MADISON, Wis. — A dispute that has now escalated into an epic legal battle between technology juggernauts, Apple and Qualcomm, is complex and multi-layered, its facets all loosely connected and geographically sprawling.
The simple narrative, told by Apple, is that Qualcomm has illegally maintained a monopoly over the semiconductors used in cellphones.
The U.S. Fair Trade Commission (FTC) has argued that Qualcomm customers "accept elevated patent royalties they otherwise would refuse" because they’re forced "to negotiate in the shadow of Qualcomm's threat to withhold chips." As a result, "Qualcomm collects far more in royalties than other licensors in the industry with comparable patent portfolios."
Qualcomm, of course, says this characterization turns victim into villain. In this version, Apple is bullying Qualcomm. Qualcomm believes the original $1 billion lawsuit Apple filed against Qualcomm last January — and a series of subsequent legal actions — wouldn’t have happened if Apple had kept the two companies’ contractual relationship in good faith.
Responding to Apple’s original suit, Qualcomm filed an answer in April in U.S. District Court in Southern California, saying that “Apple has engaged in unlawful tactics to avoid paying fair value for Qualcomm’s technology.”
Qualcomm characterized Apple’s suits against Qualcomm as “simply another step in its aggressive strategy of constructing commercial disputes and then claiming it has been victimized.” According to Qualcomm, Apple has taken similar legal actions against suppliers and rivals (i.e. Nokia, Samsung), accusing them of unlawful monopolies in efforts to “enhance Apple’s already formidable negotiating leverage.”
Point of no return
It’s clear that neither Apple nor Qualcomm, who both exert substantial pricing power over the costs of royalties and supplies, are inclined to willingly back down. However, setting aside two huge corporate egos, it’s instructive to dig deeper into what gives behind the bluster, in order to grasp what might have led this dispute to a point of no return.
Among the more under-reported issues is the complex contractual relationship between Apple, the biggest customer in the smartphone market, and Qualcomm, the most dominant smartphone chip supplier.
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