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Apple and Qualcomm’s Billion-Dollar War Over an $18 Part

113 points by SirLJ 9y ago

mtgx 9y ago
That sounds very expensive. I believe a few years ago the whole SoC with the modem included was something like $20-$25. Qualcomm is basically trying to make Apple and others pay almost as much for the modem as they would pay for the SoC. This is a tactic Intel itself is also very familiar with, as they've done with their CPU and GPU bundles. I believe in some cases it was even more expensive to buy the CPU alone, so OEMs were coerced into putting an Intel GPU into any device they sold, whether it had another dedicated GPU or not. I understand at some point it becomes more expensive (but maybe not that much more) to keep those separated, but at the end of the day I believe it was an anti-competitive tactic through which Intel used its CPU monopoly to gain a much larger portion of the GPU market than they would've gained were it not for such bundles and price coercion tactics (and probably a few threats thrown into the mix against the OEMs too, if they dared to use AMD chips). I wish regulators would catch on to stuff like this early and nip them in the bud, rather than act 10 years later, when the damage is already done, the monopoly is already well established, and the companies are forced to pay a fine of like 5% of what they gained from achieving that monopoly through the anti-competitive tactics.
- Shivetya 9y ago
  I don't think it is expensive. Qualcomm is doing everyone a service by allowing anyone to buy the chipset from anyone else, just pay a small fee relative to the cost of device. This lets anyone with enough capital to get into the business and start off with good technology. Apple simply has enough money they apparently have decided they don't have to follow any rules they don't want. How do they handle licensing their patents? The article made no mention.
  - lttlrck 9y ago
    This is specifically about the FRAND terms Qualcomm agreed to when their patented methods were included the cellular standards. These methods were included because they may have been the best way to solve the issue but more importantly because an industry giant is ready to build chips to adhere to the standard, helping adoption and time to market. To offset that vested interest, they have to agree to FRAND terms.
- jrs95 9y ago
  >I wish regulators would catch on to stuff like this early and nip them in the bud, rather than act 10 years later, when the damage is already done, the monopoly is already well established, and the companies are forced to pay a fine of like 5% of what they gained from achieving that monopoly through the anti-competitive tactics. Reminds me of Mr. Robot & how Evil Corp still profited from ignoring regulations (which got people killed).
- hajile 9y ago
  We have very small companies (in the low tens of millions) that make decent SoC. Nobody is going to make 4G anything for less than the tens of billions). The entire market cap of ARM is half that of Qualcomm (and around a third before they lost a quarter of their valuation). Building modems is way harder than building SoCs (all the SoC challenges plus all the modem ones too). It's taken a decade of work on 5G to just begin preliminary sampling (How many SoC generations would that be?). You also have to keep in mind that it's not just the modem in the phone. You have huge software stacks, protocol design and testing, and an entire cell tower worth of electronics to design and build. There's no free lunch. You have to strike a balance between forcing the cost onto the service provider (higher cell bills and/or slower adoption) and forcing the cost onto the phone. Considering that Qualcomm's net sales to R&D ratio is basically unmatched (most companies spend half what Qualcomm does by that metric), it's not easy to make the case for gouging in my view.
jimrandomh 9y ago
Qualcomm's chips have a very bad computer security track record, and their patent-enforced monopoly status makes this a serious problem. If they would go the way of Flash and Acrobat, this would make the world much better off.
- simonh 9y ago
  Would whoever supplanted them necessarily have a better record? Competition is a fine thing, but doesn't necessarily optimise for every desirable outcome. Usually the optimised factor is price, not quality metrics like security.
- mschuster91 9y ago
  > Qualcomm's chips have a very bad computer security track record, Better hope you never see the source of a MediaTek Android kernel code dump. Someone with more malicious intent than me could instantly compromise a boatload of devices.
  - tmzt 9y ago
    Are you referring to exploits in the modifications made to kernel source or to something underlying in the hardware or bootloader that is exposed by looking at kernel source. Are they actually making GPL source availible for their kernels?
    - mschuster91 9y ago
      I am referring to kernel modifications and especially custom module source code. But given the state of the kernel code I've seen, I don't put much trust in bootloader and hardware either. Go search on Github for leaked sources, I am not sure if they're legal to post here...
