PublishedJuly 26, 2019

Qualcomm’s Petard: Apple Acquires Modem Business From Intel

Yesterday, Apple officially announced its acquisition of Intel’s smartphone modem unit.  Apple will receive a variety of assets from Intel, including patents, as well as a significant portion of Intel’s employees dedicated to wireless modem technology.  Intel retains the ability to develop 5G systems for non-smartphone applications like PCs, Internet of Things devices, and autonomous vehicles. The acquisition gives Apple a functional smartphone modem product—one they already use in their own products—and enhances Apple’s ability to further develop such products, an ability it had already been seeking out.

But for Qualcomm, the deal represents a serious threat to its long-term prospects.  The biggest issue looming in the background is the ongoing FTC v. Qualcomm case.  Judge Koh’s order requires Qualcomm to renegotiate its licenses without the threat of chip supply disruption and to license its chipset competitors.  If the FTC prevails on appeal, then Apple will be in a position to renegotiate its licenses with Qualcomm—and Qualcomm would be required to license Apple’s baseband chips, rather than their phones as a whole.  What’s more, the license would need to be at a FRAND rate, rather than the supra-FRAND rates Qualcomm currently receives.

If Qualcomm’s goal was to use its licensing practices to ensure a long-term revenue stream, it seems to have backfired.  Instead, those practices appear to have driven the courts to conclude that Qualcomm’s practices violate antitrust law and Qualcomm’s contractual obligations.  And bringing modem design in-house means that even if Qualcomm prevails on appeal, it has still lost a significant revenue stream from chip sales. In-house modem design also limits Qualcomm’s ability to use the threat of chip supply disruptions as a license negotiating tool against Apple, since Qualcomm won’t be the chip supplier.  (Judge Koh described Qualcomm’s extensive use of this negotiating tactic in detail in her opinion.)

According to Judge Koh, Qualcomm has spent the past decade or more using various licensing tactics in ways that killed competitors, avoided new competitors, and forced their customers to pay more than Qualcomm was entitled to.  Those tactics seem to have finally caught up with Qualcomm, with the Apple-Intel deal just one example of how those tactics might ultimately blow up in Qualcomm’s face.

Josh Landau

Patent Counsel, CCIA

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

Follow @PatentJosh on Twitter.

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