Before Apple ever filed suit against Qualcomm, the iPhone maker allegedly wanted to hurt the company. And it put those plans down in documents obtained by Qualcomm as the two companies prepared to meet in court.
In September 2014, a document from Apple titled "QCOM - Future scenarios" detailed ways the company could exert pressure on Qualcomm, including by working with Intel on 4G modems for the iPhone. Apple and its manufacturing partners didn'tuntil more than two years later. A second page of that document, titled "QCM - Options and recommendations (2/2)" revealed that Apple considered it "beneficial to wait to provoke a patent fight until after the end of 2016," when its contracts with Qualcomm would expire.
"They were plotting it for two years," Qualcomm attorney Evan Chesler, of the firm Cravath, Swaine & Moore, said during his opening arguments last week. "It was all planned in advance. Every bit of it."
The news came out during Qualcomm's opening statement in was in the courtroom for the . Because the two parties settled, Apple never had a chance to rebut Qualcomm's claims in its opening arguments.. News before Chesler had wrapped up his opening remarks. CNET
Apple in January 2017 had accused Qualcomm of anticompetitive practices that have raised chip prices, restricted competition and hurt customer choice. The company and its manufacturing partners had argued that Qualcomm's royalty fees, which Qualcomm based on a customer's entire device, were too high and that they should pay only for the company's modem chips. Qualcomm, the world's biggest mobile chipmaker, had countered that the iPhone wouldn't be possible without its technology, and it deserved to be paid for its innovation.
The settlement marked a big win for Qualcomm, which could have been forced to change its entire business model had it lost to Apple. The agreement is also a victory for consumers, who will once again have access to fast Qualcomm modems -- including ones already compatible with existing 5G networks.
Apple in its opening arguments said that Qualcomm's licensing practices have hurt competitors like Intel. And Qualcomm's policy of no license, no chips -- it won't provide a handset maker with modems until it signs a licensing agreement -- "allows them to double dip."
"This case is about the fact that Qualcomm has used its monopoly ... to set unfair prices and stifle competition and dictate terms to some of the biggest, most powerful companies in the world, that rational companies would never agree to in a million years," said Ruffin Cordell, an attorney with Fish & Richardson who's representing Apple.
Exerting commercial pressure
The unknown Apple team behind the September 2014 document recommended applying "commercial pressure against Qualcomm" by switching to Intel modems in iPhones. Apple ultimately started using Intel modems in about half of its iPhones with devices that came out in 2016. In the US, it embedded Intel modems in AT&T and T-Mobile models of the iPhone 7 and 7 Plus, but it still used Qualcomm in versions for Verizon and Sprint.
Qualcomm, for its part, knew by June 2014 about Apple's plans to use Intel chips in 2016, according to an internal email from its president, Cristiano Amon, that was displayed during opening arguments. "Decision already has been made and beyond the point of no return on the 2nd source (Intel) for the 2016 premium tier," Amon wrote to CEO Steve Mollenkopf, CTO Jim Thompson, General Counsel Don Rosenberg and then-licensing chief Derek Aberle.
Apple "said that as a result of our policies, other chip companies can't compete with us," Chesler said during his opening arguments. "Where did Intel get the chips from? From god? They made them using our technology."
Another Apple internal document from June 2016 said the company wanted to "create leverage by building pressure three ways," according to a slide shown in court. The internal document said, in part, that Apple wanted to "hurt Qualcomm financially" and "put Qualcomm's business model at risk."
The best patents
Qualcomm supplies network connectivity chips for Apple's iPhones and is the world's biggest provider of mobile chips. Its technology is essential for connecting phones to cellular networks. The company derives a significant portion of its revenue from licensing its inventions to hundreds of device makers, with the fee based on the value of the phone, not the components.
Qualcomm owns patents related to 3G, 4G and 5G phones -- as well as other features like software -- so any handset makers building a device that connects to the networks has to pay it a licensing fee, even if they don't use Qualcomm's chips.
Apple had purchased Qualcomm modems for its iPhones for years until the falling out. One 2009 memo said Qualcomm is "widely considered the owner of the strongest patent portfolio for essential and relevant patents for wireless standards."
"Engineering wise, they have been the best," Johny Srouji, Apple's head of semiconductors, said in a March 2015 email.
The earlier memo also noted that while more than half of Qualcomm's patent portfolio was communications and silicon engineering, it "has more significant holdings in other areas, including many areas relevant to Apple." That included media processing, non-cellular communications and hardware. Apple had argued in its lawsuit that Qualcomm's technology was only used in its modem and it shouldn't be forced to pay Qualcomm royalties for innovations it had nothing to do with.
"What makes your smartphone smart is what the people up the road in La Jolla invented," Chesler said in court, referring to the San Diego-area town where Qualcomm's offices are based. "The reason they pay us more is because what we created is worth more."
Originally published at 10:14 a.m. PT
Update at 11:27 a.m. PT: Adds comments from Apple's opening argument