By now you’ve most likely heard about the Apple vs. Qualcomm legal battle. Since 2011, Apple has sold iPhones with Qualcomm chips inside that enable cellular network connection. Qualcomm has been the exclusive chip provider to Apple. Apple and Qualcomm have had royalty disputes over these chips since 2016 and on April 1, 2019, both parties agreed to end all patent litigation. What does this mean for Apple, Qualcomm and the future of 5G?
Apple vs. Qualcomm
In the first quarter of 2019, a German court ruled that Apple could no longer use Intel modems due to violations of Qualcomm’s licensing agreement. Essentially, Qualcomm made the argument that Apple must continue to pay a percentage of iPhone revenue in return for the use of Qualcomm intellectual property. Apple, on the other hand, argued that Qualcomm did not have the legal right to charge heightened royalties for its technology. Qualcomm and Apple had an agreement stating that Apple would exclusively use Qualcomm chips between the years 2013 and 2016. This included a condition that Apple could not cooperate with regulators or competing chip producers like Intel. In return, Qualcomm would pay Apple a $1 billion annual rebate.
Apple then became dissatisfied with Qualcomm taking such a large chunk of revenue, (plus the cost of the physical chips themselves) so the smartphone company proceeded to allege anti-competitive practices. Their case alleged that Qualcomm’s exclusive patent for Apple’s baseband processors posed a risk to the competitive balance of the smartphone industry.
In the fallout, Apple refused to pay patent royalty fees, Qualcomm refused to pay the annual $1 billion rebate, and Apple switched to Intel as a chip supplier. Apple sued Qualcomm for $1 billion in the United States, and $145 million in China. Qualcomm then filed countersuits in Germany and China. Qualcomm won the legal battle, leading to a massive stock price increase. Shortly after Apple lost, Rubén Caballero, the engineer “leading Apple’s charge into 5G,” left the company. Read more about Caballero’s abrupt departure here.
How 5G is Involved
Qualcomm is currently one of the true leaders of 5G technology. The company has extensive power when it comes to 5G intellectual property. More specifically, Qualcomm has crucial patents for handheld chip technology that enables 5G smartphone connection. This presents a huge royalty opportunity for Qualcomm. Furthermore, if Apple chooses Intel as their chip supplier, iPhones may not have access to 5G for a while, as Intel has recently dropped out of the 5G race. If Apple continues working with Intel exclusively, it will be an industry laggard with respect to 5G.
What are 5G patent royalties projected to be? Ericsson, for example, will reap upwards of $2.50 per 5G handset license. Nokia bumped up their royalty rate to $3 per handset sold. It is obvious to observe why companies owning 5G intellectual property are excited about the deployment of 5G network deployments.
How 5G has Impacted the Market
- Qualcomm-The settlement with Apple led to Qualcomm’s share price surging up 69%. It is currently selling for 15 times next year’s earnings estimates.
- Intel-The recent announcement that Intel is abandoning 5G efforts does not look good for the company. Their stock price has fallen over 15% in the past month.
- Skyworks Solutions-Skyworks is influential in the radio frequency chips market. Demand for these should increase as handhelds adapt to 5G networks. Trading has been flat recently, but this could change.
The Future of 5G
It will be a common occurrence for businesses in the 5G sector (and other sectors) to misinterpret IP laws and regulations. As we’ve seen with Apple and Qualcomm, misunderstanding IP royalty principles can be devastating to the bottom line. 5G technology is bringing about new verticals and problems that have never come up before. Fair and legal monetization of 5G technology is not a simple manner. If accomplished however, the benefits are seemingly infinite—as we’ve seen with Qualcomm. Do you require consultation on 5G or IP related topics? GHB Intellect specializes in IP development, management, and monetization. Contact us today!