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Qualcomm sued four Taiwan-based Apple suppliers in a US federal court yesterday, escalating its row with Apple over patent licensing terms. The chipmaker says that Foxconn, Wistron, Compal and Pegatron are all withholding royalties owed on Apple products at the direction of the Cupertino company.
Qualcomm alleged in April that Apple had interfered with several of its standing licensing agreements by inducing certain of its suppliers to “underpay” patent licensing royalties they owed to Qualcomm for the December 2016 quarter. Its complaint yesterday says that for the first quarter of 2017, all four companies stopped paying royalties owed for Apple products altogether. While the total outstanding royalty figure is redacted, the amount Apple is trying to claw back from Qualcomm is apparently $1 billion.
The four Taiwanese companies clearly find themselves in a somewhat unenviable position – violate the terms of a longstanding licence agreement or fork over huge unbudgeted-for sums and hope Apple pays them back. Qualcomm asserts that Apple has indemnified the four suppliers for any damages they might incur by breaching their licence agreements, but said: “Apple’s strong-arm tactics, while unethical and unlawful, are not an excuse” for its suppliers’ actions.
Qualcomm held a press availability in Taipei yesterday to explain the reason for the new lawsuits, at which it stressed Apple’s role in coordinating the non-payment of royalties and said its business relationship with the four manufacturers would continue in the future. “Their gripe, their issue, appears to be with Apple,” Qualcomm General Counsel Don Rosenberg said of the Taiwanese OEMs. “We’re suing to make the point that others shouldn’t be used by Apple to advance this agenda they have of attacking us.”
It is understandable if Qualcomm is somewhat worried about how this latest escalation will be perceived in Taiwan. The island’s Fair Trade Commission is still investigating Qualcomm’s patent licensing practices, just like its counterpart in the United States. As that probe continued, the US company announced planslast November to collaborate with the Ministry of Economic Affairs and government research lab ITRI to develop Taiwan’s mobile communications and IoT industries.
As this blog has reported, mainland Chinese companies have invested significant hopes in Apple’s lawsuit against Qualcomm. Their cross-strait counterparts in the smartphone supply chain may share some of the same feelings. One Taiwanese executive welcomed the Korea Fair Trade Commission’s $853 million antitrust fine against Qualcomm, telling Fortune it would “mean lower costs for mobile phone makers and others in the tech supply chain who source Qualcomm chips”. With OEMs like Foxconn increasingly moving toward manufacturing and selling their own products, this sentiment could become more pronounced.
All four Taiwanese defendants have at times found themselves in the crossfire of past patent wars. Compal and Wistron even appear to have forayed into privateering-style IP monetisation in a US campaign that seems to have come up empty. In this case, if the four Apple suppliers are indeed indemnified by Apple for any damages, the immediate financial stakes might not be very significant. But the outcome of this global dispute is going to shape the patent licensing landscape in which they operate for years to come.