
Apple and Qualcomm’s Billion-Dollar War Over an $18 Part - SirLJ
https://www.bloomberg.com/news/features/2017-10-04/apple-and-qualcomm-s-billion-dollar-war-over-an-18-part?utm_campaign=Newsletter%20-%20Mi5M%20-%20Q3%202017&utm_source=hs_email&utm_medium=email&utm_content=56997556&_hsenc=p2ANqtz-_t_yzMZ5h4u8ExCHwqtrU36wdFXtmCmjhN87Jf2hKvrGGmGbGZh2C86l0esQP6x0tRaAGRXV998fQpGouzAqxtpadTLg&_hsmi=56997556
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yaantc
That's a very one-sided pro-Qualcomm piece.

The big issue with Qualcomm IP practice is that they don't charge IPR on the
modem function, but over the whole device. So put the same modem in a cheap
phone, or in an expensive laptop, and the IPR will be very different. This is
really charging IPR on a lot of value completely unrelated to the modem.

Historically, the cellular/3GPP world was very phone centric. The specs were
for a phone, and the chipset was really the core of the phone. At that time,
charging cellular IPR on the device embedding the chipset was reasonable: the
device was just a phone, with all the intelligence coming from the chipset.

We're obviously no longer living in such a world. But Qualcomm keeps this
practice, as it's very profitable for them and their dominant position let
them do it (so far). Apple is mad at this, as most of the value of a
smartphone is outside of the modem part nowadays (even more for a PC). Other
device makers hate it too, but don't have the muscle to go against QCOM and
can't afford alienating them. Europe is looking into it too, and will issue a
recommendation that cellular IPR is charge only on the modem subsystem, not
the including device (basically, Apple position). It will start as a
recommendation, but could become law later on.

So it looks like it's QCOM against everybody else. Considering the money
involved, I'm sure that QCOM has a pretty fat budget to push their angle.
Hello Bloomberg ;)

~~~
danjoc
>So put the same modem in a cheap phone, or in an expensive laptop, and the
IPR will be very different. This is really charging IPR on a lot of value
completely unrelated to the modem.

Pot, meet kettle. Apple charges 30% at the App store, whether I want to sell
an app for $1 or $1000.

Also, if Apple wanted, they could package the modem separately. Sell it for
$50. Again, this mirrors Apple's advice to Samsung to build triangle phones
since Apple patented a rectangle with rounded corners. Suddenly, clunky
workarounds are bad. Quelle suprise.

I really can't feel sorry for Apple. Live by the sword, die by the sword. Must
be nice to be an Apple IP lawyer. They win no matter what happens.

~~~
yaantc
This story is very Apple vs. QCOM, but I don't care much about this angle
really. What I care about is the underlying question: is it ok to charge IPR
on value added way outside the scope of the given IP? I don't think so. QCOM
does so. Apple is against. So I'm just sympathetic with Apple _position_ in
this strong debate and that's it (I'm not even an Apple user).

And I don't feel sorry for Apple. I feel sorry for all the other small
manufacturer and companies suffering from this situation, but that are too
small to make things move on their own. Apple and Samsung may not have the
purest of interest in this debate, but if they move things in what I believe
is the right direction, I'll be happy.

~~~
danjoc
>Apple is against.

In this case. Apple has a history of demanding extortionate patent licensing
fees for incredibly obvious ideas.

You seem to be missing the bigger picture. The attack on Qualcomm is against
the company, not the patents. Qualcomm snapdragons are the only competitive
ARM chips against Apple's A series.

Apple is trying to destroy Qualcomm and monopolize the market. That's not
going to help the little guys you claim to care so much about.

~~~
threeseed
> Apple has a history of demanding extortionate patent licensing fees for
> incredibly obvious ideas

When ? I am only aware of one situation in their history i.e. Android where
Apple has sought an ongoing royalty.

> Apple is trying to destroy Qualcomm and monopolize the market

What ? Apple is never going to sell their CPUs to their competitors. They are
a product company not a components vendor so not sure what market you are
referring to. Also Intel sells modem components as well.

~~~
pwinnski
Has Apple sought a royalty on Android? My belief has been that Apple refused
to license any of their patents. They've sued Samsung not to extract
royalties, but to stop them infringing Apple's patents, full-stop.

------
dheelus
An analogy for this in the real world would be tips for waiters. As a
foreigner, I'm aghast at the tipping culture in the US but more importantly, I
fail to understand why tips are calculated on a percentage basis. It is no
more effort to bring me out a $60 steak than it is to bring me a $5 coffee. So
why should I tip $12 for the steak and $1 for the coffee? To Apple's point,
they want a "fixed" tip charge. But then again, Apple charges devs 30% of
revenue from their App store when really it's (arguably) no more effort for
them to host/monitor a 99-cent app vs. $10 app.

