Qualcomm is suing the four companies Apple uses to make iPhones and iPads for failing to provide royalty payments, after they received instructions from Apple not to pay.
The lawsuit names Foxconn, Pegatron, Wistron, and Compal, all of which Qualcomm says have stopped paying royalties for patented technologies used in Apple’s products.
Apple instructed the four companies not to pay while it litigated a patent fight — which includes lawsuits in the US, China, and England — against Qualcomm. Apple says Qualcomm has been abusing its position as the dominant supplier of smartphone modems to charge unreasonably high rates to license its patents. Evidently, it’s hoping not to pay until a judge weighs in.
Qualcomm says Apple agreed to cover lawsuit costs for its suppliers
Qualcomm is now attempting to flip the script, with the company’s general counsel, Don Rosenberg, saying that Apple is abusing its position “as the wealthiest company in the world to try to coerce unfair and unreasonable license terms.”
Asked for comment, Apple pointed to a statement made by CEO Tim Cook during a recent earnings call. Qualcomm, Cook said, is “trying to charge Apple a percentage of the total iPhone value” when its technology is only “one small part of what an iPhone is.” In an earlier statement, Apple said it had been trying to negotiate with Qualcomm for five years and that it had finally decided to withhold payments “until the correct amount can be determined by the court.”
The string of lawsuits kicked off with what could pose an even bigger problem for Qualcomm: a lawsuit from the US Federal Trade Commission, which accused Qualcomm abusing its market position much like Apple has claimed. Samsung and Intel both filed briefs earlier this week backing the FTC.
Qualcomm claims that Apple agreed to cover any monetary damages its suppliers incur for refusing to pay royalties and potentially breaching their contracts with Qualcomm. Asked for confirmation, an Apple spokesperson said “I'm not aware that's strictly correct.”
If Apple is covering some of the damages, it would mean Qualcomm is using this latest lawsuit not just as a way to recover lost payments, but as an attempt to get back at Apple. Qualcomm says it’s already filed a separate claim against Apple directly for “unlawful interference” with its licensing agreements.
The withheld payments pose a $500 million problem for Qualcomm in this quarter alone. After learning that Apple’s suppliers were refusing to pay up, Qualcomm had to lower its revenue guidance for the quarter, and similar dips could show up each coming segment until this legal battle is played out.
Update May 17th, 10:59AM ET: This story has been updated to include comments from Apple.