What to expect from the Apple versus Qualcomm ‘no license, no chips’ trial

The public-facing fight between Qualcomm and
Apple began in January 2017. On 

link textJanuary 17, 2017, after three years of investigation, the US Federal Trade
Commission launched a lawsuit, accusing Qualcomm of forcing Apple into an
exclusive deal to buy its baseband chips.According to the FTC, when Apple sought to lower
the patent royalties it was paying Qualcomm, the latter firm made that
conditional on Apple 

buying Qualcomm chipsexclusively between 2011 and 2016. The iPhone
7 and iPhone 7 Plus used Qualcomm chips in some configurations, and since then, Apple has shifted to Intel
modems across the board.On January 20, 2017, Qualcomm’s legal woes
connected to Apple escalated, as the iPhone manufacturer sued over $1 billion
in unpaid rebates. Apple alleged that the payment hadn’t been made because it
had cooperated with the Federal Trade Commission’s investigation of Qualcomm,
which led to the lawsuit.

In April 2017, Qualcomm made its 

own filing with the court. In that filing, it attempted to refute Apple’s
complaint, accusing it of attempting to pay less than the fair market value for
access to Qualcomm’s standard essential payments, breach of contract, and
wrongly inducing regulatory action in a number of jurisdictions, among other
issues. Qualcomm claims Apple 

stole trade secrets relating to its intellectual property that it then provided to
Intel, specifically software used to improve the performance of its baseband
chips. A recurring theme in this complaint by Apple,
and many others across the globe is the accusation that Qualcomm has abused its
market dominance to make chip buyers sign unfair patent deals. This claim has
in fact been the subject of several antitrust investigations, conducted by the
U.S., Taiwan, and South Korea. An August 2018 settlement saw Qualcomm pay $93
million in fines to Taiwan and promise to invest $700 million in the country
over five years.

To put pressure on Qualcomm, Apple has been
directing its manufacturers to withhold royalty payments, potentially 

in excess of $7 billion.At its core, the battle seems nearly
philosophical. A 

report on Saturday by the Wall Street Journal claims that Apple CEO Tim Cook and Qualcomm CEO Steve Mollenkopf
have no common ground to forge an agreement, that the battle has become
“personal.”

This is borne out in part by Apple Senior Vice President JeffWilliams’ testimony at the Federal Trade Commission trial.

“The whole idea of a percentage of the cost of the phone
didn’t make sense to us,” Mr. Williams said regarding Qualcomm’s licensing
practices. “It struck at our very core sense of fairness.”

Since Apple filed its suit, Qualcomm Mollenkopf and Cook have
made contradictory statements to the press regarding negotiations, each
standing their ground on the matter. Where Qualcomm has maintained that a
settlement was imminent on multiple occasions, Apple has denied that there were
talks going on, and have reiterated that it will have its day in court.

Mollenkopf has said that negotiations were happening, and
progressing. His first remarks on the matter were in July of 2018.

However, in 

earlyNovember 2018, Apple sources
denied that there had been talks for some time. No discussion is happening
“at any level,” a source inside Apple said. “There is absolutely
no meaningful discussion taking place between us and Qualcomm, and there is no
settlement in sight. We are gearing up for trial.” “We do talk as companies,” Steve Mollenkopf told CNBC‘s Jim Cramer in an
interview on 

November18, 2018. The situation is consistent with “the fourth quarter
of the game, and not the first quarter.”In late November, it was discovered that 

Qualcommhired Definers Public Affairs to conduct
opposition research against Apple. Definers used the NTK Network to disseminate
stories hyper-critical of Apple and its CEO Tim Cook. The network had posted at
least 57 articles pertaining to the company in 2018, some of which directly
address the dispute with Qualcomm. 

The report claimed that Definers hawked “anti-Apple
research” to various media outlets without divulging a funding source. One
memo, titled “Apple Bowing to Chinese Cyber Regulators,” took Apple
to task over a seemingly contradictory stance on privacy in China. 

On January 8, 2019, Cook talked with Cramer again. In a
wide-ranging discussion focusing mostly on the hammering Apple stock had
recently taken, and an income revision, Cook addressed the international
Qualcomm battle, which hadn’t been going that well for Apple at that point.

Qualcomm had just 

won aChinese sales ban against
certain iPhone models that contain software in infringement of two owned
patents. That court decision was followed by a similarfinding in Germany, which resulted in a sales ban on alliPhone models save for the
iPhone XR and XS series. But, Cook repeated the same missive that Apple had maintained
in regards to discussions with Qualcomm —specifically, that there was nothing
going on in that regard.

“Look, the truth is, we haven’t been in any settlement
discussions with them since the third calendar quarter of last year,” he
said. “That is the truth. So I’m not sure where that thinking is coming
from.”

A few days later, Qualcomm disagreed with Cook’s remarks,calling them “misleading”

Regardless if there were talks or not, Apple attorney William
Isaacson made it clear that Apple and Qualcomm wouldn’t have any settlement
before the trial.

“The parties are going to need to go to trial,”
advised Isaacson. “There have been unfortunate articles lately that the
parties are close to a settlement, and that is not true. There haven’t been
talks in months.” 

Qualcomm has publicly said, that if Apple wants, it will
provide 5G modems for a future iPhone. At this juncture, that seems unlikely.

The suit filed by the Federal Trade Commission 

concludedon January 30, but a ruling by
Judge Lucy Koh has yet to be issued. That matter hangs above the proceedings,
and a timetable for a ruling isn’t known at this point.Like the similarly contentious Apple versus Samsung patent
trials that Judge Koh also presided over, the Apple versus Qualcomm trial will
be star-studded, as far as Silicon Valley heavyweights are concerned.

According to a 

jointwitness list filed with
the U.S. District Court for the Southern District of California, Cook will
offer testimony alongside other top Apple executives including COO Jeff
Williams, SVP of Worldwide Marketing Phil Schiller and chief IP counsel B.J.
Watrous. Former hardware chief and current special advisor Bob Mansfield and
former general counsel Bruce Sewell are providing depositions for the trial.
Cook is expected to offer direct testimony on Apple’s business practices and
strategy, agreements with cellular network carriers, licensing practices and
other topics germane to the suit asserted by Apple over Qualcomm’s alleged
abuse of monopoly power in the wireless modem industry.Qualcomm is expected to provide co-founder and formerchairman Irwin Jacobs, Mollenkopf, and president Cristiano Amon. for testimony
Jacobs is expected to testify about Qualcomm’s founding, contributions to
cellular technology and standardized cellular technologies, and ongoing
business practices. Mollenkopf will also appear live in court to testify on
Qualcomm business practices, the firm’s “no license, no chips”
policy, incentives and rebates, FRAND practices and more.