An escalating battle between Apple and Qualcomm over money and patent rights is drawing in Taiwanese contractors that assemble Apple’s iPhones.
Apple claims that Qualcomm is overcharging for patent-related license fees on iPhone sales, a point Qualcomm disputes. Last month, Apple Inc. began refusing to pay royalties until the courts determine how much it owes, a process that could take several years.
According to a federal lawsuit Qualcomm filed Wednesday, Apple has also instructed its contractors to withhold those payments and has agreed to indemnify them for damages from any lawsuits. Qualcomm has separate licensing agreements with the contractors. Qualcomm’s lawsuit says those contractors are still paying royalties for non-Apple products.
The lawsuit, filed in U.S. District Court in San Diego, names Foxconn, formally known as Hon Hai Precision Industry Co., and its subsidiary, FIH Mobile Ltd; Pegatron Corp.; Wistron Corp. and Compal Electronics Inc. The companies make iPhones and iPads for Apple.
Qualcomm previously sued Apple accusing it of breaking contracts and interfering in deals negotiated with iPhone suppliers.
“As Apple continues to collect billions of dollars from consumer sales of its Qualcomm-enabled products, it is using its market power as the wealthiest company in the world to try to coerce unfair and unreasonable license terms,” Qualcomm’s general counsel, Don Rosenberg, said in a statement.
The case underscores the influence Apple wields over the companies that make its products and parts for them. Many contractors become dependent on Apple’s business; recently, British chipmaker Imagination Technologies’ stock took a dive after it announced that Apple plans to stop using its products.
Qualcomm, which is based in San Diego, depends on licensing fees for a large portion of its revenue. Its patents cover a wide range of technologies essential for 3G and LTE cellular communications — and hence iPhones and cellular models of iPads.
Qualcomm says Apple is making unreasonable demands for licenses at below-market prices. Apple counters that Qualcomm has been abusing its power in the mobile chip market to charge for royalties on features that aren’t covered by its patents.
Apple says Qualcomm’s technologies cover a small portion of what goes into iPhones, yet Qualcomm is seeking a percentage of iPhone sales.
“They do some really great work around standards-essential patents, but it’s one small part of what an iPhone is,” CEO Tim Cook said during a May 2 conference call with financial analysts. “It’s not — it has nothing do with the display or the Touch ID or a gazillion other innovations that Apple has done. And so we don’t think that’s right, and so we’re taking a principled stand on it.”
The Cupertino, California, company isn’t alone in its accusations against Qualcomm. The U.S. Federal Trade Commission has also filed a lawsuit alleging that Qualcomm has been imposing unfair licensing terms on manufacturers.