
Apple Sues Qualcomm for $1B, Alleging Extortion - kelukelugames
http://www.forbes.com/sites/aarontilley/2017/01/20/apple-sues-qualcomm-for-1-billion-over-royalties/#6c5085775bc4
======
RcouF1uZ4gsC
For years Apple has insisted on charging royalties for app features they have
nothing to do with. When I make my app better and raise the price of my app, a
bigger fee goes to Apple.

Now all of a sudden, Apple finds royalties oppressive?

I am sick of large corporations getting better treatment than consumers. If
consumers can't sue pharmacy companies for using patents to set a high price
for a life saving drug, then neither should Apple be able to sue Qualcomm for
using patents to set a high price for CDMA chips not available elsewhere.

Billion dollar corporations should be left to their own negotiations without
government interference and allowed to screw over each other (as long as they
follow the law). The government should instead focus on stopping these same
corporations from screwing over consumers and small businesses.

~~~
rgbrenner
It costs money to charge users credit cards. If your app is $1, and you were
handling the credit cards yourself, that could easily be $0.30 (and increases
for higher prices). Apple gets better pricing than that obviously.. but they
also have to maintain the servers that handle/store the credit card data, etc.

And they have to review your app.. which has a real labor cost.

If your app is $50, I could understand the outrage over the price.. but most
apps are a dollar or two, and sell little to nothing.. the profits on that
have to be insignificant or nonexistent.

~~~
AnthonyMouse
> It costs money to charge users credit cards. If your app is $1, and you were
> handling the credit cards yourself, that could easily be $0.30 (and
> increases for higher prices). Apple gets better pricing than that
> obviously.. but they also have to maintain the servers that handle/store the
> credit card data, etc.

Credit card processors charge in the ballpark of $.30/transaction + 3%. And
Apple could make a single credit card charge totaling every purchase through
Apple for the month, which would make the fixed portion a fraction of what the
credit card companies charge. If Apple was charging $.10 + 3% or 5% there
would be hardly any objection.

And at Apple's scale, all the rest of that stuff costs them something like a
penny per transaction.

> And they have to review your app.. which has a real labor cost.

I'm happy to do that part myself, or go price shopping for reviewers on the
open market. How do I do that?

> If your app is $50, I could understand the outrage over the price.. but most
> apps are a dollar or two, and sell little to nothing..

And yet they charge the same percentage for the $50 app, which is _why_ you
don't see many of those on iOS -- the people who would make $50 apps make them
for PCs instead because Dell doesn't demand a third of their revenue.

> the profits on that have to be insignificant or nonexistent.

If the profits are so low, why don't they leave the market and let some other
saps compete to provide app stores?

------
protomyth
FTC complaint against Qualcomm
[https://www.ftc.gov/system/files/documents/cases/170117qualc...](https://www.ftc.gov/system/files/documents/cases/170117qualcomm_redacted_complaint.pdf)

Apple vs Qualcomm
[https://regmedia.co.uk/2017/01/20/apple_v_qualcomm.pdf](https://regmedia.co.uk/2017/01/20/apple_v_qualcomm.pdf)
from
[https://www.theregister.co.uk/2017/01/21/apple_sues_qualcomm...](https://www.theregister.co.uk/2017/01/21/apple_sues_qualcomm_for_royalty_gouge/)

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kogepathic
From my understanding almost every phone with CDMA uses a Qualcomm chip.

So why was CDMA adopted if there was only one supplier of the technology?

Telco's and manufacturers hate to have one supplier of anything, because it
means the supplier can haul them over a barrel. Sounds like Apple's complaint
is that they overpaid Qualcomm for CDMA components (among other things) after
they introduced a CDMA iPhone.

So why was CDMA adopted at all if Qualcomm controls the patents and
(seemingly) is the sole/dominant supplier of CDMA modems?

