Apple ‘Actively Inducing’ Its Suppliers to Underpay Royalties, Qualcomm Alleges
Qualcomm executives accused Apple Wednesday of "actively inducing" its suppliers to underpay the royalties they owe Qualcomm on shipments of iPhones and other Apple products as retribution for their bitter and now-escalating court fight over cellular modem patent licensing. Qualcomm estimates the underpayments "in the aggregate" total about $1 billion, the executives said.
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Qualcomm’s April 10 countersuit against Apple (see 1704110026) corrects “numerous misstatements and mischaracterizations” that Apple made when it accused Qualcomm in January of gouging Apple for billions of dollars in patent royalties on technologies it didn't own, Qualcomm President Derek Aberle said on a Wednesday earnings call. The counterclaim also details “the value of the fundamental technologies we have invented, contributed and shared with the industry through our licensing program,” said Aberle.
Qualcomm has “a strong track record of establishing and defending the value of our technologies that have played an important role in enabling the entire mobile ecosystem, including the incredible smartphone experience,” Aberle said. “We have freely negotiated and entered into more than 300 license agreements over many years, including with the largest and most sophisticated companies in our industry.”
It’s “unfortunate” that Apple rejected “fair and reasonable offers” to license Qualcomm’s patent portfolio, especially since “our license agreements with Apple suppliers remain valid long-term agreements, many of which were negotiated and entered into before Apple sold the first iPhone,” Aberle said. Despite the escalated Apple-Qualcomm legal fight, “Apple suppliers remain contractually obligated to pay royalties to Qualcomm under their license agreements with us, including for sales of iPhones to Apple,” Aberle said.
In Q2 ended March 26, Apple “interfered with the license agreements” Qualcomm has with Apple’s suppliers “by actively inducing them to underpay” the royalties they owe Qualcomm for product shipments they made during Q1 ended Dec. 25, Aberle said. That’s because Apple “withheld payment to their suppliers for sales in the December quarter in an amount equal to what Apple claims Qualcomm owes Apple” in royalty rebates “under a separate cooperation agreement between the companies,” Aberle said. “This was consistent with what Apple said it would do” in its January complaint, he said. Qualcomm estimates “in the aggregate,” the underpayments total about $1 billion, he said.
Most of Apple’s suppliers already reported the royalties they owe Qualcomm for sales to Apple during the quarter ended March 26, “and they are obligated to pay the full amount of those royalties to us,” Aberle said. “While we would expect Apple suppliers to pay the royalties they owe us under their license agreements, it is possible that Apple will continue to interfere with the Apple suppliers license agreements leading those suppliers to breach their contract with Qualcomm by underpaying some or all of what they owe us. We expect to have more visibility into this in the coming weeks.” Apple representatives didn’t comment Thursday.