~~~
smm2000
Throughput, expectation of service and number of tables/waiter are very
different for coffeeshop/casual diner and place that sells $60 steak. In
casual restaurant you can expect one waiter per 8 tables compared to 4
tables/waiter in fine dining place. People easily take 2x time to eat the same
amount of food in fine dining place compared to something cheaper. In fine
dining place waiters are better trained/educated (ever tried to ask for wine
recommendation at Denny's?) and dress nicer.

Higher tips per person are totally expected in fine dining place purely from
economic perspective.

~~~
dheelus
Agreed and my analogy is imperfect at best. However, assuming I am eating at a
fine-dining establishment, why should tips be percentage calculated? Shouldn't
the tip amount be the same regardless of whether I order the expensive items
on the menu or the (relatively) cheaper ones? Which is basically what Apple's
argument boils down to.

FWIW, I don't really have a dog in this race (except as an AAPL stockholder I
want the stock to do well). If any judgement mandates that the license fee be
charged on the cost of the chip and not the device, then I'd like to see that
be extended to the App Store ToS as well.

~~~
firethief
Proportional tipping is much better at aligning the waiters' interests with
the restaurant's than a flat tipping model would be; better customers get
better service.

~~~
wolco
Wouldn't tipping some amount before give better service than tipping after?
What if tipping was related to the number of services and/or difficulity of
each service?

------
mtgx
That sounds very expensive. I believe a few years ago the _whole_ SoC with the
modem included was something like $20-$25. Qualcomm is basically trying to
make Apple and others pay _almost as much_ for the modem as they would pay for
the SoC.

This is a tactic Intel itself is also very familiar with, as they've done with
their CPU and GPU bundles. I believe in some cases it was even more expensive
to buy the CPU alone, so OEMs were coerced into putting an Intel GPU into any
device they sold, whether it had another dedicated GPU or not.

I understand at some point it becomes _more expensive_ (but maybe not that
much more) to keep those separated, but at the end of the day I believe it was
an anti-competitive tactic through which Intel used its CPU monopoly to gain a
much larger portion of the GPU market than they would've gained were it not
for such bundles and price coercion tactics (and probably a few threats thrown
into the mix against the OEMs too, if they dared to use AMD chips).

I wish regulators would catch on to stuff like this early and nip them in the
bud, rather than act 10 years later, when the damage is already done, the
monopoly is already well established, and the companies are forced to pay a
fine of like 5% of what they gained from achieving that monopoly through the
anti-competitive tactics.

~~~
Shivetya
I don't think it is expensive. Qualcomm is doing everyone a service by
allowing anyone to buy the chipset from anyone else, just pay a small fee
relative to the cost of device. This lets anyone with enough capital to get
into the business and start off with good technology.

Apple simply has enough money they apparently have decided they don't have to
follow any rules they don't want. How do they handle licensing their patents?
The article made no mention.

~~~
lttlrck
This is specifically about the FRAND terms Qualcomm agreed to when their
patented methods were included the cellular standards. These methods were
included because they may have been the best way to solve the issue but more
importantly because an industry giant is ready to build chips to adhere to the
standard, helping adoption and time to market. To offset that vested interest,
they have to agree to FRAND terms.

------
alexandercrohde
You guys are making this a really irrational, really emotional "Apple vs
Qualcomm" issue. The root of the problem is not that.

The root of the problem is bad patent law. It really doesn't matter what apple
does, it doesn't matter if their CEO eats babies, the merits of a patent are
irrelevant to whether the company "feels like a baddy."

If you think apple has bad monopolistic practices in its app store, that only
reinforces the fact that our system is anticompetitive, and that both Qualcomm
should lose its patent as well as potential opening up of the IOS ecosystem.

~~~
svantana
Who said anything about a "problem"? It's a fight between corporations, I
don't see anything about this that is bad for society at large. Apple already
turns a huge profit on each phone, it's not likely that they would pass on a
potential saving to the consumer. And Qualcomm is hardly a patent troll, they
use their licence fees to fund R&D. There are plenty of problems with our IP
laws but is this really one of them?

------
aetherson
It's kind of hilarious to hear Apple bitching that when it marks up its phones
a ridiculous $100 for $20 worth of memory, it has to share its $80 profit.

