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Apple's IPhone Manufacturers Join Fight against Qualcomm

Qualcomm is asking for payments in excess of what it would normally receive, Apple, Compal Electronics Inc., Hon Hai Precision Industry Co. and others said in court filings. If successful, the counter-claims could cost Qualcomm billions of dollars in refunded fees and damages.

Authors: Ian King, Susan Decker and Aoife White

Apple Inc. and its Asian contract manufacturers are hitting back at Qualcomm Inc. with legal claims that try to undermine the chipmaker's attempt to force them to pay licensing fees.

Qualcomm is asking for payments in excess of what it would normally receive, Apple, Compal Electronics Inc., Hon Hai Precision Industry Co. and others said early July 19 in court filings. If successful, the counter-claims could cost Qualcomm billions of dollars in refunded fees and damages, Apple said.

Also on July 19, Qualcomm said it had filed two new patent-infringement suits against Apple, this time in Germany. The patents, for ways to transmit information without draining battery life, are the European counterparts to those that are part of a case Qualcomm filed with a trade agency in Washington seeking to halt imports of Apple products into the U.S. market.

The filings, in California as well as Germany, represent the latest escalation in the dispute between Apple and  Qualcomm over fees the San Diego-based company charges on all modern phones, even if the device doesn't have one of its chips. That revenue stream has made it one of the richest companies in the industry.

The dispute first surfaced in January when Apple filed a lawsuit accusing Qualcomm of overcharging it billions of dollars as part of illegal business practices. That followed the U.S. Federal Trade Commission lodging an antitrust case accusing Qualcomm of "illegally maintaining a monopoly for semiconductors used in mobile phones." The FTC cited the fraught relationship between the two companies.

The contract manufacturers, which were dragged into the fight when Qualcomm sued them separately for payments owed by Apple, are now siding with the iPhone maker to make sure they're not saddled with the fees.

Apple's key contention is that Qualcomm is asking the court to force the contract manufacturers to pay licensing fees due on iPhones above the level the chipmaker normally receives. Qualcomm has counter-sued and has asked the U.S. International Trade Commission to block versions of the iPhone that aren't built with its chips from entering the country.

The manufacturers -- Compal; Hon Hai Precision and its Foxconn subsidiary; Pegatron Corp.; and Wistron Corp. -- denied violating any payment agreements. They called the Qualcomm suit against them "yet another chapter of Qualcomm's anticompetitive scheme to dominate modem chip markets, extract supracompetitive royalties, and break its commitments to license its cellular technology on fair, reasonable and non-discriminatory terms."

In separate filings, the manufacturers and Apple also objected to a Qualcomm request that the handset makers be forced to continue making payments while the dispute continues. There's no harm to Qualcomm waiting to get paid until the court determines the correct amount, they said.

Qualcomm by all accounts developed technology that's key to the fundamental way wireless devices communicate. The debate is how much that technology is worth, especially as phones become ever more complicated.

The chipmaker has contended that Apple instigated regulatory actions against it around the world by lying to government officials. Apple, in court filings, said it only testified in hearings in South Korea because it was asked to do so by officials there.

That's a key part of the arguments between the two. Qualcomm is withholding about $1 billion Apple says it's owed in rebates. The chipmaker is citing Apple's testimony against it in South Korea, where the Korea Fair Trade Commission found it guilty of antitrust violations, as a breach of contract and justification for not paying.

Unlike other phone makers, Apple doesn't have a direct license with Qualcomm and has paid via its suppliers. Each side contends the other failed to make good-faith negotiations for a license.

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