It has gone from bad to worse for mobile chipmaker Qualcom, which just days after getting sued by the US government, which accused the chipmaker of engaging in monopoly tactics over mobile phone components, was also sued this afternoon by the world’s biggest company. Apple filed a $1 billion lawsuit against its supplier, accusing Qualcomm of overcharging for its chips and refusing to pay some $1 billion in promised rebates for chip purchases. Apple said in its complaint that Qualcomm demanded onerous terms for its technology and that it withheld rebates because Apple cooperated with South Korea’s antitrust regulator, the Korea Fair Trade Commission, in its probe into Qualcomm licensing practice.
The KFTC fined Qualcomm Inc 1.03 trillion won ($854 million) in December for what it called unfair practices in patent licensing, a decision the U.S. chipmaker said it will challenge in court.
In its statement, Apple said that Qualcomm has taken “radical steps,” including “withholding nearly $1 billion in payments from Apple as retaliation for responding truthfully to law enforcement agencies investigating them.”
Apple added, “Despite being just one of over a dozen companies who contributed to basic cellular standards, Qualcomm insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined.”
“If that were not enough, Qualcomm then attempted to extort Apple into changing its responses and providing false information to the KFTC in exchange for Qualcomm’s release of those payments to Apple. Apple refused,” Apple also said.
According to the Apple complaint, Qualcomm’s terms required Apple to pay a percentage of the average selling price of an iPhone to use Qualcomm patents and to exclusively use Qualcomm chips in iPhones from at least 2011 to 2016. Apple received what it called quarterly rebates from Qualcomm under terms of the agreement, but Qualcomm began withholding those last year after Apple met with Korean regulators, the suit says.
The lawsuit is surprising in that Qualcomm is a major supplier to both Apple and its arch nemesis, Samsung Electronics for “modem” chips that help phones connect to wireless networks. The two companies together accounted for 40% of Qualcomm’s $23.5 billion in revenue in its most recent fiscal year. Furthermore, Qualcomm was the sole supplier of modem chips for Apple’s phones until the release of the iPhone 7 in September. Intel Corp supplied about half of the modem chips for the newest models, said Stacy Rasgon, a senior analyst at Bernstein Research.
Apple made the move around the same time that Samsung, which had switched to using its own internal chips for its Galaxy S6 phones, returned to Qualcomm for the Galaxy S7.
Meanwhile, Qualcomm’s legal problems continue to pile up. In February 2015, the company paid a $975 million fine in China following a 14-month probe, while the European Union in December 2015 accused it of abusing its market power to thwart rivals. In Washington on Tuesday, the U.S. Federal Trade Commission filed a lawsuit against Qualcomm, saying the San Diego-based company used its dominant position as a supplier of certain phone chips to impose “onerous” supply and licensing terms on cellphone manufacturers like Apple and to weaken competitors.
For now, Qualcomm “has been able to manage through (the Apple contract loss) pretty well because they got back Samsung at the same time,” Rasgon said, however sensing weakness how long until Samsung likewise attacks its key vendor demanding easier terms too? Judging by the modest reaction in QCOM’s stock, the market does not see that as a likely possibility.
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