Mobile

Qualcomm fires back at Apple lawsuit, makes claims of its own

The chipmaker asks for unspecified damages and says Apple purposely hobbled Qualcomm's chips to make the performance match those from Intel.

Qualcomm's put on the boxing gloves in a patent spat with Apple.

The chipmaker on Monday, in a 134-page redacted filing, responded to an Apple lawsuit about patent licensing and made some counterclaims of its own, including breach of contract. It also asked for an unspecified amount in damages.

"Over the last 10 years, Apple has played a significant role in bringing the benefits of mobile technology to consumers with its popular products and services," Don Rosenberg, executive vice president and general counsel of Qualcomm, said in a statement. "But Apple could not have built the incredible iPhone franchise that has made it the most profitable company in the world, capturing over 90 percent of smartphone profits, without relying upon Qualcomm's fundamental cellular technologies."

Apple referred CNET back to its filing from January, in which it said, "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 is the world's biggest provider of mobile chips, and it created some of the essential standards for connecting phones to cellular networks. The company derives a significant portion of its revenue from licensing that technology to hundreds of handset manufacturers and others. Apple designs the processors in its iPhones and iPads, but it buys chips from Qualcomm to connect to 4G LTE and other cellular networks.

Under Qualcomm's licensing structure, Apple, through its manufacturers such as Foxconn, pays Qualcomm a fee for its chips and another fee for the intellectual property utilized in the mobile phones. Most components suppliers bundle the IP cost in with the chip sales price. Qualcomm, though, says its intellectual property is essential for the operation of a mobile phone, not just the chips inside handsets.

For the iPhone 7 and iPhone 7 Plus, introduced late last year, Apple also started buying 4G LTE chips from another supplier, Intel. Because Qualcomm owns IP related to 3G and 4G phones, any handset maker using the technology has to pay it a licensing fee, even if they don't use Qualcomm's chips. That fee is based on the total value of the device ($650 in the case of the iPhone) versus the value of the chip (closer to $20), but it's capped at a certain level. Qualcomm didn't disclose the limit, but it's lower than the actual $650 price of the iPhone.

As with most licensing terms, this gets complicated pretty quickly. But essentially, Apple bears a cost for using Qualcomm technology in its phones, whether or not the chips it includes are directly from Qualcomm.

'Each and every allegation'

Qualcomm on Monday denied "each and every allegation" Apple made in its January lawsuit and cited 35 different defenses, including that "to the extent that Apple has suffered damages, if at all, all damages were caused by Apple's own actions." The company talked about the investments it has made in R&D, as well as the innovations it has contributed to the mobile market.

It also accused Apple of breach of contract and interfering with agreements and relationships Qualcomm has with contract manufacturers. It said Apple has withheld money (the amount was redacted) owed to Qualcomm under a contract relating to a high-speed feature of Qualcomm's chips. It also said Apple hurt Qualcomm by "deliberately making false statements to government agencies about Qualcomm's licensing practices and chipset business."

Qualcomm alleged that Apple hurt consumers by limiting Qualcomm chips in the iPhone 7 to make performance more comparable to chips from Intel. (Apple chose to use modems from both companies in certain versions of its popular smartphone.) Qualcomm said Apple threatened to not make public comparisons about the "superior performance of Qualcomm-powered iPhones."

"Apple's goal is clear -- to leverage its immense power to force Qualcomm into accepting less than fair value for the patented technologies that have led innovation in cellular technology and helped Apple generate more than $760 billion in iPhone sales," Qualcomm said in its filing.

In addition, Qualcomm said in the filing that it has invested more than $40 billion in research and development over the past three decades and that it employs nearly 20,000 engineers. Its patent portfolio contains more than 130,000 issued patents and patent applications worldwide.

"Qualcomm invented fundamental technologies at the heart of 2G, 3G, and 4G cellular communications, is leading the industry to 5G, and has contributed innumerable additional innovations used in virtually every modern cell phone," its filing said.

Chip battle

Apple in January filed suit against Qualcomm in the US, alleging the wireless chipmaker didn't give fair licensing terms for its processor technology. Apple also said Qualcomm sought to punish it for cooperating in a South Korean investigation into Qualcomm's licensing practices by withholding a $1 billion rebate.

Apple wants a court to lower the amount it pays Qualcomm in licensing fees, as well as order the return of the $1 billion. The iPhone maker said in its suit that Qualcomm should be paid royalties based on the value of its particular contribution, not for contributions from other patent holders. Currently, Qualcomm's royalties are based on the selling price of a phone, rather than what portion Qualcomm's technology enabled.

Qualcomm has come under scrutiny in recent years for alleged monopolistic practices. Two years ago, it paid China nearly $1 billion to end a 14-month antitrust investigation in that country. Then, in December, South Korea hit Qualcomm with a $850 million fine following a three-year investigation. The South Korean Fair Trade Commission accused the chipset maker of having an "unfair business model" and creating a monopoly with its practices. The US Federal Trade Commission also has accused Qualcomm of illegally dominating the cellular chip market.

Along with the US suit, Apple has sued Qualcomm in China and the UK.

Update at 7:35 p.m. PT with Apple comment.

Update at 11 a.m. PT on April 11 to clarify how Qualcomm's licensing works.

Update at 1:05 p.m. PT on April 11 to add in information about Qualcomm royalty cap.

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