Qualcomm’s legal skirmishes with Apple over the last year have bruised its most profitable business, charging companies to use patents central to the ability of modern smartphones to connect to cellular networks. Apple contends that Qualcomm uses its leading position in smartphone chips to overcharge on royalties. Because of that, Apple has refused to pay billions of dollars of fees over the last two years.
On the other hand, Qualcomm has argued that Apple is infringing on its intellectual property by not paying patent royalties—an argument that Qualcomm said had been validated by a Chinese court. The San Diego, California-based company said on Monday that the court had banned the sale of some iPhones in China. The decision could deal an expensive blow to Apple’s hardware business.
“Apple continues to benefit from our intellectual property while refusing to compensate us,” Don Rosenberg, the company’s general counsel, said in a statement. “These court orders are further confirmation of the strength of Qualcomm’s vast patent portfolio.” The patents cover the ability to adjust and reformat photographs and manage applications on a smartphone’s screen—not cellular communications.
The patent violations target the last three generations of Apple iPhones, not its latest line of smartphones, according to Qualcomm. That includes the iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X. The order is limited to Apple’s ability to sell some smartphones in China. The company is still allowed to manufacture them inside China and sell them in other markets around the world.
“Qualcomm's effort to ban our products is another desperate move by a company whose illegal practices are under investigation by regulators around the world,” Apple asserted in a Monday statement. “All iPhone models remain available for our customers in China,” Apple added, without specifically explaining why it believed its smartphones were not in violation of the court order.
Qualcomm’s legal battles with the iPhone manufacturer started last year after Apple accused the semiconductor giant of overcharging for the use of its vast trove of patents. In addition, Apple charged Qualcomm with withholding almost $1 billion in contractual rebate payments. Over the last year, Apple has pointed to Qualcomm’s skirmishes with international regulators over its licensing business to support its argument.
Qualcomm—which says that the company owes more than $7 billion in royalty payments—has accused Apple of infringing on various patents. Qualcomm is trying to pressure Apple into ending the legal hostilities that have scarred its licensing business over the last two years. Apple also stopped using Qualcomm’s modem chips in the latest iPhones, going with rival components from Intel instead.
Apple is aiming to lower Qualcomm’s licensing fees, which are calculated as a percentage of the wholesale price of a smartphone, whether or not Qualcomm’s chips are inside or not. Apple argues that these device-level licensing fees should be replaced by payments based on the price of Qualcomm’s chips, which can cost hundreds of dollars less than a smartphone. That would significant cut into Qualcomm’s profits.
Qualcomm has struggled financially over the last year. The company said that it had revenues of $5.8 billion in the fourth quarter, down from $5.9 billion in the same quarter last year. Last month, Qualcomm said that its annual revenues grew from $22.3 billion to $22.7 billion in 2018. Losses were around $4.9 billion, a nosedive from $2.5 billion of profit last year, according to chief financial officer George Davis.