Qualcomm and Apple Suddenly Drop Litigation

Qualcomm and Apple have been embroiled in lawsuits for years, but they announced this week that they have dropped all litigation. Why?

After years of stating they would go to trial to fight it out, Qualcomm and Apple suddenly had a change of heart and released a public statement about their settlement. As part of the settlement Apple will pay Qualcomm an undisclosed sum and commit to a 6-year licensing agreement.

The lawsuits stemmed from the way Qualcomm charges for its chips. Instead of a flat-fee, they charge 5% licensing fee on the product’s total price up to $20 for use of their technology on top of purchase price of the chip. Apple used these chips in their iPhones and if they sold an iPhone for $400, they would owe $20 in licensing fees as well as whatever the manufacturer paid for the chip. Apple sued Qualcomm, arguing that this was “double-dipping” and that the only reason they were able to do this was because they essentially had a monopoly on the technology.

The two companies sparred backs and forth over the years, filing new lawsuits and expanding existing lawsuits. Qualcomm countersued Apple, claiming that Apple slowed their Qualcomm modems that were used in iPhones. In retaliation, Apple withheld payments for the patent licensing fees. This led Qualcomm to then sue apple for patent infringement.

There are currently two theories about the sudden settlement. One is that Intel could not keep its end of the deal and create chips in time for the release of Apple’s 2020 iPhone. Apple did not have the capacity to create their own chips and other companies did not appear as though they were in a position to be able to deliver on the chips by Apple’s strict deadline, therefore Apple had no alternatives, but to settle with Qualcomm to use their chips. In fact, Intel announced shortly after Apple and Qualcomm’s settlement, that they would not be making wireless modems for the 5G market.

Another potential reason has to do with the US Federal Trade Commission filing a lawsuit against Qualcomm for getting away with overcharging customers because of their top position in their market.

These antitrust and patent laws reveal the complexity of business litigation, and how typically, settling is a better solution than going to trial.