Apple, Qualcomm spat intensifies, manufacturers drawn in

Apple, Qualcomm spat intensifies, manufacturers drawn in

Apple, Qualcomm spat intensifies, manufacturers drawn in

Qualcomm filed a breach of contract complaint against Apple's manufacturers on Wednesday, almost one month after the iPhone maker stopped paying for the chip company's patent royalties.

In a new move in the on-going dispute between Apple and Qualcomm, the chip supplier has sued four iPhone suppliers directly.

Qualcomm said the contract manufacturers are withholding iPhone royalties because Apple has refused to reimburse them, directed them not to pay and agreed to indemnify them against any damages they may incur by failing to pay royalties to Qualcomm.

"Our license agreements with Apple's manufacturers remain valid and enforceable", Don Rosenberg, Qualcomm's general counsel said in a statement.

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Apple doesn't have a patent license directly with Qualcomm, relying instead on licenses held by the contract manufacturers, whom Apple reimburses. "Despite being just one of over a dozen companies that 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".

For its part Apple claimed Qualcomm is trying to charge it for patents it never used - it wants a $1bn rebate for alleged overpayments. While the CMs, in theory, would be able to pay QCOM out of their cash balances, we note that the CMs operate on thin margins - Foxconn, Pegatron, Wistron and Compal had op. margins of 3.7%, 2.3%, 0.3% and 1.6%, resp.in Q1 2017 and their op. profits were $1,173MM, $179MM, $16MM and $95MM, resp. Processor manufacturing giant Intel, a competitor, made a similar argument, saying in its own filing that Qualcomm's refusal to license such crucial technology "continues to inflict precisely the harms that the antitrust laws seek to protect against".

Qualcomm's shares were marginally lower at $55.66 in premarket trading.

Qualcomm has accused Apple of "strong arming" the contract manufacturers to stop paying the licensing fees they legally owe Qualcomm, which is a breach of the contract between Qualcomm and the manufacturers. He likened the resistance to pay for the use of Qualcomm technology to someone walking into an Apple store and refusing to pay full price for a smartphone. "You are responsible for paying that". Qualcomm said it is seeking an order to require all of those companies to comply with "long-standing contractual obligations" to Qualcomm, and is also seeking declaratory relief and damages. Apple filed its suit in California in January.

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