As reported by Tech Daily journalist Liu Yan, Qualcomm's Q3 2017 earnings showed a sharp decline compared to the same period last year. Many attribute this downturn to the ongoing legal battle between Apple and Qualcomm, questioning the sustainability of Qualcomm's profit model.
In response, Qualcomm CEO Steve Mollenkopf stated: "Our semiconductor business performed better than anticipated this quarter. We believe we hold a significant advantage in our dispute with Apple. We remain committed to vigorously defending our business model and safeguarding our technological innovations to ensure we receive fair compensation."
Whether it's a "David vs. Goliath" showdown or a "money fight," patent litigation within the communications industry ultimately boils down to a clash between technical contributions and financial rewards. Despite some labeling Qualcomm's performance as a "fall from grace," one cannot deny its sustained profitability.
Both parties have escalated their patent disputes. Apple, a tech giant, recently filed a lawsuit against Qualcomm, challenging the validity of its patent licensing agreement. Apple argues that it should only pay for the technology associated with Qualcomm's chips, while Qualcomm claims the royalty extends beyond just the chips themselves.
Apple's complaint highlights the unfairness of calculating royalties based on device price, suggesting this amounts to unjust taxation. Innovations like Apple's Touch ID and Retina screens, unrelated to Qualcomm's patents, necessitate higher royalties due to increased device costs. Apple contends that Qualcomm's charging model breaches the FRAND principle (Fair, Reasonable, and Non-Discriminatory) and violates U.S. patent laws.
Rosenberg, Qualcomm's EVP and General Counsel, refuted these claims, stating: "Qualcomm's innovations are integral to every Apple product, enabling key functionalities. Apple's claim of being charged for unrelated innovations is unfounded."
If Apple broadens the scope of its lawsuit, Qualcomm could face even greater challenges. It remains unclear whether Qualcomm will retaliate further. Apple has indicated it will support all suppliers during this legal process, though the trial may last two to three years. During this time, production won't be disrupted.
The royalty model has become central to the dispute. As a leader in mobile chips, Qualcomm holds numerous core patents, deriving much of its revenue from licensing these technologies. Most Android phones utilize Qualcomm's chips, with manufacturers paying a 5-6% additional royalty on top of chip costs. This model, dubbed the "high royalty tax," varies in actual collection rates from 2-3% across different manufacturers.
This controversial model has drawn industry criticism. Analyst Xu Wei noted in an interview that mobile manufacturers are reluctant to pay such high royalties, but Qualcomm's dominance in baseband technology and patent portfolio forces them to comply. Qualcomm's chips are synonymous with high-end models, making them a key selling point.
"Is Qualcomm's royalty rate excessive? Should it be based on the device price?" These questions lie at the heart of this litigation. Qualcomm isn't alone in using this model; other companies like Ericsson, Huawei, and Samsung also base their patent fees on the total device value.
This isn't the first time Apple has challenged a "high royalty tax." Similar disputes with Ericsson and Nokia resulted in settlements where Apple agreed to the whole-device royalty structure.
Respect for "invisible" contributions is crucial. The communications industry thrives on patent innovation, yet these investments are often overlooked. Qualcomm's licensing model, while envied, is hard to replicate. Wang Yanhui, Secretary-General of China Mobile, emphasized the importance of valuing R&D and core technology investments. He noted that partnering with innovators for patent access is a viable strategy for smaller firms.
Bai Song, an industry insider, remarked: "Decades of core technology development are no small feat. We respect such efforts, but the risks are evident. Early-stage investments are substantial, and success hinges on societal respect for intellectual property rights. Apple has long defended its own patents; now, it must respect others' as well."
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