The tech giant Apple (APPL) has filed a lawsuit to the tune of $ 1 billion on Friday, 22 January 2017 against Qualcomm Inc. (QCOM) in the federal district court in the Southern District of California by accusing the latter of overcharging for its wireless chips and engaging in monopolistic tactics.
Apple said in the “Form many years Qualcomm has unfairly insisted on charging royalties for technologies that they have nothing to do with.” According the iPhone maker, the more money the Company 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.
According to Apple, Qualcomm, the chipmaker company and the maker of the iPhone’s baseband processor, is leveraging its monopoly position in baseband chips and overcharging for the chips and refusing to pay some $ 1 billion in promised rebate for chip purchases.
Apple said in the lawsuit “We are extremely disappointed in the way Qualcomm is conducting its business with us and unfortunately after years of disagreement over what constitutes a fair and reasonable royalty we have no choice left but to turn to the courts.”
The Apple’s lawsuit followed the US Federal Trade Commission’s lawsuit against Qualcomm filed on 17 January 2017. FTC filed the lawsuit against Qualcomm saying that the San Diego-based company used its dominant position as a supplier of certain phone chips to impose “onerous” supply and licensing terms on cell phone manufacturers.
Patrick Moorhead, president of market-research firm Moor Insights & Strategy, said the legal dispute with Apple will help determine ‘what is fair pricing for patents that Qualcomm invested heavily to develop’.
The iPhone has been hugely profitable for Apple and accounts for three-fourth of Apple’s gross profit. The lawsuit says that by making its chip supply contingent on paying patent licenses, Qualcomm managed to secure royalty terms which are not otherwise acceptable to the manufacturers.
For instance, Apple charges about $549 for an iPhone 6s with a 4.7-inch display and $649 for a iPhone 6s Plus with a 5.5-inch display. Even if the higher price is related to the larger display, and not Qualcomm’s chip, Qualcomm collects the same royalty percentage over the total selling price of the iPhone. Qualcomm also require Apple to exclusively use it chips in iPhones from at least 2011 to 2016. Apple also claims that Qualcomm’s practices deterred Apple from switching to chips made by competitors like Intel Corp.
In a counter statement, Qualcomm General Counsel Don Rosenberg called Apple’s claims “baseless” and has put blame on Apple for “actively encouraging regulatory attacks on Qualcomm’s business in various jurisdictions around the world, as reflected in the recent KFTC decision and FTC complaint, by misrepresenting facts and withholding information.”