The injunction has teeth.
- In a surprising admission of weakness, Apple has admitted that if the injunction remains in force, it will be forced to settle with Qualcomm which I think substantially ratchets up the pressure on Apple to negotiate.
- Apple’s statement to the court says: “Apple will be forced to settle with the Respondent, causing all mobile phone manufacturers to relapse into the previous unreasonable charging mode and pay high licensing fees, resulting in unrecoverable losses in the downstream market of mobile phones”.
- Apple’s tactic here is to try and convince the court that if it has to settle with Qualcomm, then the Chinese handset industry (Xiaomi, Huawei, Oppo, Vivo etc) will be materially impacted.
- China has been very protective of its home-grown industries which is what Apple appears to be banking on to try and tilt the court’s opinion in its favour.
- Furthermore, contrary to my view on Wednesday that the injunction would be stayed pending appeal (see here), it appears to be enforceable now and Qualcomm has already complained that Apple is ignoring the injunction.
- This really increases the pressure because if Apple is forced to obey the injunction, its revenues will be immediately impacted.
- However, while laws can be very strict in China, their enforcement can be very lax meaning that Qualcomm will need to really lean on the court system for this injunction to have an impact.
- I continue to think that legally, Apple is on very shaky ground as its main argument is that iOS 12 does not infringe the two patents in question and that updating everything to iOS 12 fixes the problem.
- There are two reasons why I think this position is shaky:
- First, the ruling: The ruling from the court makes no mention of iOS versions.
- This means that unless Apple has specifically put workarounds into iOS 12, this version in all likelihood also infringes.
- Apple has made no specific comment with regards to workarounds and I think that it is relying on the fact that its latest iPhones are currently unaffected for this position.
- This is a very shaky assumption as Qualcomm did not file a complaint against these devices because they did not exist at the time of the original complaint.
- Qualcomm is also now filing to include the Xs, Xs Max and the XR in the injunction.
- Second, easy workaround: If iOS 12 really does not infringe upon the patents Qualcomm has asserted then there is a simple fix and Apple is making a lot of fuss over nothing.
- In order to bring itself into line with the ruling, all Apple would need to do would be to reflash all of its older iOS devices with iOS 12 before they are sold.
- In my opinion, simply accelerating the software update after the device is sold does not satisfy the injunction because, at the point of sale, the older devices are still infringing.
- Hence, I conclude from this that, in all probability, iOS 12 does infringe these patents and Apple knows it.
- Furthermore, I think that’s Apple arguments that the Chinese handset industry will suffer if it has to settle with Qualcomm has no merit.
- This is because:
- First: China has already done a deal with Qualcomm for its IP and on that basis, Chinese handset makers will adhere to that rather than anything else that Apple agrees with Qualcomm.
- Second, Qualcomm is not looking for a price increase but simply a continuation of an arrangement that has been in place for many years.
- It is difficult to argue that this has hurt the handset industry which has grown massively in volume over the last 10 years and from which more profit is being made now than ever before.
- I think that the real issue is that the industry is showing signs of maturity and in that instance, Apple needs to cut its costs to maintain profit growth and IPR fees are a relatively soft target.
- Hence, I see this as nothing more than a commercial dispute which will get resolved when one party really starts to feel the pressure which increases its willingness to negotiate.
- To date, this pressure has all been on Qualcomm, but this represents a reversal of fortune that could force Apple to the table as it admits in its own words.
- Qualcomm’s shares have sold off pretty hard this year and this uncertainty is likely to keep a lid on a recovery.
- However, for anyone willing to take the risk of the legal uncertainty, the shares remain a bargain.
Blog Comments
Tim Nash
December 15, 2018 at 3:16 pm
Given the lack of separation between the Chinese government and their courts, this is unlikely to be decided on the merits of the infringement case – hence Apple pointing out what the damage to the Chinese economy could be.
Apple, in the short term, seems to have at least 2 ways round this – getting the court to consider the workaround in iOS 12 and/or boosting Pegatron’s part of iPhone production, as Pegatron is not affected by the injunction.
In the medium to long term, it is likely that Qualcomm will lose substantially in the FCC anti-trust case which starts in January. Judge Koh has already ruled that Qualcomm has to licence its SEPs to rival chipmakers and has noted that Qualcomm applies a surcharge in its agreements.
With Qualcomm’s 5% royalty on the proposed cap of $400 per phone, that is still $20 per iPhone and 4.4bn pa for the 220m iPhones Apple produces. While Qualcomm certainly deserves a royalty, its hand will be much weaker if it is forced to renegotiate its contracts with manufacturers – one of the remedies in the anti-trust case. It could also be required to repay surcharges, at least to manufacturers that didn’t, unlike Apple, receive rebates.
RICHARD WINDSOR
December 21, 2018 at 11:07 am
I think iOS 12 still infringes and that that story wont work… i see Apple potentallly being forced to negotiate.