way this case settles, absent a complete reinvention of the licensing model that Qualcomm has adapted in the industry.”

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  • m Arch Tom’s on Bar N Ass

    apple attempt in costs cuttings should not involve lowering royalties costs and rather take in consideration advertising costs cutting incl. pr activities and then personnel to be made redundant ( for instance shutting down Apple ireland and many subsidiaries in EU then keeping a single Apple EU subsidiary with small teams for language support in the netherlands aka: company and costs rationalization )

    second: Apple is long due in making better investments or even switch ERP consulting company and to better forecast demand for modems and royalties

    draft

  • Bill___A

    The discussion is about royalties for modems, which are the same price hardware wise for every device, and the fact that Qualcomm wants more money for a modem in a premium phone. It is not about “Apple” in particular.

  • m Arch Tom’s on Bar N Ass

    @Bill___A:disqus
    that is your interpretation which i also respect of course however, this “Apple vs Qualcomm” PR strategy has been going on for a few weeks now, with devious, sidetracking statements and apple making weak attempts to influence public opinion ( a sign apple PR costs are money wasted ) in addition, on a different blog site slightly similar post was mentioning apple moaning over IP and patents firms business model that’s been this way for ever since… and telling US apple is in urge to cut business administration costs.
    my take is apple really have to start costs cutting, i agree, however starting with reviewing other cost elements in the financial statement and avoiding wasting money ( i.e: subsidiaries costing a USD 14B fine for administration ineptitude; PR offices or tasks actually getting it wrong and making Apple inc. suffer some serious damage rather than enhancing company’s (public) image. )
    DRAFT

  • Bill___A

    I don’t think a component supplier should be allowed to charge varying amounts of money for their products or patents. If it were for a multi line phone that connected to LTE and allowed several people to use it at once, that would be a “bigger” use of the actual patents. However, a single person phone with a single person data connection….for all intents and purposes is the same, regardless of screen size, memory, etc. I am not saying whatever Apple does is right, but what I am taking issue with is Qualcomm and their thought processes, which I disagree with. They should profit from their patent, but not from Apple’s innovations and marketing.

    Many components have software. When you buy a video card for your computer, does the video card maker charge you a separate fee for the driver? And vary that charge whether you have a 500 gig hard drive or a terrabyte drive? Qualcomm and their ilk need to be put in their place.

  • m Arch Tom’s on Bar N Ass

    @Bill___A:disqus
    oh really !
    i haven’t heard Qualcomm confirming apple’s statements, as far as we know apple might just have purchased patent licenses at different stages and in different quantities and there you go…. that is explained why different prices for the same patent license on different iPhone models.

  • raslucas

    I agree. I think it was actually when Qualcomm told Apple they had to pay them even when they used Intel chips that they got pissed off about it.

    Plain and simply, a Qualcomm chip should have a cost and that’s it. If Intel makes a chip that uses a Qualcomm patent, Intel should build that into the price of the chip.

    That’s it.

    Let’s say (for some reason) Apple wanted to throw a Qualcomm modem chip into an iMac Pro. Should Apple pay for that chip, plus like… 125$ for the privilege?

    Then I see it from Qualcomm’s side, and they want their chips in super cheap products, and don’t want a flat rate for patents. I think the end of this will be Qualcomm only able to charge the lesser of the following: 5% of product price or $10. Or whatever.

  • KBlazer07

    Qualcomm won’t lose in the end. My company sells the same product to different customers for different prices. If Apple wins this case, Qualcomm will just sell their product as if each one is going into an IPhone X 256GB or more. I don’t think Apple will win though, you can’t agree to terms, buy it, and then ask for a refund because you think you paid too much. On second thought, maybe I can buy an iPhone X at $1500 and then sue Apple because I really only want to pay $750 for it! Oh, and don’t get me started on unfair exchange rates …

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