Qualcomm accuses Foxconn & other Apple suppliers of breach of contract

Chipmaker Qualcomm on Wednesday leveled a complaint against Foxconn and three other Apple manufacturing partners, accusing them of breaking licensing agreements by not paying due royalties.

The other parties include Pegatron, Wistron, and Compal, Reuters said. Qualcomm normally charges royalties to Apple's manufacturers, which are then compensated. In April, however, Qualcomm revealed that Apple was withholding that compensation, and accordingly the manufacturers are refusing to pay down the chain.

"While not disputing their contractual obligations to pay for the use of Qualcomm's inventions, the manufacturers say they must follow Apple's instructions not to pay," Qualcomm elaborated in a statement.

The company is pursuing an order that would force the manufacturers to comply with their contracts, as well as pay relief and damages.

In January, Apple launched a $1 billion lawsuit against Qualcomm, arguing that it was abusing its market position to obtain unfair royalties, and bullying chip buyers into signing patent licenses. A countersuit began in April, accusing Apple of breaking contract and wanting to pay less than market value for patents.

Before Apple began withholding 2017 royalties, the company was already withholding $1 billion from 2016 sales. Qualcomm offset the damage by holding back money it owed Apple under a cooperation agreement.

12 Comments

Rayz2016 6957 comments · 8 Years 🧟

About 7 years ago

I have trouble understanding how this is supposed to work.

They charge Pegatron for using their tech when making devices for Apple.
So what is Apple being charged for if the don't manufacture devices themselves?

I have no idea what the agreements said, but it looks to me like they can charge Apple or charge Pegatron, but I don't see how they can charge both companies for making the same unit.

adrayven 460 comments · 12 Years ☠️

Rayz2016 said:

I have trouble understanding how this is supposed to work.

They charge Pegatron for using their tech when making devices for Apple.
So what is Apple being charged for if the don't manufacture devices themselves?

I have no idea what the agreements said, but it looks to me like they can charge Apple or charge Pegatron, but I don't see how they can charge both companies for making the same unit.

Thats what the dispute is about, it's forcing royalties to be paid both by suppliers and the OEM (Apple) at same time.. Qualcomm is double dipping and basically holding the market hostage since its the only game in town; even though these patents are under FRAND.

Apple has started to buck this and play hardball.

and now, the EU has declared Qualcomm a monopoly in this space.. That does not bode well for them. With Google and others weighing in as well about Qualcomm's abuse of their position, I honestly think they might loose this one.

rotateleftbyte 1630 comments · 12 Years ☠️

Rayz2016 said:

I have trouble understanding how this is supposed to work.

They charge Pegatron for using their tech when making devices for Apple.
So what is Apple being charged for if the don't manufacture devices themselves?

I have no idea what the agreements said, but it looks to me like they can charge Apple or charge Pegatron, but I don't see how they can charge both companies for making the same unit.

double dipping.

You need to pay royalties to use the chips supplied by QC in order to build the devices.
You need to pay more royalties to use those devices that contain QC supplied chips and in the case of the iPhone these royalties are proportional to the selling price of the device.

I've never understood the reason for the 1st payment. I remember this being extensively covered back in the day on Groklaw. (www.groklaw.net)
Seems to be a common practice but so far I've never fully uinderstood why this is done.
If I were Foxconn, then I'd probably withold the payments but put them in escrow pending the outcome of the various QC patent cases. Many litigants accept this practice as you have shown intent to pay. IANAL and all that cr*p.

williamh 1044 comments · 13 Years ☠️

From what I read earlier, Qualcomm was also violating their FRAND obligations through a sort of kickback scheme. Qualcomm is required to license the patents in a non-discriminatory fashion. As I understood it, to inflate the price they were charging some customers, they entered into agreements with other customers according to which they would pay the inordinately high price and have a portion refunded back.

In my area where there are a lot of legislators, Qualcomm is running radio adds claiming to have invented everything related to cell phones that we enjoy today and to be sharing that technology with everyone. I'm sure the folks at Motorola and Bell Labs who actually invented cell phones must have something to say (if they're still alive). Regardless of who it is, I find the lobbying pretty nauseating. (Do we really need to hear commercials for fighter planes, really?)

tshapi 372 comments · 13 Years ☠️

Look at it this way. I think The royalties are for use of the name and such. I imagine Foxconn uses the Qualcomm name in marketing or viewing, sensitive company information and such I.e. "We are a proud licensed manufacturer of Qualcomm this or Qualcomm that, or I think Qualcomm forces them to pay for this right.

Either that or Apple is splitting the royalties costs among itself and Its suppliers so as to not have to pay the full cost in exchange for letting them make money off building Apple products...