As opening statements were beginning in the San Diego federal trial of a long-standing patent dispute, technology giants Apple and Qualcomm announced a worldwide legal settlement Tuesday, along with a six year licensing agreement.
Qualcomm stock soared 23.4 percent to close at $70.57 following news of the surprise agreement.
“Qualcomm and Apple today announced an agreement to dismiss all litigation between the two companies worldwide,” according to a joint statement issued by the companies. “The settlement includes a payment from Apple to Qualcomm. The companies also have reached a six-year license agreement, effective as of April 1, 2019, including a two-year option to extend, and a multiyear chipset supply agreement.”
Apple had been seeking billions of dollars over what it claimed were exorbitant fees Qualcomm allegedly charged for the use of the San Diego-based wireless pioneer’s chips in iPhones, while Qualcomm alleged that Apple breached its licensing agreements to use Qualcomm’s intellectual property by refusing to pay billions in fairly charged royalties.
The settlement announcement came several hours after opening statements began in the San Diego federal court trial, with attorneys never giving any indication of a possible resolution as they began presenting their cases.
Top executives and key players from both Apple and Qualcomm were slated to testify in a five-week trial, including Apple CEO Tim Cook and Qualcomm co-founder Irwin Jacobs. Executives from contract manufacturers Foxconn Technology, Wistron Corp., Pegatron Corp. and Compal Electronics, which build and assemble iPhones, were also slated to testify, with claims that they too were forced to pay excessive royalties to the San Diego-based chip supplier.
Prior to the settlement announcement, Apple attorney Ruffin Cordell said in his opening statement that Qualcomm had unprecedented market power on modem processors, allowing them “to set unfair prices,” “stifle competition” and “impose their will on their customers.” He said the company’s licensing agreements forced Apple and other companies to pay twice for the same product — once for the technology itself and again for the license to use the technology — while issuing gag clauses in its agreements forbidding companies from cooperating with government entities conducting antitrust investigations.
Apple alleged that Qualcomm’s licensing policies are monopolistic and allow it to force phone manufacturers into unfair agreements.
This allowed Qualcomm to leverage “its market power to extract exorbitant royalties,” while only later agreeing to lower royalty rates “in exchange for additional anticompetitive advantages and restrictions on challenging Qualcomm’s power, further solidifying its stranglehold on the industry,” Apple’s trial brief states.
Richard Doren, an attorney representing the four contract manufacturers, said the companies’ hands were tied and that to secure the ever-important technology Qualcomm possessed, they were forced to acquiesce to its licensing parameters, which he described as “a Bermuda triangle where competition disappears.”
Apple also claimed that Qualcomm withheld around $1 billion in rebates it was supposed to pay Apple as reimbursement for the patent royalties, while Qualcomm alleged that Apple directed the contract manufacturers to also stop paying Qualcomm, breaching their agreements.
Qualcomm claimed Apple was committing patent infringement by using Qualcomm’s intellectual property related to thousands of patented technologies within iPhones without paying royalties.
Qualcomm alleged Apple breached its agreements “for the express purpose of inflicting financial harm on Qualcomm and coercing Qualcomm to accept unfair compensation for its IP,” according to the company’s trial brief.
In his opening statement, Qualcomm’s attorney Evan Chesler said that since Qualcomm stopped receiving royalties from Apple and the manufacturers in early 2017, its stock has “plummeted,” resulting in widespread layoffs and the cancellation of ongoing research and development projects.
Market watchers reported that Qualcomm shares soared shortly after the settlement was announced, while Apple shares rose to a lesser degree.
Chesler balked at the idea that Apple, a company he said “dwarfed” Qualcomm in terms of size and financial resources, could claim it was bullied by the chip supplier.
Chesler denied the “double dipping” accusations, stating that Qualcomm customers paid once for the chip, then again for the license to used a wide variety of other patented technologies and features now considered essential in modern smartphones, including extending battery life while using GPS, video magnification and simulated momentum while users scroll through pages.
Qualcomm denied that its licensing practices were anti-competitive and stated that its policies “have been standard in the cellular industry since its inception” and its royalty rates “have been accepted by hundreds of licensees.”
— City News Service
Updated at 4 p.m. on Tuesday, April 16, 2019