Apple Sues Qualcomm For Extortion And $1 Billion In Back Payments

The pieces to the puzzle are starting to come together. Earlier this week, the Federal Trade Commission (FTC) hit Qualcomm with a lawsuit concerning anticompetitive practices with its licensing. The FTC specifically called out Qualcomm’s actions towards Apple, writing, “Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.”

The lawsuit from the FTC followed similar actions taken by governments in Asia and Europe.

On Friday, Apple launched the latest salvo against Qualcomm filing its own lawsuit against, alleging that the company is "charging royalties for technologies they have nothing to do with.” Apple accuses Qualcomm of extortion, and says that the chip giant has taken retaliatory steps against it for cooperating with law enforcement authorities in other countries that have filed antitrust litigation (regulators in China and South Korea have hit Qualcomm with fines of $975 million and $853 million respectively).

Because of Apple’s compliance with authorities, Qualcomm allegedly withheld $1 billion in payments.

Apple’s full statement can be found below:

For many years Qualcomm has unfairly insisted on charging royalties for technologies they have nothing to do with. The more Apple innovates with unique features such as TouchID, advanced displays, and cameras, to name just a few, the more money Qualcomm collects for no reason and the more expensive it becomes for Apple to fund these innovations. Qualcomm built its business on older, legacy, standards but reinforces its dominance through exclusionary tactics and excessive royalties. 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. 

To protect this business scheme Qualcomm has taken increasingly radical steps, most recently withholding nearly $1B in payments from Apple as retaliation for responding truthfully to law enforcement agencies investigating them.

Apple believes deeply in innovation and we have always been willing to pay fair and reasonable rates for patents we use. We are extremely disappointed in the way Qualcomm is conducting its business with us and unfortunately after years of disagreement over what constitutes a fair and reasonable royalty we have no choice left but to turn to the courts.

Not surprisingly, Qualcomm is denying these allegation (as it did with the FTC lawsuit).

"Apple has intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed and shared with all mobile device makers through our licensing program," said Qualcomm General Counsel Don Rosenberg.

"We welcome the opportunity to have these meritless claims heard in court where we will be entitled to full discovery of Apple's practices and a robust examination of the merits."

However, where there’s smoke, there’s bound to be fire. Qualcomm is one of (if not the largest) providers of processors and baseband chips for smartphones globally. While it derives revenue from these operations, the bulk of its profits come from the steady influx of royalty payments. Any interruption in this cash flow is sure to cause consternation for the company.