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Qualcomm Lashes Back at Apple in Escalating FightBy Mike Freeman
Posted: July 7, 2017 9:29am PDT
Qualcomm fired back at Apple on Thursday in a fierce legal battle over patents, asking the U.S. International Trade Commission to ban the import of certain new models of iPhones.
The San Diego company claims Apple is infringing on six patents issued between 2013 and 2017 that improve performance and battery life in smartphones. It filed a lawsuit in U.S. District Court in San Diego and is seeking a limited ban from the International Trade Commission on iPhones made by contract manufacturers in Asia.
Apple has been "infringing these patents knowingly, willingly for quite some time now in their new phones," said Don Rosenberg, Qualcomm's General Counsel. "We decided, frankly sparked by all their litigation efforts against us, that we weren't going to just defend ourselves, which we will do very vigorously, but we were going to have to go on the attack."
As a practical matter, Qualcomm is seeking a limited ban on iPhone 7s that contain cellular modem chips made by Intel and run on AT&T's and T-Mobile's networks.
Qualcomm supplies Apple with cellular modems for iPhone 7s on Verizon and Sprint, as well as older iPhones on all U.S. networks. It is not seeking to ban imports of iPhones that use its own chips.
If the ITC rules in Qualcomm's favor, an import ban could block some upcoming iPhone 8 models, which are expected to launch this fall.
It is unknown how Apple splits its modem supply between Qualcomm and Intel for the iPhone 8. But given the legal battle between the two tech giants, analysts believe Intel may have won the larger share.
In January, Apple filed a lawsuit attacking the core of Qualcomm's patent licensing business model -- claiming it is collecting patent royalties on technology that it has nothing to do with inventing. Anti-trust regulators in the U.S. and South Korea have brought similar legal actions.
Apple's contract iPhone manufacturers in China and Taiwan have stopped paying royalties to Qualcomm at Apple's behest, forcing Qualcomm to cut its financial forecast for the year.
An Apple spokesman Thursday reiterated a statement from earlier this month when Apple amended its original lawsuit.
"Qualcomm's illegal business practices are harming Apple and the entire industry," the company said. "They supply us with a single connectivity component, but for years have been demanding a percentage of the total cost of our products -- effectively taxing Apple's innovation."
Qualcomm says regulators have been spurred on by Apple in an effort to lower its costs. According to Qualcomm, without its cellular technology, the iPhone is little more than a glorified iPod.
While an iPhone 7 runs $700 or more, Qualcomm receives about $10 per iPhone for use of its thousands of cellular technology patents, according to estimates from analysts at Canaccord Genuity.
Qualcomm could face an uphill battle convincing the ITC to issue a ban. Even if the ITC does, the decision could be vetoed by the Trump administration. Samsung won a ban on iPhone imports in a long-running patent dispute a couple of years ago but it was overturned by the Obama administration.
In May, Apple Chief Executive Tim Cook told analysts that he didn't believe the ITC would ban iPhones because Apple has been willing to license Qualcomm's technology but has not received what it considers to be fair terms.
"I don't believe anyone is going to enjoin the iPhone based on that," he said at the time. "I think there is plenty of case law around that subject. But we shall see."
Rosenberg, however, said there is no case law that helps Apple in this action.
"These are good patents, these are patents that are clearly infringed by the iPhone, and the ITC is in the business of saying we don't allow infringing products of domestic owners to intellectual property to be imported into this country," said Rosenberg.
The six patents are not essential to cellular standards and are not included in Qualcomm's existing license agreements with Apple's contract iPhone makers, said Rosenberg.
"While not standard essential patents, they are quite important and vital to the functioning of the iPhone and other devices that use them," said Rosenberg. "They improve performance. They improve efficiency and all of them reduce the depletion of battery power, which is such an important element for all of us when we use our phone all day long."
The ITC typically takes about 18 months to investigate patent infringement. The lawsuit in San Diego federal court would be put on hold until the ITC issues a ruling.
Bernstein Research analyst Stacy Rasgon said seeking an iPhone ban wasn't a surprise. Given the length of the typical ITC investigation, it doesn't change anything in the near term.
But Rasgon questioned why Qualcomm is seeking a ban only on iPhones that use Intel chips and not phones that use Qualcomm chips. The move seems to support Apple's legal theory that once smartphone makers buy a chip, the patents are included in that sale.
Under Qualcomm's business model, the patents are separate. Royalties are owed no matter if a phone maker buys silicon from Intel, MediaTek or Qualcomm. The company's rationale is that its patents cover much more than the cellular modem. They involve system level technologies that make smartphones function -- from power management to audio/visual compression to airplane mode.
© 2017 San Diego Union-Tribune. Syndicated here under contract with YellowBrix, Inc. All rights reserved.
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