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Apple vs Qualcomm: Who will win this legal war over intellectual property? IP Matters by Senator Ihenyen, Lead Partner, Infusion Lawyers--Intellectual Property Law Firm in Nigeria

Apple vs Qualcomm: Who will win this legal war over intellectual property?

Apple and Qualcomm—two tech giants—are in a legal war. At the heart of this war is intellectual property. And at the rate it is going, it looks like this is going to be another long and vicious war—just as it was with Apple and Samsung.

  

Apple is Qualcomm’s biggest customer and Qualcomm is Apple’s wireless-chip supplier.

 
Apple is Qualcomm’s biggest customer. It’s rated the world’s most valuable brand. By revenue, Apple is the world’s biggest information-technology company. It is also the world’s third largest mobile-phone manufacturer, coming after Samsung and Huawei. 
 

Qualcomm is Apple’s wireless-chip supplier. It’s an American multinational semiconductor- and telecommunications-equipment company that develops wireless technology. It also designs chips for mobile phones. Qualcomm has key patents in CDMA and OFDMA technologies—the backbone of all 3G and 4G networks. It licenses these patents to smartphone manufacturers, including Apple, LG, and Samsung.

 

Things fell apart when Qualcomm—who was until now the apple of Apple’s eyes—lost its place when Apple appeared to have eaten the forbidden apple: monopolistic contracts, extortionist pricing practices, patents infringements, and other poisons alleged against Qualcomm.
 

It’s a legal war over intellectual property—who owns what; what is payable as royalty for what; and who Apple can work with or not work with under Qualcomm’s exclusive patent-licensing contract. This picture makes Apple look like an unhappy wife who badly wants a breath of fresh air from a jealous husband. But is this the true picture? 

 

Apple has sued Qualcomm in 3 countries—China ($145 million), United States ($1 billion), and United Kingdom for 3 major reasons.

 

First, Apple alleges that Qualcomm charges big royalties for Apple’s use of its wireless technology. Second, Qualcomm requires Apple to pay to it a percentage of revenue from Apple’s iPhone. This is in return for Apple’s use of Qualcomm patents. Apple believes Qualcomm is biting too much off Apple, hence the legal action against Qualcomm. Third, Apple alleges that Qualcomm’s Snapdragon mobile-phone chips infringes on Apple patents.

 

Qualcomm has not only counterclaimed but also countersued, claiming patent infringements on 3 major grounds.

The first and second grounds relate to Qualcomm’s allegation that Apple uses Qualcomm’s patent which make iPhone battery lives longer. The third ground is that Apple iPhones containing Intel-made chips violate its patent, thus should be banned in the US. Qualcomm also wants both manufacturing and sale of iPhones to be banned in China. Qualcomm has also sued Apple for 5 other issues. One of these issues is that Apple is deliberately not using Qualcomm’s chips in iPhone 7 products so they don’t outperform Intel-made modems used in iPhone 7. Qualcomm is also unhappy about Apple’s role in Qualcomm’s misfortunes with regulators who have been fining Qualcomm based on alleged facts misrepresentations and false statements by Apple.

 

The dust and earthquake both parties have caused in the ongoing legal war have attracted regulators’ attention.

This should be expected. Both Apple and Qualcomm are big tech kingdoms. Anti-trust regulators would be concerned about how Apple and Qualcomm’s nature of business relationship may hurt competition in the wider domain. In Europe, regulators discovered that from 2011 to 2016, Qualcomm had been paying Apple to use its chips and keep its fingers off competitors’ chips. Qualcomm was fined $1.2 billion a few days ago. 
 

 

Though the Apple-Qualcomm legal war may have just begun, I briefly draw below 4 points you need to note.

