Apple stops paying royalties to Qualcomm

It’s no secret, Apple and Qualcomm have been fighting relentlessly for a few months over royalty payments. Apple told Qualcomm that it would stop paying the disputed licensing fees. Qualcomm confirmed the aggressive move and said that its revenue and profits would be lower than expected.

Apple said that it is waiting for a court decision to resume payments. Of course, the company expects to pay a lower fee after the decision.

Qualcomm executive vice president and general counsel Don Rosenberg said in a statement that “Apple is improperly interfering with Qualcomm’s long-standing agreements with Qualcomm’s licensees. These license agreements remain valid and enforceable.”

If you missed a couple of episodes, you might be wondering what happened between these two companies. Qualcomm is a key chipset supplier for many of the smartphone makers around the world, manufacturing the systems-on-a-chip or LTE modems that power your devices. But that’s just one part of Qualcomm’s business model.

The company also has a ton of patents related to wireless technologies. In other words, if you want to build a smartphone, you need to license those patents from Qualcomm. While revenue from chips is growing faster than licensing revenue, it still represents around a third of the company’s total revenue.

But Qualcomm may have gone a bit too far. In December, South Korea’s antitrust regulator fined Qualcomm roughly $850 million (1.03 trillion won) for its patent royalty activities in South Korea.

According to the regulator, Qualcomm licenses too many patents, forcing smartphone makers to pay expensive royalties for patents they might not even need. In addition to that, Qualcomm has been menacing smartphone makers, telling them that they can’t get Qualcomm chipsets if they don’t pay those royalty fees.

The FTC agreed, and Apple filed a suit more or less similar to that case in January. In Apple’s case, Qualcomm forced Apple to pay more royalties than other smartphone makers because Apple is using chipsets manufactured by competitors. Apple is asking for $1 billion.

And because that wasn’t enough, Qualcomm filed a countersuit, Apple filed another suit in China. I wouldn’t want to sit at a dinner table with representatives from Apple and Qualcomm.

Today’s news means that Apple is quite confident it’s going to win the suits. Qualcomm had to adjust its financial forecast for the third quarter. Revenue should range between $4.8 billion and $5.6 billion with lower profits. The company previously expected between $5.3 billion to $6.1 billion in revenue.