Qualcomm may be considering nuclear option in battle with Apple
This is war.
Qualcomm, which has been in a heated battle with technology partner Apple over patent royalty payments, may be pursuing the nuclear option, according to a Bloomberg report, possibly asking the United States International Trade Commission (USITC) to block iPhone imports.
At the root of the dispute between Apple and Qualcomm are cellular communication technology patents that Apple and others license from Qualcomm for a hefty fee.
Tension between Qualcomm and partners has been brewing for months and finally bubbled over in January when the Federal Trade Commission accused Qualcomm of anti-trust practices. Essentially the deals it was making with companies like Apple were considered unfair. Part of the issue was that Qualcomm was charging Apple a licensing fee for every single iPhone, whether or not every device used Qualcomm’s cellular technologies. As of the iPhone 7, Apple started mixing in Intel baseband processors to the iPhone mix.
An investor asked Apple CEO Tim Cook why he was still withholding payments from Qualcomm, risking Qualcomm withholding future cellular modem sales to Apple or Qualcomm “potentially even getting an injunction on iPhones in select geographies around the world.”
Cook reiterated that patent-holding companies like Qualcomm must offer licenses to those patents at fair, reasonable, and non-discriminatory (FRAND) terms. Qualcomm, he noted, has not done that. Cook also made it clear that Apple believes it owes Qualcomm something, just not the amount Qualcomm is charging.
Then Cook added, “I don’t believe anyone is going to decide to enjoin the iPhone based on that. I think that there’s plenty of case law around that subject, but we shall see.”
The “we’ll see” left the door open and, indicated that, perhaps, even Cook thought Qualcomm might make this move.
Threatening to block one of the world’s most popular products might seem risky or, at least, like posturing. Perhaps this is a calculated leak intended to move this battle out of the courts and back to the bargaining table.
Some industry watchers, however, think Qualcomm is dead serious.
“I firmly believe that Qualcomm will pursue an iPhone import block and they are doing it to get paid for the IP Apple is consuming for free,” said Moor Insights & Strategy President and Principal Analyst Patrick Moorhead. “Apple isn’t going to come back to the table and Qualcomm isn’t going to change their 3gpp ETSI-agreed licensing process unless a court requires it.”
There is, however, no official evidence that Qualcomm has made such a move.
“No complaint has been filed with the Commission at this time,” U.S. International Trade Commission Public Affairs Officer Peg O’Laughlin said via email.
The lack of paperwork doesn’t mean Qualcomm, which would not comment on this story, isn’t considering the move, but it makes it seem less like a dangerous action and more like something else.
“Yes, it is a negotiating tactic,” said Analyst and Creative Strategies President Tim Bajarin, adding, “[Qualcomm] would probably not be able to get an injunction but could use this move to force Apple to be more proactive in dealing with this problem.”
Negotiating in public is nothing new and would make more sense than blocking the upcoming iPhone 8. That potentially catastrophic act would not only harm Apple — the blast waves might lay out Qualcomm as well.
Imagine how unpopular Qualcomm would be if it became the chief architect of an endless iPhone 8 delay.
Have Qualcomm execs never been on the web? Have they not noticed the endless stream of iPhone 8 rumors and speculation? There is already huge interest and pent-up demand for this non-existent device.
If Qualcomm successfully blocks the iPhone 8 (with USITC’s help, of course) — which is highly unlikely — it will be vilified across media (social and editorial), and probably be a pariah among tech partners like Samsung, which also partners with Qualcomm and exports phones to the U.S. It’s hard to imagine how any handset manufacturer would view this potential move favorably.
Qualcomm will also get paid nothing.
In effect, Qualcomm’s nuclear option could mortally wound Qualcomm. And when the dust clears, Apple would pick itself up, brush itself off, and eventually ship the iPhone 8 with Intel’s cellular technology. Someone else would end up owning Qualcomm’s patents, probably a patent troll, but Apple would still have an easier time dealing with them.