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Qualcomm Legal Feud With Apple Has First Major Day In Court

The Qualcomm headquarters building in San Diego, Nov. 2, 2011.
Associated Press
The Qualcomm headquarters building in San Diego, Nov. 2, 2011.
Qualcomm Legal Feud With Apple Has First Major Day In Court
Qualcomm Legal Feud With Apple Has First Major Day In Court GUEST: Mike Swift, chief global digital risk correspondent, MLEX

A battle between high-tech giants is taking place in federal court in San Diego. Last writing lawyers for Apple and Qualcomm -- squared off with Qualcomm asking that Apple the order to resume royalty payments. Apple sued over unfair business practices in the way that it charges twice for smart phone chips. If Apple wins, it could slightly lower prices for smart phones but damage the ability for Qualcomm to continue research and development into advanced technology.Joining me is Mike Swift for this.These lawsuits are complex. Can you boil down the issues in these lawsuits?The central issue is, how to apportion the value of a smart phone? Is invaluable because of built-in features such as the camera, the operating system, the security? Or is invaluable because it can connect to the Internet at any time? That's what they are fighting about. Apple said Qualcomm is rewriting on its innovations with the actual phone technology such as the camera. QUALCOMM says that Apple was a newcomer to the mobilephone business when the iPhone was introduced in 27. It was able to grab a big piece of the market quickly because of the 20 years of research and development that Qualcomm had -- Qualcomm did previously.No, Apple claims that Qualcomm charges twice for the smart phone technology -- once the chip and again for the royalty -- the intellectual property for using the chip. Is a common practice in the industry?The word, unique, is attached often to the Qualcomm business model. Qualcomm is the potentially dominant supplier of wireless conductivity -- this processors that allow iPhone to connect to a cell network. Essentially term that Apple has been using is that Qualcomm is double dipping because Apple pays for the chips and they also have to pay license fees on Qualcomm's patents attached to the chips. Apple is a saying it's an unfair proposition.I've heard it described as going to the store and paying and then when you go home you also have to pay to make the cake out of the flour.That is the allegation from Apple. Qualcomm's defense is that Apple would not have become so valuable without 20 years and billions of dollars in research and development to allow these chips to go into an iPhone and allowed to connect with the quality that it does. That's something the court will have to untangle and there are two sides.Reporter: How much hit have they taken since Apple decided to stop these payments in January?In the last report they came out in July, Qualcomm said the license revenue was down 42% or roughly $1 billion. That's just for one quarter. That's a hefty hit. Apple, by bringing the litigation to courts around the world and the UK and China and Japan and Taiwan as well as the U.S., has put some dramatic pressure on Qualcomm.One of the key things that Qualcomm is trying to do now is to get the judge in San Diego to freeze the cases going on in other courts and to determine that the court in San Diego will be the final venue to adjudicate this worldwide dispute. We don't know yet what the judge will do. It is likely he will rule in the next few months on the request. That's going to be a critical decision for Qualcomm.Reporter: The future for Qualcomm would depend on the profits they received from the royalties in order to fuel their research and development. Could it be high-stakes for the future of advanced cell phone technology, depending on the outcome of the case?That is the argument from Qualcomm. That we are the cost of going to the next wireless standard which will be 5 G and that will kicking around 2019. The argument from Qualcomm Friday was that Qualcomm is leading the technology development for 5 G and that will ring a tremendous amount of public and if it in terms of connected cards and medical technology. It will be a pastor, higher bandwidth than you can help with 4 G or LTE. Because Qualcomm fuels are and indeed through its patent licensing revenue, this could affect everyone because it could slow down the development of 5 G.With her that is valid or not -- you could say there are many other companies developing this technology. It doesn't just have to be Qualcomm. That is what Qualcomm is asking the judge to agree upon. We will see if he does.I have been speaking with Mike Swift from MLex.

Lawyers for Qualcomm and Apple faced off in a San Diego courtroom on Friday. It was the first major hearing in a multibillion-dollar antitrust lawsuit accusing Qualcomm of charging royalties for features that are not covered by its patents.

The suit is one of 11 that Apple has brought against Qualcomm in five countries, alleging that the chipmaker improperly charges smartphone manufacturers a licensing fee on top of payments for the chips themselves.

“Apple is saying it’s like, if you buy a pound of flour the assumption is you have a right to use it,” said Mike Swift, chief global digital risk correspondent for MLex. “The allegation is Qualcomm is double dipping. They charge for the chips and then for the right to use the chips. They say it’s an illegal business model.”


Apple stopped paying Qualcomm earlier this year, leading to a decline in Qualcomm’s profits. Qualcomm argued Friday that the suit has inspired another top manufacturer to stop royalty payments as well.

“It’s hard to read the impact on consumers. But it’s huge for the city of San Diego. Qualcomm’s profits are mostly due to its intellectual property,” Swift said. “Qualcomm says the move to 5G (mobile internet standards) is at stake. It’s funding R&D with its patent licensing business.”

Swift joined KPBS Midday Edition on Tuesday with more on the patent battle.