 
  1. In the knowledge economy, the intellectual-property rights owner wields enormous powers and controls competition. In the ongoing legal war, notice that though Apple is the world’s third largest mobile-phone manufacturer, it does not own all makeup of its phones. With IP, Qualcomm is able to license its patents in chips and other wireless technologies to Apple. It also does so with Samsung and Huawei. In 2016 alone, Qualcomm’s licensing unit made $7.7 billion revenue and generated $6.5 billion profit before tax. This is 85% profit margin. 
  2. When you are Apple big in global market, you don’t want to pull the plug on your customers. Though Apple and Qualcomm are in a legal war, Apple is still using Qualcomm’s modems in its iPhones. Apple is the world’s most valuable brand. To drop Qualcomm for Intel as it appears to be doing now, it has to be gradual. In fact, Apple already has Intel on its marital bed with Qualcomm by using Intel modem in its iPhone 7. Qualcomm is mad about this, especially because according to Qualcomm Apple has deliberately kept iPhone 7 variants with superior Qualcomm modems working at equal capacity with iPhone 7 variants with Intel’s relatively inferior modems.
  3. IP business will increasingly become the world’s biggest companies’ business model, especially in the technology space. IP business models attract little or no margins. This is why 85% of Qualcomm’s revenue in 2016 alone represents profit. Amazon, Ali Baba, Facebook, Google, Microsoft, and other info-tech companies may become completely IP businesses in a few years, turning themselves into ecosystems.
  4. If the clients you supply or license hardware or software to believe your contract with them is no longer in their best interest, they will either get another supplier or create their own technology, sooner or later. Your competitors will also be watching closely. In 2016 and 2017, Apple approximately splitted the chips it used for its iPhones and iPads between Intel and Qualcomm, 50-50. This year, Apple is designing its iPhone and iPad  devices to work without any Qualcomm chips. Of course, Intel—Qualcomm’s competitor—is positioning itself in the wireless-technology market, looking to keep filling the gap caused by the legal war between Apple and Qualcomm. 
 

Any lessons for computer-hardware and mobile-phone manufacturers, and technology companies? 

 

Yes, from the 4 points just discussed above, I got 4 lessons below:

 
  1. Optimize your business model to enable your technology company maximize your IP such as patents and copyright in software. Without building your IP portfolio, the bigger your business gets, the bigger the cash you would be paying companies who own the IP you neither built nor protected. This is why in a burgeoning technology space like Nigeria, pioneers like SystemSpecs and CWG need to take their IP seriously. New players are no exception. Learn from Apple’s experience. Apple is now investing in its own technology in 2018, while also fighting against Qualcomm’s monopoly. 
  2. Closely related to the lesson above is the need for technology companies to transform their businesses to IP businesses. When your business becomes IP business, you keep your marginal costs significantly low while putting your business on a growth track. Learn from Qualcomm who is making over 500% more profit from licensing patents than selling chips. But ensure you never stop being the apple of your client’s eyes. 
  3. If you are in a consumer marketparticularly—invest greatly in your brand. When you do, you will win trust and confidence in the market, even when you are in the ring with a Floyd Mayweather in your industry. Qualcomm is Floyd Mayweather. But Apple can take blows from Qualcomm and still avoid a knockout. Why? Apple has deepened brand loyalty so much that completely replacing Qualcomm with Intel or its own technology may not hurt Apple as badly as Qualcomm would be hurt from Apple’s point-strong punches in the right places. How? Qualcomm’s shares were down 13% since Apple filed its lawsuit exactly a year ago. It went down by another 8% when Apple announced in October 2017 that it was going to swap chips.
  4. Businesses in Africa—with their eyes on the ball in today’s knowledge and digital economy—must learn to invest in building their IP assets such as their brand and technology, not just big buildings, cars, and equipment. They must learn to own what they must own and acquire rights in what they need, while they invest in research & development (R & D) for sustainable growth and development. Samsung, Huawei, Apple—in that order—do not own all they sell, yet they are the 3 biggest mobile-phone manufacturers in the world. While they benefit from Qualcomm’s patents, they also invest in R & D. Big businesses that fail to invest in R & D today cannot be bigger than the buildings they do business in.
In IP matters, it’s never too early because IP matters to business and development, any day. 
 

 

IP Matters, Week Four, 2018
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