After spending three hours calling each other liars and thieves, Apple and Qualcomm struck a six-year global license for wireless chip technology that ends all litigation between them.
U.S. District Judge Gonzalo Curiel announced the parties had settled in his San Diego federal courtroom, where jurors had just heard opening statements between Apple, Qualcomm and Apple’s contract manufacturers.
The deal includes an unspecified payment from Apple to Qualcomm, a six-year license and a multiyear supply agreement, according to a joint statement from the parties.
The agreement ends the patent and antitrust action that Apple filed in January 2017, plus a separate suit Qualcomm brought against Apple’s contract manufacturers—Foxconn, Pegatron, Wistron and Compal Electronics—and the manufacturers’ counterclaims.
The deal also will extinguish Qualcomm actions against Apple that have been pending at the International Trade Commission and in European and Chinese courtrooms. It does not, however, resolve the Federal Trade Commission’s antitrust suit against Qualcomm, which was tried in January before U.S. District Judge Lucy Koh of the Northern District of California and remains pending.
Qualcomm, which had the most to lose from a bad trial outcome, got a huge boost from the announcement. Its stock share price spiked 23 percent on the day. Qualcomm said it expects the deal to add about $2 in earnings per share.
Apple, which Qualcomm lawyer Evan Chesler of Cravath, Swaine & Moore had moments earlier compared to a big dog shaking off a Qualcomm flea, was flat on the news.
Curiel excused the jurors briefly Tuesday just after Chesler wrapped up his presentation for Qualcomm. Following a short recess, he told them the parties had reached the ideal conclusion to their dispute.
Apple was seeking to put Qualcomm’s business model on trial. “The evidence will show Qualcomm does business like no other company in the world,” Fish & Richardson partner Ruffin Cordell told jurors during opening statements.
Cordell said Qualcomm abused its dominant position in CDMA and high-end 4G LTE modem chips to continue charging a 5-percent royalty on the technology that connects phones to the internet, despite Apple and others having added valuable features such as cameras, touch screens, GPS and facial recognition.
He accused Apple of violating the Sherman Anti-Trust Act and California’s Cartwright Act and breaching its commitment to license standard-essential patents on fair, reasonable and nondiscriminatory terms. He told jurors that Qualcomm imposed its will on customers like Apple by forcing them to enter into anti-competitive agreements that prevented them from notifying government regulators of abuses.
In fact, he told jurors, Qualcomm never intended to honor its FRAND commitments even when making them. But any time a customer tried to push back, they’d be told, “You’re going to have a really hard time making phones without chips,” Cordell said.
He promised that Apple CEO Tim Cook would take the witness stand and describe the difficulties with Qualcomm. “We need a judge and jury to enforce these promises,” he said.
Gibson, Dunn & Crutcher partner Richard Doren argued for the contract manufacturers that obtaining chips was mission critical for them. “Purchasing chips from any company other than Qualcomm is a pretty simple process,” he said. But Qualcomm requires they also pay separately for the software that enables the chip and for a license to all the IP. “This is essentially a bermuda triangle where competition disappears,” Doren said.
Cravath’s Chesler said it was Apple who had a sinister plan. The company had been scheming since 2014 to reduce Qualcomm’s royalties, but in internal communications had recognized it should wait until a cooperation treaty between the two expired.
Curiel ruled before trial that Qualcomm could tell jurors that Apple has an indemnification agreement with the contract manufacturers, and Chelser made hay with it. “They’re sitting at separate tables and they’re telling you they’ve got separate claims, but look at the proof!” Chesler bellowed. Once Apple told them to stop paying royalties, “like that,” Chesler said, snapping his fingers, “all four stopped paying at the same time.”
He ridiculed the idea that the world’s richest technology company was being bullied by Qualcomm. He reminded jurors repeatedly that Apple and the contract manufacturers have refused to pay “a dime” in royalties since 2017 to “the folks in La Jolla” at Qualcomm.
He displayed charts comparing Apple’s net income from smartphone sales to Qualcomm’s sales, which he said had averaged $5 billion to $7 billion a year. “In the two years where they didn’t pay us anything, they sold $300 billion worth of iPhones,” Chesler said.