Qualcomm Inc. looks set escalate its patent war with Apple Inc. following reports that it will ask a U.S. trade agency to impose a ban on the importation of iPhones to the country.
The move is a retaliatory strike against Apple for withholding royalty payments to the chipmaker. According to Bloomberg, Qualcomm plans to ask the International Trade Commission to block shipments of the iPhone from Asia to the U.S. ahead of the introduction of a new version of the phone this fall. There’s no official confirmation of Qualcomm’s plan, with Bloomberg citing a person familiar with the company’s strategy in its report.
If Qualcomm goes ahead with the move, it would be a significant escalation of a patent spat that began in January. Back then, Apple filed a lawsuit against Qualcomm over royalty payments, saying the chipmaker was demanding payments for its technologies that were over-the-odds. In addition, Apple said Qualcomm was also demanding royalties on technologies it didn’t develop, such as Apple’s Touch ID. Apple’s lawsuit claimed it had been overcharged by billions of dollars but would settle for damages of just under $1 billion.
Apple further stated that Qualcomm had withheld payments to totaling almost $1 billion. It accused the chipmaker of doing so in retaliation for Apple’s cooperation with various nation’s investigations into Qualcomm’s licensing practices.
In response, Qualcomm hit back with a countersuit against Apple, saying that the iPhone maker had “breached” and “mischaracterized” agreements with it, and had interfered in its licensing deals. The company further alleged that Apple had failed to “engage in good faith negotiations for a license to Qualcomm’s 3G and 4G standard essential patents on fair, reasonable and non-discriminatory terms.”
Things came to a head in the case last week when Qualcomm was forced to lower its quarterly earnings guidance by $500 million thanks to the dispute. The chipmaker claims Apple has ordered component suppliers to withhold payments to it pending the outcome of this case, and consequently revised its third-quarter revenue estimates to between $4.8 billion and $5.6 billion, down from its earlier $5.3 billion to $6.1 billion forecast.
It seems Apple actually foresaw Qualcomm’s latest move. In its earnings call this week, Apple Chief Executive Officer Tim Cook admitted the chipmaker might attempt to block iPhone imports, but said its efforts would likely come to nothing.
Bloomberg said Qualcomm has chosen to ask the International Trade Commission to block iPhone imports because it would be faster than regular courts, and it has the ability to impose the ban. However, any move in this direction could come back to bite Qualcomm, as Apple might respond by ditching its modem chips in future iPhone models. Qualcomm had been the exclusive supplier of modems for iPhones for many years, but some versions of the most recent iPhone 7 use Intel Corp. modems instead. However, Qualcomm still owns thousands of patents relating to wireless technologies that smartphone makers need to license regardless of which modem they use. This licensing revenue makes up around a third of Qualcomm’s total revenue.
If Qualcomm does manage to get a ban in place, the impact on Apple’s business could be catastrophic, as the U.S. market accounts for around 40 percent of its annual sales.