Why Apple, the FTC, and others are attacking Qualcomm’s royalty model

“For every basic iPhone 7 it sells for $649, Apple pays about $15 to Qualcomm in royalties for using the mobile chip maker’s patented wireless technology, according to analysts,” Aaron Pressman writes for Fortune. “Apple pays slightly more in royalties for the higher-end $749 and even more on $849 iPhones, based on their higher prices.”

“According to its lawsuit against Qualcomm last week and from other recent regulatory cases, Apple may even pay the same royalty rates—or more—for iPhones that don’t use Qualcomm chips,” Pressman writes. “After a five-year exclusivity agreement with Qualcomm expired last year, Apple began using competing wireless modem chips from Intel in about half of its newest iPhones. But Qualcomm seeks royalties under the assumption that any wireless modem chip is relying on many of its related patents.”

“The royalty arrangement has been incredibly lucrative for Qualcomm. Last year its royalty licensing division reported $6.5 billion of pretax profit on $7.6 billion of revenue. Meanwhile, the company’s chip business itself only made $1.8 billion in pretax profit on $15.4 billion of sales,” Pressman writes. “Now, with lawsuits filed last week by the Federal Trade Commission and Apple along with a nearly $1 billion fine from the Korea Fair Trade Commission last month, that royalty strategy is under attack… Apple says it repeatedly tried to enter a direct patent licensing deal with Qualcomm but was turned down. With the last side deal set to expire at the end of 2016, in December Qualcomm asserted in two in-person meetings that Apple was in violation of 20 of its patents. No deal was reached, the last side agreement expired and weeks later Apple and the FTC filed suit.”

Read more in the full article here.

MacDailyNews Take: FRAND stands for “Fair, Reasonable and Non-Discriminatory,” supposedly.

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