CDMA doesn't seem to be better than GSM in any technical respect.

~~~
mdasen
It's a bit complicated, but I'll try to address the issues.

First, let's say that you want to make an isosceles triangle on a sheet of
paper with the base parallel with the bottom of the page (as part of a
triangle standard). Nokia owns a patent on lines being parallel to a side of
the page. Ericsson owns a patent on figures with two sides of equal length.
Qualcomm owns a patent on angles less than 90-degrees. In order to make your
triangle, you need all three patents. You can't just go to Nokia and say,
"wonderful, you own one of the patents and I want to make a triangle according
to this standard and I'm going to compare your bid against the bids of
Qualcomm and Ericsson." Nope, you need a license from all three.

Now, they've agreed to license the technology under FRAND (fair, reasonable,
and non-discriminatory) terms. But what does that mean? The idea is that the
patents of these three companies are all needed by the standard. If I want to
implement that standard, I shouldn't get a license from Nokia and Ericsson for
their patents and then during negotiations with Qualcomm be told that they
want 99% of all my profits. That would mean the standard would go nowhere
because people would be holding it hostage. The idea is that none of the
patent holders should be able to exercise market power due to its patents
being used as part of the standard.

But given that some patents are more valuable to a standard than others, how
do we know which ones should cost what? We don't. Therein lies the problem.
Most of the time, companies like Apple negotiate bilateral agreements with
companies like Nokia, Ericsson, and Qualcomm. The only thing keeping those
three in check is the specter of court action - court action that might look
very unfavorably upon them.

But we still don't have a great definition of how exactly FRAND licensing
should work. Ultimately, I think this is a new challenge for the world that
we're trying to figure out.

\--

Now, on to CDMA. CDMA is a standard and while Qualcomm is often thought of as
the owner, the case is actually that it owns a high share of standard-
essential patents on 2G CDMA. They own a smaller share of 3G CDMA patents and
an even smaller share of LTE patents (to the point that they aren't the #1
holder of LTE IP).

Qualcomm has committed to FRAND licensing on its standard-essential patents
for CDMA. As such, CDMA isn't really single source - Qualcomm doesn't even own
all the IP for CDMA.

But the FTC is alleging that despite Qualcomm's FRAND commitment, it isn't
licensing its standard-essential patents to competing baseband developers. The
FTC is also alleging that Qualcomm is getting paid a lot more in royalties
than OEMs have to pay other holders of equivalent standards-essential patents.

\--

Let's say that consumers need a BLT sandwich to use mobile networks. I own a
patent on bacon, you own a patent on lettuce, and someone else owns a patent
on tomatoes. I say that bacon is really the hero of the sandwich and demand 3x
more for my patent. Is that reasonable? Maybe. I decide that I won't license
bacon to anyone unless they're willing to let me manufacture the sandwich on
my bread (bread having no patent). I'm capturing a lot of money for my bread
business, but I'd committed not to exercise market power like that when the
standard agreed to use my patent. But I am. You want a BLT, you're going to
need to buy it from me as I manufacture it using my bread.

More, let's say that it's 1901 and I'm the only company that makes non-stale
bread. Your customers don't want stale bread - at least not the rich ones
where you earn your money. So, I tell you that if you buy bread from other
companies for your peasant BLTs, you'll have to pay me extra money for all
those peasant BLTs or I'll stop giving you my bread for your rich customers.
Maybe the other companies could make non-stale bread with capital investment,
but if I raise the cost of their bread enough, you're not going to give them
bread orders. Which means my bread will keep getting better while their bread
doesn't improve.

Ultimately, the FTC is alleging that Qualcomm agreed that CDMA and other
standards would be standards and wouldn't be single-sourced, but now Qualcomm
is wielding its patents to try and make it single-sourced.

\--

But this really isn't about CDMA even. The FTC complaint goes into how
Qualcomm basically supplies all the premium LTE basebands. Part of this is
because of Qualcomm's practice of "no license-no chips". If you want Qualcomm
chips (which you're going to need for any premium LTE device), you need to pay
Qualcomm a license fee for non-premium baseband chipsets you get from other
companies. That differs substantially from the agreements that all the other
holders of standards-essential patents are enforcing. Normally, if I create
anti-Qualcomm to create baseband chips and license the patents from Qualcomm,
the people I sell the baseband chips to don't need a license from Qualcomm
(just as you don't pay Qualcomm a license on top of paying Apple for your
iPhone).

The FTC is noting that Qualcomm's "no license-no chips" policy has meant that
OEMs can't challenge Qualcomm in court which means that Qualcomm can charge
higher royalties than its IP should command since there isn't the judicial
threat. Losing access to Qualcomm's baseband processors during the fight would
basically doom a mobile company.

\--

Qualcomm has been using this as leverage. They make the best basebands and a
company like Apple or Samsung or HTC need access to those basebands for their
premium, profit-making products. If they can make competitive basebands less
price competitive by demanding royalties on those chips from
Apple/Samsung/HTC, then their baseband is "Total Patent Cost + Chip
Manufacture + Markup" while competitors cost is "Total Patent Cost + Chip
Manufacture + Markup + Cost of Qualcomm's Patents Again".

So, in theory: Qualcomm has chips people need. If you want a Qualcomm chip,
you must agree to pay Qualcomm royalties on any competing chips you buy making
the competing chips less economically viable. This means that a company like
Apple can't give a big contract to a competitor that gives that competitor the
chance to invest in their chips and potentially make them as good as
Qualcomm's. Which means that a company like Apple continues to be reliant on
Qualcomm. Which means they can put the onerous "no license-no chips" term in
their contract that requires royalties on purchases of competing chips. .
.which means the competing chips don't get the investment to become as good as
Qualcomm chips. . .which means Apple continues to be reliant on Qualcomm
chips.

\--

Hopefully that cleared up some of the issue. Qualcomm found itself with the
best basebands and to make sure that competitors couldn't invest and become as
good, they made sure that OEMs couldn't buy competing chips under threat of
losing access to Qualcomm's chips (unless double royalties were paid). This
also meant that Qualcomm could punch up the amount that royalties cost for
their patents because no one wanted to lose access to their chips while their
chips are the best. But their chips will always be the best if no one can give
contracts to a competitor without having to double-pay royalties. It's a
vicious cycle.

\--

As an aside, CDMA definitely had advantages over GSM. 2G CDMA had much better
voice capacity. 1xRTT was a lot faster than GPRS. EV-DO was way ahead of EDGE
and faster to market than UMTS. It was also a lot easier to deploy than UMTS.
UMTS meant clearing 10MHz of spectrum (and carriers back then often only had
20-50MHz so it meant clearing a lot of space on an already congested network).
UMTS, as a voice and data protocol, meant you had to have enough reliability
to support voice without too many faults or customers would get annoyed so you
had to wait longer before you could launch it. EV-DO only required 2.5MHz of
spectrum which was a lot easier to clear out. As a data-only layer, you could
launch it without worrying as much about it being unreliable since it wouldn't
drop calls.

CDMA definitely had advantages - heck, there's a reason why UMTS was based on
CDMA technology.

But CDMA specifically is a bit of a red herring here, in my opinion. Qualcomm
found itself in a position where it had standard-essential patents for LTE and
the best basebands. If you wanted their basebands, you had to agree that you'd
pay double royalties on competing basebands that you purchased. You had to
agree to that because you needed the best basebands for your flagship
products. Given the inflated prices and lackluster performance of competitors,
why not source everything from Qualcomm down the product line? Of course,
that's a vicious cycle since no one will get good if no one buys their stuff
to given them the money to put into R&D.

"Oh, I see you need our best-of-class basebands. . .It would be a shame if
there were a supply disruption because you didn't agree to our terms. You
don't think it's fair that we ask for double royalties when you buy competing
basebands? Well, don't use ours! Oh, right, you can't make that decision. So
pay up and don't use our competition, you hear?"

That sounds ridiculous, but the FTC complaint literally says "On some
occasions, Qualcomm has induced certain OEMs to accept its preferred license
terms using both the “stick” of threatened supply disruption and [redacted]".

\--

Anyway, excellent questions and I hope this clarified some.

