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February 1, 2019updated 27 Jun 2022 10:05am

Qualcomm’s 20 Bad “Apples”: Litigation Weighs on Chip Giant

Qualcomm: "Federal Trade Commission hasn’t come close to meeting its burden of proof in this case"

By CBR Staff Writer

If there was a word that came up regularly in Qualcomm’s earnings call this week, it was “Apple”. The San Diego-based semiconductor company is locked in multifaceted legal clash with Tim Cook’s technology and services behemoth – and analysts on the conference call certainly weren’t going to forget it: Apple was mentioned 20 times. The number of times “Qualcomm” was mentioned in Apple’s earnings call, meanwhile? 0.

qualcomm appleQualcomm’s clash with Apple is costing it heavily in legal fees and clearly weighing on the balance sheet, as well as the minds of its leadership: Qualcomm executives late Wednesday said they had reduced operating expenses by $850 million, but failed to meet their target of $1 billion owing, in part, to litigation costs.

Despite revenues falling 20 percent year-on-year (to $4.8 billion for the quarter, versus $6 billion in fiscal Q1 of 2018) earnings handily beat analysts’ expectations, and the company remains bullish on resolution of the cases, particularly after courts in China and Germany found that Apple is infringing its patents.

Qualcomm CEO Steve Mollenkopf told analysts: “We believe that over the course of 2019, we will reach a resolution on the key outstanding issues in our disputes with Apple through settlement or litigation and we are prepared for both outcomes”.

Qualcomm Apple Clash: FTC Ruling Could Prove Critical

There were warning signs, however, for the company this week in a battle with the US Federal Trade Commission (FTC) that could determine the outcome of dispute with Apple. Both sides presented their closing arguments over Qualcomm’s “no licence, no chip” policy. (The company’s IP is at the heart of technology which allows mobile devices to connect to wireless systems. The FTC says it has to licence it to rivals for competitive reasons.)

qualcomm apple“The evidence is overwhelming that Qualcomm engaged in exclusionary conduct,” said FTC lawyer Jennifer Milici in the Commission’s closing remarks. “The effects of Qualcomm’s conduct, when considered together, are anticompetitive.”

Qualcomm didn’t focus on that aspect of the legality of its approach.

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Instead, it argued that there was no proof that it had hurt device manufacturers: “The FTC hasn’t come close to meeting its burden of proof in this case. All real-world evidence presented at trial showed how Qualcomm’s years of R&D and innovation fostered competition, and growth for the entire mobile economy to the benefit of consumers around the world,” said Don Rosenberg, executive vice president and general counsel of Qualcomm.

He added: “Our licensing rates – which were set long before we had a chip business, and revalidated time and again – fairly and accurately reflect the value of our patent portfolio. Qualcomm’s technology has been the foundation of a thriving, competitive industry.”

Apple meanwhile claimed Qualcomm imposed two unfair terms. Firstly, charging a patent license fee even when a customer bought Qualcomm’s own chips, a move Apple’s lawyers called ‘double-dipping.’ Secondly, charging a percentage of the total cost of the phone, rather than a flat fee per chip.

The FTC’s lawsuit accuses Qualcomm of antitrust violations by forcing chip buyers to sign patent licenses at inflated rates. Apple has called the chipmaker’s demands “onerous”. The two companies have been at legal loggerheads for two years after Apple sued, claiming Qualcomm was withholding $1 billion in rebates as retaliation for cooperation with antitrust investigators.

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