Nothing gives a Silicon Valley tech giant, once, known for quality and integrity, a bad name like greed and deception. In pursuit of even greater profit, Apple’s actions cost more than 1,000 people their jobs and almost brought down a $100 billion supplier.
A long-time licensee of Qualcomm’s high-quality modems, Apple came to dislike the terms of the deal it had signed.
The settlement of the recent high-profile patent dispute between the companies appears have been motivated primarily by two things:
- potential loss of future 5G revenue once it was revealed that Intel could not provide the modems it needs and
- fear of public embarrassment and legal retribution for having revealed that Apple lied to break the contract with Qualcomm and cheat it out of licensing royalties.
This is an incredibly sad story for anyone who believes that unfair competition is a threat to free enterprise or that Apple represents the American technology leadership.
A Plan to Discredit
According to the Washington Post and other news sources, Apple entered into a systematic plan to discredit Qualcomm inventions and patents in a bid to reduce the cost of licensing them. This occurred while apple was generating between $40 billion and $160 billion in annual iPhone revenues (see graph).
Apple is among the wealthiest companies. Despite the potential legal risk in launching its shady “royalty reduction plan,” it apparently believed the plan represented little real legal threat to the company. Apple could lie about the patents because it could afford to lose – if it was caught. This is known as “efficient” patent infringement, i.e. it pays for some businesses to forgo a license to inventions it needs because today infringers are rarely caught or sufficiently punished.
Last year Apple became the first company to reach a market capitalization of more than $1 trillion and has $245 billion of cash on hand. It could well-afford to pay Qualcomm what it had agreed to, even thought it was a significant sum. The risks were larger for Qualcomm. The San Diego company’s stock price plummeted and it was forced to lay off 1,500 employees.
With the recent legal settlement, 2020 iPhones will support 5G networks with Qualcomm chips the primary of two 5G modem suppliers for the devices, according to analyst Ming-Chi Kuo. Samsung will be another supplier.
VentureBeat ran an excellent piece summarizing Apple’s dubious behavior. It and the Washington Post piece (linked above) are essential reading for anyone interested in technology, intellectual property or business. Read it here.
It has been reported that Qualcomm stands to generate from the settlement $9 per handset, which is as much as $6 billion in revenues or, $2 per share in earnings from the litigation settlement. It stock has risen some 30%. Apple was able to threaten the very existence of a $100 billion U.S. company, whose products it loved but did not want to pay for.
In private memos and other documents that came out after the settlement was reached it was revealed that Apple colluded to “plot and pressure” Qualcomm, a long-time Apple licensor, to reduce the cost of its licenses. Apple went so far as to put pressure on its suppliers to lie about the Qualcomm modem quality and pricing.
While Apple was paying Qualcomm to license its inventions, iPhone sales were breaking records (see graph above). It could well afford to pay the agreed upon price that for the best modems — it simply did not want to and believed it could force Qualcomm to “renegotiate” by discrediting its quality and lying about what others were paying.
Take five minutes to read the Washington Post and VentureBeat articles. You will not see Apple or its products the same way again.
Image source: VentureBeat, Qualcomm