Neither of these companies deserves our sympathy. They are two big amoral
profit-seeking entities wrestling for money in a way that won't meaningfully
affect your life. Whether Apple wins or Qualcomm wins or they split the
difference, it's neither justice nor injustice.

~~~
briandear
What can you do with the $20 worth of memory by itself? That $100 "markup" is
because it's part of a great whole -- a whole that took millions to engineer
and create. It isn't like Apple is just reselling memory chips.

I could buy all the raw materials that go into an iPhone, but that doesn't
mean that I personally could make an iPhone. I'm glad to pay a premium because
I don't have time to build a phone.

~~~
ianamartin
Not sure why this is being downvoted. The existence of Apple at all today is
exactly because people perceive a value greater than the sum of the cost of
parts.

This isn’t a new idea, and people put tens of billions of dollars behind this
concept every fiscal quarter.

~~~
ananthraghavan
> The existence of Apple at all today is exactly because people perceive a
> value greater than the sum of the cost of parts.

yes and Apple loves that and that's why it makes its phones notoriously hard
to repair or upgrade. that's why there are no SD card slots. that's why you
have to buy an overpriced Apple exclusive lightning earphones or connector or
whatever.

everyone is acting like the price of the phone must go up so much if it has
higher storage, like there is no other engineering option.

~~~
ianamartin
I wasn't making a value judgement about whether or not this is a good thing. I
was just pointing out that many people do find this a good thing. The product
is more valuable than the price of the components to a large number of people.
Whether or not that should be the case is better left to a different
discussion. But the objective fact is that it's true for a huge number of
people, and that provides an incentive for Apple to do more of the same.

If people were buying tens of billions of dollars worth of your product every
three months, what would you do? Make it worse? Not find ways to make it more
profitable?

I think you're incorrect about why Apple devices are not easy to repair and
upgrade. But we may have to agree to disagree or have a different conversation
about that.

------
throwaway000002
If AAPL thinks QCOM doesn't add proportional value to their phone, let them
sell their phone without QCOM ip.

Because we all know AAPL takes its proportional percentage of flesh from an
app developer for having the audacity to add value to iOS, whilst
simultaneously holding back the web.

Hypocrisy all around.

~~~
rgbrenner
Apple can't really do that (sell a phone without Qualcomm IP).

Qualcomm agreed to FRAND terms in exchange to adding their patents to the 3G
standard.

Once that happened, Qualcomm then violated their FRAND terms to create a
monopoly on CDMA chipsets, charge additional royalties, etc.

If they drop Qualcomm, then they'll have to drop CDMA support (Verizon,
Sprint, 3g, 4g).

~~~
tooltalk
in what ways did Qualcomm violate FRAND terms? Nokia, Ericsson and pretty much
everyone else uses the entire device as a royalty basis. This is a fairly
standard industry practice -- and has been so for decades.

While Qualcomm is the largest contributor of wireless standards, it is far
from a monopology.

Also note that Apple accuses of every wireless patents holders of some sort of
unfair pricing and violation of FRAND terms whenever Apple is up for license
renewal. This is coming from a company that audaciously asked about $30 per
device for a handful of frivolous design and utility patents from Samsung.

~~~
ksec
Qualcomm collect more royalty from Apple then every other wireless patents
holder combined.

~~~
tooltalk
Your source and your point being?

First, Apple doesn't directly pay Qualcomm. Apple has refused to take Qualcomm
license, though I'm pretty sure Qualcomm would love to have Apple as their
customer and start collecting license fees based on their retail price.

Second, Foxconn, Pegatron and Apple's contractors are the ones paying for
Qualcomm licenses. Their licensing agreement with Qualcomm likewise precedes
Apple's iPhone release in 2007. In another word, those contract manufacturers
pay the same royalty rate to Qualcomm whether their end-products are for
Apple, HTC, or whoever -- they all pay the same rate. Apple's rates are
probably lower given various "collation" agreements (and rebates) Apple
imposed on Qualcomm.

If you are trying to say Qualcomm unfairly charges Apple more, you need to
bring some facts.

~~~
ksec
Directly From Apple. And they have said these number of times in the public.
Apple did not bring out any thing to prove it, so i am going to take its word
they are not lying.

Those agreement also precede LTE.

You cant NOT use Qualcomm patents in LTE, but if Qualcomm were allowed to
charge whatever they wanted, then they have a monopoly case, and we have to
have somebody to define what is a fair price. Since Qualcomm are subject to
FRAND.

All these patents fee were one of the reason why HEVC started charging $100M /
year combined for their Video Codec, 20 times more the AVC / H.264. Because
they saw what 4G patents were capable of charging.

