Apple and Qualcomm recently ended all of the litigation between the two companies around the world and created a new license agreement, The Wall Street Journal reports. The decision concluded a legal battle over how royalties are collected on smartphone technology innovations.
The companies settled just hours after the opening arguments in a trial between them began. The settlement also includes payment from Apple to Qualcomm, according to The Wall Street Journal. Apple and Qualcomm also released a joint statement announcing a six-year license agreement and a multi-year deal for the latter to supply Apple with modem chips.
Litigation began after Qualcomm claimed Apple was violating its patents by withholding royalties, according to The Wall Street Journal. Meanwhile, Apple claimed Qualcomm was overcharging for the patents for years and abusing its stronghold on the market. The future of Qualcomm’s licensing model—and billions of dollars in in royalties that Apple had either paid or kept—was at stake. Prior to the settlement, Qualcomm had lost more than $25 billion in market value because of this potential threat.
Upcoming fifth-generation (5G) wireless speeds and their role in new mobile devices was a key factor in both sides finding common ground. Apple’s current iPhone collection had been using Intel Corp.’s modem chips, which weren’t on Qualcomm’s level when it came to providing wireless features, according to The Wall Street Journal. Apple was also at risk of falling behind rival Samsung in its faster wireless device offerings.
Neither company disclosed pricing, licensing terms or supply deals that came from the settlement, so it’s difficult to gauge whom came out ahead. However, Qualcomm stated the agreement would add about $2 in annual earnings per share once the modem chip shipments start, according to The Wall Street Journal. The more critical part of Qualcomm is the threat to its core licensing business has been removed. That portion of Qualcomm’s business had accounted for approximately half of its profit in recent years. The Wall Street Journal reported Apple had been withholding about $8 billion in royalties it owed to Qualcomm through its contract manufacturing.
“This is an enormous win for Qualcomm because the suit and related suits were life-threatening to the company,” Roger Kay Endpoint Technologies Associates analyst told The Wall Street Journal. “For Apple, a loss would have been financially punishing, but for Qualcomm, this would have destroyed the business. This is like a new lease on life.”
Apple can now deploy Qualcomm’s 5G chips in its phone, which will help it remain competitive with competitors that use Android software. Before the settlement, Apple did not have access to the 5G modem chips, which left its iPhone products trailing behind its competition in the wireless race.
When Apple started to withhold royalties about two years ago, Qualcomm Chief Executive Steve Mollenkopf spent more than $500 million on 5G technology, according to people familiar with the situation. By doing so, Qualcomm could deliver the coveted 5G modem chips to Samsung and others, which put more pressure on Apple as it saw its main competitors move closer to 5G wireless. At the time, Intel, Apple’s main modem chip supplier, was at least a year Qualcomm in creating a 5G version of the chip.
After the settlement, Intel announced it would stop developing the 5G chip for smartphones, stating there was not a clear path to profitability.