Qualcomm Escalates Apple Patent Battle


By: R. Scott Raynovich

Qualcomm is back on the offensive in the legal battle with Apple over key mobile technology patents, asking the US International Trade Commission to ban the import of certain iPhone models for patent infringement.

Qualcomm has filed complaints in the US District Court for the Southern District of California and with the United States International Trade Commission. The company is seeking to halt sales of iPhones that violate the patents.

This is the latest chess move in an ongoing intellectual property (IP) war between Qualcomm and Apple. It all started in January when Apple sued Qualcomm for $1 billion for what it says are unjust patent royalties. The ongoing legal battle has significant implications, both for the future of how IP and patents are treated in technology markets, as well as the development of the mobile communications markets in which Apple and Qualcomm figure prominently.

The patents in Qualcomm's latest claim cover features such as carrier aggregation, graphics processing, and signal amplification -- features that can also be used to preserve battery life. These are separate from the patents in the Apple lawsuit, which involve more basic mobile modem technology.

Qualcomm is asking regulators to check cellular processors and halt sales of iPhones that violate the patents.

"Apple continues to use Qualcomm's technology while refusing to pay for it," Don Rosenberg, executive vice president and general counsel of Qualcomm, said in a statement.

The irony of the situation is that the legal battle is becoming an overhang and distraction for both companies, which are significant players in the mobile market. The patents at stake represent billions of dollars in revenue for Qualcomm, and the court outcome will have broad implications for the industry, because so many mobile technology providers pay royalties to the San Diego, Calif.-based chip company. Qualcomm had to lower financial expectations for the fiscal third quarter in case more customers follow Apple's lead to withhold royalties. Shares of Qualcomm stock have been stuck near 52-week lows because of uncertainty related to the patent battle.

Patent battles in technology are nothing new, of course -- but they seem to be a growing part of the business landscape. Apple and Samsung fought over key mobile technology patents for five years, with Samsung agreeing to pay Apple $548 million. Apple had originally demanded $2 billion. In another high-profile suit, Cisco sued Arista Networks for IP infringement, a case that is proceeding slowly through the courts.

Clearly, Qualcomm is flexing muscle to defend its substantial royalty income stream. Patent royalty revenue is a high-margin business and represents about $8 billion of Qualcomm's $24 billion in annual revenue.

In midday trading today, Qualcomm shares were up .88 (1.62%) to $55.68. Its 52-week range is $51.05 to $71.62. Apple shares were up 1.88 (1.32%), to $144.61, but off a recent $156.65 high.

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