~~~
tooltalk
Sure,

1) can you cite your source? Apple is known for their sleazy wordsmithing and,
having followed their lawsuits last several years, throwing completely
unsubstantiated accusation at their opponent (see my comment about a 2012
USITC case against Samsung where Apple's own witness came out testifying
against Apple). I'd like to read it myself as I'm pretty sure there are a lot
of footnotes and modifiers that are not conveyed in one-liners.

2) whether contract manufacturers' licensing with Qualcomm precede LTE is
immaterial in this case. Any LTE handset maker sourcing those contract
manufacturers will (indirectly) pay the same rates. Apple and Qualcomm had
business "collaboration" agreements in which Qualcomm provided additional
technical, support resources and monetary compensation for sticking with
Qualcomm (see Qualcomm's lawsuit). Apple is likely paying far less than
smaller handset makers without such agreements with Qualcomm.

3) "You cant NOT use Qualcomm patents in LTE" <\-- not sure what you mean.
Qualcomm like many wireless patent holders routinely publishes their (initial)
FRAND rates and if the company is engaged in unfair licensing practices, it
would be easy to find that out. I'd like to emphasize that, contrary to
Apple's view on FRAND, FRAND doesn't mean cheap and SEP patent holders are
under no obligation to license their patents. (ETSI IPR Guide, Section 1.11
([http://www.etsi.org/images/files/IPR/etsi-guide-on-
ipr.pdf](http://www.etsi.org/images/files/IPR/etsi-guide-on-ipr.pdf)):

    
    
      The purpose of the ETSI IPR Policy is to facilitate the 
      standards making process within ETSI. In complying with the 
      Policy the Technical Bodies should not become involved in 
      legal discussion on IPR matters. The main characteristics 
      of the Policy can be simplified as follows:
    
      • Members are fully entitled to hold and benefit from any 
      IPRs which they may own, including the right
      to refuse the granting of licenses.
    

4) MPEGA licensing schemes are fundamentally different than that of the
wireless industry. For starter, theirs is based on some fixed cost per unit
which caps at 90M per year; whereas Qualcomm's is a percentage of end-user
device with no limit in quantity. Apple is allegedly paying something like $2B
per year to Qualcomm as a result. Further Apple is an active contributing
member of MPEGLA standard and most patents holders pay nowhere close to the
publicized figure due to various sales and cross-licensing agreements.

------
yoz-y
Is it a common practice in other fields to charge a percentage of final
product as a fee? To me it seems that while this can make sense to some extent
there should be a cap. If I put a modem which uses Qualcomm IP in a car should
I also pay 5% of the price?

~~~
rgbrenner
A patent holder can charge whatever they want, or even refuse to allow anyone
to license it.

The difference is that Qualcomm agreed to FRAND (fair, reasonable, and non-
discriminatory) licensing terms in exchange for their patent being included in
the standard.

Once they got their patent in the standard, now they're saying they get to
charge whatever they want.

That's the problem. That wasn't the deal they and everyone else agreed to, and
it's too late to remove their patent from the standard.

~~~
atka
There is nothing in FRAND that says what they can charge. They can charge
whatever they want as long as it is fair reasonable and non discrimatory.

~~~
robhu
Isn't the point that the R of FRAND is being violated because it is not
reasonable to charge a % of the cost of the entire device when they are
contributing only the modem.

------
wyldfire
IMO the debate over whether QCOM can/should charge based on the finshed cost
of the device hinges on which analogy you pick.

Is it the sofa from your house [1] or the powertrain that powers your luxury
automobile?

[1] [https://www.imore.com/tim-apples-ceo-
companys-2017-q1-earnin...](https://www.imore.com/tim-apples-ceo-
companys-2017-q1-earnings)

------
jimrandomh
Qualcomm's chips have a very bad computer security track record, and their
patent-enforced monopoly status makes this a serious problem. If they would go
the way of Flash and Acrobat, this would make the world much better off.

~~~
samfisher83
Qcom is not a chip company. It is an IP company that happens to make some
chips on the side. A majority of their profits are based on their IP
portfolio. As a percentage of revenue they spend more on R&D than most Tech
companies especially apple. Apple spends less than 5% on R&D. However I am not
a fan of their chips. Their chips aren't that great, but its hard to compete
with them since you have to use their patents on your radio.

