Richard Lloyd

There was plenty to discuss yesterday on Qualcomm’s call with analysts concerning the company’s latest quarterly results. On the positive side the company is in the final stages of its acquisition of NXP Semiconductors and reported that it is seeing strong sales in China, a market where it has had some well-publicised problems.

But throughout the call there was an Apple sized cloud hanging over the discussions as the company updated its position in its high-profile dispute with the iPhone manufacturer. It also revealed an additional dispute, unconnected with the Apple case, with an additional, unnamed licensee, which has resulted in an underpayment in royalties of more than $150 million.

“We are working to resolve this dispute but we expect the licensee, which is not one of the suppliers of iPhones to Apple, to continue to under report its royalties until the dispute is resolved,” company President Derek Aberle explained. Even for a patent licensing juggernaut like Qualcomm an underpayment of $150 million is significant but there’s no doubt that the more troubling dispute is the case with Apple.

As Aberle made clear the impact of that lawsuit is now being felt with some of Qualcomm’s other licensees who are also Apple suppliers. “In our second fiscal quarter, Apple interfered with the licence agreements between Qualcomm and the Apple suppliers by actively inducing them to underpay royalties to Qualcomm for sales during the December quarter,” Aberle said. “Apple withheld payment to their suppliers for sales in the December quarter in an amount equal to what Apple claims Qualcomm owes to Apple under a separate cooperation agreement between the companies.”

This is along the lines of what Apple said it would do and shows that the case has serious repercussions that extend deep into Qualcomm’s business. How the company licenses its patents was placed under the microscope in January in a case brought by the Federal Trade Commission, which accused Qualcomm of anticompetitive practices in the supply of baseband processors and the licensing of the company’s patent portfolio. Apple followed that with its own $1 billion lawsuit which accused Qualcomm, among other things, of refusing to license its technology to other chipmakers and of withholding a $1 billion payment in retaliation for the iPhone maker cooperating with Korean authorities in their investigation of the chipmaker’s licensing practices. Apple also filed subsequent suits in China and the UK.

Of course these cases matter to Qualcomm because of the sums involved but they matter far more for their broader consequences for licensing in the mobile sector particularly as companies get ready for the rollout of 5G and contemplate the development of the Internet of Things. It’s particularly telling that as the dispute between Qualcomm and Apple has escalated Ericsson has sought to demonstrate its willingness to license its patents fairly by publicising its royalty rates for 5G phones.

As that and yesterday’s investor call show, Apple v Qualcomm has ramifications far beyond the two companies involved.