Qualcomm is taking its legal battle with Apple to the companies who actually build the iPhones and iPads. On Wednesday, the mobile chip giant said it’s suing four Taiwan-based Apple contract manufacturers — Foxconn, Compal, Wistron and Pegatron — for not paying royalties to Qualcomm for its patents on smartphone technology like cellular modems.
“It is unfortunate that we must take this action against these long-time licensees to enforce our agreements, but we cannot allow these manufacturers and Apple to use our valuable intellectual property without paying the fair and reasonable royalties to which they have agreed,” said Don Rosenberg, executive vice president and general counsel of Qualcomm, in a statement. The lawsuit makes sense considering the unusual licensing relationship between Qualcomm and Apple. Unlike most of Qualcomm’s other phone licensee partners, Apple does not directly license from Qualcomm. Rather, Apple’s contract manufacturers pay the Qualcomm licensing fees and Apple is supposed to reimburse them.

In the Filings

In a filing, the San Diego, California-based chipmaker accused Apple of “strong arming” these contract manufacturers to stop paying Qualcomm license fees and thus break the contracts between Qualcomm and the manufacturers. Qualcomm further said that Apple has promised to help pay for any damages the contract manufacturers may incur as a result of not paying Qualcomm the royalty fees.
The lawsuit, filed in the United States District Court for the Southern District of California, seeks a court order requiring these manufacturers to continue paying the royalty fees.
“As Apple continues to collect billions of dollars from consumer sales of its Qualcomm-enabled products, it is using its market power as the wealthiest company in the world to try to coerce unfair and unreasonable license terms from Qualcomm in its global attack on the company,” said Rosenberg in a statement. “Our license agreements with Apple’s manufacturers remain valid and enforceable. The manufacturers must continue to live up to their obligations under these agreements and Apple should immediately cease its tortious interference.”
The legal fight between the two began in January when Apple filed a lawsuit against Qualcomm alleging the chipmaker “has unfairly insisted on charging royalties for technologies they have nothing to do with.” Apple claimed, among other things, that Qualcomm withheld $1 billion from the company as retaliation for working with Korean regulators in an investigation against Qualcomm.
In Qualcomm’s countersuit, filed last month, the company denied the charges and brought a number of its own accusations, including that Apple mounted a large-scale regulatory attack against the company with the help of companies like Samsung. To get regulators to act against the company, Apple provided false and misleading statements to government regulators, Qualcomm claimed. Qualcomm told investors that Apple was withholding royalty payments to its contract manufacturers and lowered its financial guidance for the third quarter, estimating it would hit the company’s earnings for half-billion dollars. Apple informed Qualcomm that it was withholding payments until resolution of the legal dispute.

Apple’s intention

Qualcomm alleged in the Wednesday filing, is “to cause Qualcomm so much harm that Qualcomm will be forced to capitulate to the unfair licensing terms that Apple is demanding.”
Qualcomm is the dominant maker of modem chips that enable phones to hook up to cellular networks around the world, but the company also has a lucrative licensing business that collects fees on nearly every modern phone in the world. Around two-thirds of the company’s profit comes from licensing its technology. Qualcomm is also facing an antitrust lawsuit from the United States Federal Trade Commission filed just a week before Apple’s January lawsuit. The federal regulator alleged that Qualcomm forced Apple to use its modem chips by lowering licensing fees and pushing competition out. Last week, Samsung and Intel joined in the fight against Qualcomm by filing arguments in support of the FTC lawsuit.