Apple Contract Manufacturers Sued By Qualcomm Over Royalties
Qualcomm has filed a lawsuit against four Apple suppliers based in Taiwan alleging breach of contract. The four contract manufacturers are Compal Electronics Inc, Wistron Corp, Pegatron Corp and Foxconn Technology Group, all of whom build iPads and iPhones for the Cupertino, California-based tech giant. In the suit Qualcomm claims that the four Apple suppliers have refused to honor their obligations by not paying patent royalties owed to the chipmaker.
Unlike in the case of other mobile device firms, Apple does not license Qualcomm’s technology directly but instead pays its suppliers who then go on to pay the chipmaker. Now Qualcomm is accusing Apple of failing to pay its contract manufacturers amounts that were meant to cover the royalties.
The dispute between Apple and Qualcomm has been ongoing for years and the latest development has been caused by Apple losing patience with the chipmaker. This is according to a statement that the iPhone maker issued in the past.
“We’ve been trying to reach a licensing agreement with Qualcomm for more than five years but they have refused to negotiate fair terms,” read the Apple statement.
The bone of contention has been the method Qualcomm uses to charge for use of its patents. At present the licensing fee is calculated based on a device’s selling price meaning the chipmaker gets a certain percentage from every iPhone sold. Now Apple wants the licensing fee to be based not on the price of the entire device but on the price of the particular semiconductor made by Qualcomm. For Qualcomm this could mean significant loss of revenue since it would mean the base would change to tens of dollars from hundreds of dollars.
Apple’s argument is that the retailing price of the entire smartphone involves innovation and technologies that Qualcomm has not contributed to and therefore not deserved. But Qualcomm has countered that argument saying that its technology is fundamental and without it the smartphone wouldn’t exist. Furthermore, Qualcomm argues, that licensing-fee charging practice is the industry standard and is already established in law.
With the dispute escalating Qualcomm was last month forced to lower its guidance on third-quarter earnings.