Cue the Tom Petty, because nobody’s backing down in the Apple vs. Qualcomm legal battle.
On Tuesday, opening arguments from Apple and Qualcomm will begin in a federal court in San Diego. Apple is suing Qualcomm for what it alleges are anti-competitive practices. Qualcomm says Apple needs to pay for its IP, without which the iPhone would not exist. Apple has sued Qualcomm for $1 billion, but billions more could be at stake.
The battle has been brewing for years. Here is everything you need to know about the case.
How did this begin?
Beginning in 2011, Apple sold iPhones with Qualcomm chips inside that powered the device’s connection to cellular networks. For years, Qualcomm was the exclusive chip provider for Apple. But then things got messy.
What’s the issue at hand?
In addition to actually paying for Qualcomm’s chips, Apple has to pay a licensing fee for the intellectual property that enables smartphones to connect to the internet through the baseband processor. Because Qualcomm is the exclusive holder of the patents, Apple is alleging anti-competitive practices.
What went wrong?
As part of their agreement for Apple to exclusively use Qualcomm chips between 2013 and 2016, Qualcomm agreed to pay Apple a $1 billion rebate annually. Part of this agreement included Apple not cooperating with regulators, and not working with other chip makers.
As Apple improved (and raised the prices of) the iPhone, Apple reportedly became frustrated with the slice of the pie that Qualcomm was demanding, arguing that Qualcomm was riding the coattails of Apple’s innovation. Apple began exploring working with another chipmaker, Intel. It also started cooperating with Korean regulators that were looking into Qualcomm’s IP royalty policies. Then, shots were fired.
Qualcomm refused to pay the $1 billion annual fee in 2016. Apple subsequently refused to pay the royalty fees, and by 2017, switched over to using Intel chips, instead of Qualcomm.
How did this escalate to the courts?
In January 2017, Apple filed its complaint against Qualcomm, asking the courts to reduce the royalty rates, and to pay the $1 billion it owed. Qualcomm fired back with lawsuits of its own, alleging that Apple was in breach of contract for not paying royalties, and for working with Intel. What’s more, the FTC filed an antitrust suit against Qualcomm, that it prosecuted in January.
Where do the players stand legally?
The judge on the FTC case has not yet made a ruling, although she has told Qualcomm that it has to license its patents to other chipmakers — which it had refused to do before.
Meanwhile, Qualcomm won a patent infringement case against Apple related to patents involving battery life and starting up the phone. That could help set legal precedent for the main event.
What’s at stake for the companies?
Qualcomm wants its royalty money back, to the tune of $7 billion. But its whole business model—of both selling chips and licensing the IP behind the whole cellular connectivity system—is at stake.
Apple’s manufacturers, which joined Apple in the suit, and are the ones that actually pay the fees (Apple reimburses them), want $27 billion in restitution for what they think are unfair royalty payments. They could get three times that amount, if the court finds that Qualcomm has violated antitrust law.
Apple also wants Qualcomm IP fees brought down to 5 percent of the price of the chip, which would be $1.50 per device — down from $7.50.
What’s at stake for your iPhone?
This is likely to affect consumers in two ways: price and 5G connectivity.
If Qualcomm wins, Apple may raise the price of its iPhones even higher. If Apple wins, there’s no guarantee Apple won’t raise prices, but at least it has one less incentive to make them more expensive.
It could also affect when you get your 5G iPhone. Just as it did with 3G and 4G, Qualcomm holds key patents related to the mobile chip technology that will allow smartphones to connect to 5G networks. Using Intel chips, iPhones reportedly won’t get 5G until at least 2020, and maybe even later. So if Apple and Qualcomm can’t work out their differences, 5G on iPhones could still be a long, expensive way off.