Apple, the world's third-largest smartphone manufacturer, is once again set to battle its long-term hardware partner Qualcomm in court – but with the stakes raised higher than ever before.
Apple and its contract manufacturers, including Foxconn, are claiming that since 2013, Qualcomm used its dominant position in semiconductor design to overcharge them on chip royalties, and are asking for up to $27bn in damages, plus $3bn in rebates and restitution.
Qualcomm denies any wrongdoing, and wants at least $7bn in royalty back-payments, plus a few billion in damages.
The case begins on Monday in front of a jury in California Southern District Court in San Diego. It is expected to run for four weeks (though we all know it's not likely to stop there) and could even include an appearance from Apple chief Tim Cook himself.
Despite their mutual dependency, the two companies have been fighting each other for years, with dozens of skirmishes across the US, Europe, and Asia: these usually involve Apple highlighting Qualcomm's alleged monopolistic practices to regulators, and Qualcomm accusing Apple of not paying fairly for the goods and services rendered, and infringing on its IP.
In a recent escalation, Qualcomm even managed to ban the sales of some iPhones in Germany and China.
Not playing FRANDly
The latest case deals with the so-called Standard Essential Patents – the proprietary technologies that enable widely used technical standards, like those in wireless connectivity. Such technologies should be licensed on fair, reasonable and non-discriminatory (FRAND) terms – and Apple claims the terms it was presented with were anything but.
The company, along with its five ODMs – Compal, FIH, Hon Hai Precision Industry (aka Foxconn), Pegatron and Wistron – sued Qualcomm over what it claimed were unreasonable chip licensing fees in 2017. Apple also told its contractors to stop making relevant payments to Qualcomm.
Meanwhile, Qualcomm – well, it just wants its money, and claims the royalty rates are proportionate with the cost of R&D.
The case could have major implications for Qualcomm as the world's largest patent licenser by revenue. Its Qualcomm Technology Licensing Division (QTL) was responsible for 64 per cent of its pre-tax revenue in 2018.
In January, Apple said that because of the lawsuit, Qualcomm refused to supply chips for the latest iPhones so it had to rely on Intel for silicon instead. Losing Apple as a customer meant Qualcomm missed out on 50 million cellular modem chipset sales for the latest batch of iPhones and slipped into a net loss for its fiscal 2018. Separately, Qualcomm accused Apple of supplying its IP to Intel in order to make the chips.
If Apple wins, Qualcomm will likely remain profitable, but its revenues will take a considerable hit.
"We have one of the largest patent portfolios in the industry with more than 130,000 patents and pending patent applications worldwide. And it is critical that we protect our IP and ensure that we are appropriately compensated for our inventions and investments," CEO Steve Mollenkompf said in an earnings call in January.
"We expect additional favourable patent infringement decisions in the coming months in United States, China and Germany as more of our cases go to trial."
Meanwhile, Apple is taking a gamble with its upcoming 5G iPhones. The company was supposed to buy the necessary networking silicon from Qualcomm, and its new friend Intel doesn't have a comparable solution – at least, for the moment.
It's not like Apple can't afford to pay: the company continues to sit on a mountain of cash, worth around $245bn in January.
The entire 262-page pretrial conference order is available online. ®