Apple Joining Google, Amazon, Facebook on Artificial Intelligence – CIO Today

By Shirley Siluk / CIO Today. Updated January 26, 2017.

On Friday, Apple filed a lawsuit in Federal District Court for the Southern District of California alleging that Qualcomm's practices have cost Apple nearly $1 billion in damages. That complaint came on the heels of two other lawsuits -- one seeking more than $145 million in damages -- against Qualcomm that Apple filed last week in China.

Qualcomm is also facing allegations of unfair and anticompetitive practices by the U.S. Federal Trade Commission. The FTC filed a complaint against the chipmaker in the U.S. District Court for the Northern District of California on Jan. 17.

'Dominance through Excessive Royalties'

The complaints center on Qualcomm's pricing and patent royalty arrangements for its broadband processors that enable mobile phones to connect with cellular networks. Qualcomm's modem chip design was used to help establish standards for the telecom industry. In return for that standardization, Qualcomm committed to licensing those technologies to other companies on FRAND (fair, reasonable and non-discriminatory) terms.

However, Apple's complaints contend that Qualcomm is charging it royalties for "technologies they have nothing to do with." That statement, contained in an email Apple sent to a number of press outlets last week, continued, "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."

Apple said in the email, "Qualcomm built its business on older, legacy, standards but reinforces its dominance through exclusionary tactics and excessive royalties. Despite being just one of over a dozen companies who contributed to basic cellular standards, Qualcomm insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined."

Most recently, Qualcomm has gone even further, withholding "nearly $1B in payments from Apple as retaliation for responding truthfully to law enforcement agencies investigating them," Apple added.

Apple's two complaints in China make similar allegations, according to a report yesterday by Reuters. Those lawsuits accuse Qualcomm of abusing its dominant position in the global chip industry and failing to license its technologies fairly as it had agreed to do.

'A Commercial Dispute over Price of IP'

In a statement issued yesterday, Qualcomm said it had not yet seen the two lawsuits filed in China. The statement included comments from Qualcomm executive vice president and general counsel Don Rosenberg.

"These filings by Apple's Chinese subsidiary are just part of Apple's efforts to find ways to pay less for Qualcomm's technology. Apple was offered terms consistent with terms accepted by more than one hundred other Chinese companies and refused to even consider them," Rosenberg said. "These terms were consistent with our NDRC Rectification plan. Qualcomm is prepared to defend its business model anywhere in the world."

During yesterday's Q1 2017 earnings call, in which Qualcomm reported year-over-year revenue growth of 4 percent and Q1 revenues of $6 billion, CEO Steven Mollenkopf noted, "Apple's complaint contains a lot of assertions. But in the end, this is a commercial dispute over the price of intellectual property. They want to pay less than the fair value that Qualcomm has established in the marketplace for our technology, even though Apple has generated billions in profits from using that technology."

In December, the Korea Fair Trade Commission imposed a fine of 1.03 trillion won ($880 million) on Qualcomm for what it called an "unfair business model" for licensing technology at the handset rather than chip level. In 2015, the European Commission also launched two antitrust investigations into "possible abusive [behavior]" by Qualcomm in connection with its pricing and licensing practices for modem chipsets.

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Apple Joining Google, Amazon, Facebook on Artificial Intelligence - CIO Today