~~~
glitcher
> Let's say that consumers need a BLT sandwich to use mobile networks.

Haha, yes! BLTDRM? The world needs more BLT sandwich requirements :)

Thanks for taking the time to write up such a great response. Not being very
familiar with this topic, your simple examples made this much more
approachable and were a joy to read.

------
richardboegli
Qualcomm's response:
[https://news.ycombinator.com/item?id=13449956](https://news.ycombinator.com/item?id=13449956)

~~~
meson2k
Nokia sued Qualcomm back in the day when they were the biggest mobile
manufacturer.
[http://www.nytimes.com/2008/07/24/technology/24qualcomm.html](http://www.nytimes.com/2008/07/24/technology/24qualcomm.html)
Look where they are now...

Apple needs to win with technology and innovation, not lawyers

~~~
daenney
I don't believe Nokia suing Qualcomm had anything to do with the demise of
their mobile devices unit. You'll also be hard pressed to find any analysis of
the Nokia meltdown that would suggest this, though I'm happy to be proven
wrong.

The article you've linked also notes that Qualcomm and Nokia already had a
prior agreement, but once it expired couldn't agree and ended up in court.
That's not what is going on between Apple and Qualcomm.

------
jsjohnst
Will be very interesting to find out where the truth lays. Reading this, it
very much looks like Apple is in the right, but I'm sure the truth will be
much more in the middle.

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sean_patel
Steve Jobs would never have allowed this to happen. R.I.P. :(

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ensiferum
Can we please stop posting this ad-blocker blocked shit? Thanks.

~~~
puddintane
I am still able to read the article - uBlock, chrome, windows 10 all updated
to the latest. What are you using to block ads?