It would be good if they just split the IP and Chip parts.

~~~
hajile
Qualcomm reports QCT (chips and software) separately from QTL (licensing). In
2015, their Form 10-K reported that licensing was around 30% of their income
and the rest was chips and software (see page 8).

[http://investor.qualcomm.com/secfiling.cfm?filingID=1234452-...](http://investor.qualcomm.com/secfiling.cfm?filingID=1234452-15-271&CIK=804328)

~~~
samfisher83
I think you are looking at their revenue figures. Look on page 40. 87% of the
EBT are from QTL. Despite being a small portion of its revenue the Licensing
business is a large majority of their profits.

------
donarb
"...we invented airplane mode. That patent’s out in the lobby."

Now that is truly an innovation from Qualcomm, a switch that turns off the
cell modem.

------
petraeus
Imagine if your employer paid you on your cost rather than your value. Same
concept.

------
tzakrajs
Reads like a fluff piece for Qualcomm, I wonder how much they paid.

------
guftagu
The title is too clickbaity to resist

------
bactrian
All the money spent on patent wars will be paid for by consumers. Abolish all
patents. Let the free market sort things out.

~~~
xigency
Doubtful. Did you see the graphic in the article which shows Apple's margins
on an iPhone?

~~~
prewett
Those were Apple's gross margins. Cost of goods is never the total cost, even
for retail. In Apple's case, a lot of the magic of the iPhone happens through
the effort of R&D. The media saying Apple's profit margin is their gross
margin is disingenuous and grossly misleading. Most companies' gross margins
are somewhere around 70% for products, but Apple is the one that gets singled
out.

~~~
aetherson
Apple's total profit after everything, for 2016, was $45.69B on $214.23B.
That's over 21% net profit after every expense they have, which is insanely
high. Apple's entire reputation is based on having crazy high profits for
their revenue. That you're arguing that they have ordinary profit margins is
_insane_.

And no, "most companies" do not have gross margins of 70%.

------
mkhalil
I love battles when you can't really feel sorry for either side.

As much as I or anyone hate patent trolls, one can't sit here and complain
that a percentage of the value isn't a fair price to pay if one thinks it's
okay for Apple to charge Music + App devs 30% to improve their OS + provide
content for it's users.

~~~
MBCook
App developers agreed to the 30%. Qualcomm agreed to FRAND pricing.

But that’s not what they’re charging Apple. They broke an agreement.

What Apple is doing doesn’t violate an agreement, whatever you think of it.

~~~
atka
And FRAND doesn't mean anything. It just means fair reasonable and non
discrimatory. If Qualcomm charges everyone the same then how is this not met.

~~~
MBCook
Just because they charge everyone the same thing doesn’t make it fair or
reasonable.

What if they sold their chip for $10 and sold licenses to the necessary
patents for $100/unit?

That’s not fair or reasonable. It’s one kind of situation FRAND was designed
to prevent.

------
jeffdavis
I don't understand what the problem is. Qualcomm invents something, patents
it, and then they have a monopoly.

Apple's answer should be to open their own EE labs and start inventing things
and getting their own patents. Instead, they complain and go to court.

Of course, that assumes the patents are good ones.

~~~
dpark
> _I don 't understand what the problem is. Qualcomm invents something,
> patents it, and then they have a monopoly._

Apple's assertion is that the pricing is not Fair or Reasonable, which
Qualcomm agreed to as a concession to make their patents part of the cellular
network standards.

> _Apple 's answer should be to open their own EE labs and start inventing
> things and getting their own patents. Instead, they complain and go to
> court._

Apple cannot simply invent their own cell technology and have it work with the
cellular networks that actually exist.

~~~
hajile
Qualcomm's R&D budget is around 25% of net sales. Google, Cisco, Intel, and
Microsoft (for example) are considered big spenders, but they only spend
12-15% of net sales (apple spends 2.2% of net sales on R&D).

Qualcomm sounds a lot more fair and reasonable than any of the other multi-
billion dollar companies I know of.

~~~
AlphaSite
Actually don’t they spend 5-7%? It’s not huge percentage wise, but it’s still
10billion.

~~~
hajile
My number was taken from another source (I lost it). You can get higher or
lower numbers by comparing to other things. For an apples to apples comparison
(latest Qualcomm data I found was 2015) gives 3.4%.

[http://appleinsider.com/articles/15/10/28/apple-rd-
spending-...](http://appleinsider.com/articles/15/10/28/apple-rd-spending-
hit-81b-in-2015-suggests-continued-work-on-massive-project)