- samfisher83 9y ago
  Qcom is not a chip company. It is an IP company that happens to make some chips on the side. A majority of their profits are based on their IP portfolio. As a percentage of revenue they spend more on R&D than most Tech companies especially apple. Apple spends less than 5% on R&D. However I am not a fan of their chips. Their chips aren't that great, but its hard to compete with them since you have to use their patents on your radio. It would be good if they just split the IP and Chip parts.
yaantc 9y ago
That's a very one-sided pro-Qualcomm piece. The big issue with Qualcomm IP practice is that they don't charge IPR on the modem function, but over the whole device. So put the same modem in a cheap phone, or in an expensive laptop, and the IPR will be very different. This is really charging IPR on a lot of value completely unrelated to the modem. Historically, the cellular/3GPP world was very phone centric. The specs were for a phone, and the chipset was really the core of the phone. At that time, charging cellular IPR on the device embedding the chipset was reasonable: the device was just a phone, with all the intelligence coming from the chipset. We're obviously no longer living in such a world. But Qualcomm keeps this practice, as it's very profitable for them and their dominant position let them do it (so far). Apple is mad at this, as most of the value of a smartphone is outside of the modem part nowadays (even more for a PC). Other device makers hate it too, but don't have the muscle to go against QCOM and can't afford alienating them. Europe is looking into it too, and will issue a recommendation that cellular IPR is charge only on the modem subsystem, not the including device (basically, Apple position). It will start as a recommendation, but could become law later on. So it looks like it's QCOM against everybody else. Considering the money involved, I'm sure that QCOM has a pretty fat budget to push their angle. Hello Bloomberg ;)
- mchafkin 9y ago
  did you read the story? we discuss the very disagreement you reference.
  - kartD 9y ago
    From the guidelines: Please don't insinuate that someone hasn't read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
    - ksk 9y ago
      The guidelines are indeed a nice idea. Its a pity a tiny minority seems to care for or follow them. IMO Using them to selectively criticize is worse than not having them in the first place.
yoz-y 9y ago
Is it a common practice in other fields to charge a percentage of final product as a fee? To me it seems that while this can make sense to some extent there should be a cap. If I put a modem which uses Qualcomm IP in a car should I also pay 5% of the price?
- newusertoday 9y ago
  there is cap at 300$, max royalty at this cap is 15$.
- rgbrenner 9y ago
  A patent holder can charge whatever they want, or even refuse to allow anyone to license it. The difference is that Qualcomm agreed to FRAND (fair, reasonable, and non-discriminatory) licensing terms in exchange for their patent being included in the standard. Once they got their patent in the standard, now they're saying they get to charge whatever they want. That's the problem. That wasn't the deal they and everyone else agreed to, and it's too late to remove their patent from the standard.
  - atka 9y ago
    There is nothing in FRAND that says what they can charge. They can charge whatever they want as long as it is fair reasonable and non discrimatory.
    - robhu 9y ago
      Isn't the point that the R of FRAND is being violated because it is not reasonable to charge a % of the cost of the entire device when they are contributing only the modem.
  - tooltalk 9y ago
    no, a patent holder CAN NOT charge whatever they want. Apple tried it during their quest to destroy Android (Samsung) a few years back, but most of their utility claims were "apportioned" accordingly. Apple was able to gorge the entire profit on per device on a couple of frivolous design patents, but the SCOTUS stepped in to reverse that absurd ruling last year. Contrary to your unsubstantiated claims, Qualcomm's licensing rates are publicly available and published time to time -- often in the range of 3% to 5%. Apple according to this article pays nowhere close to the published rate that most other handset makers are paying.
throwaway000002 9y ago
If AAPL thinks QCOM doesn't add proportional value to their phone, let them sell their phone without QCOM ip. Because we all know AAPL takes its proportional percentage of flesh from an app developer for having the audacity to add value to iOS, whilst simultaneously holding back the web. Hypocrisy all around.
- rgbrenner 9y ago
  Apple can't really do that (sell a phone without Qualcomm IP). Qualcomm agreed to FRAND terms in exchange to adding their patents to the 3G standard. Once that happened, Qualcomm then violated their FRAND terms to create a monopoly on CDMA chipsets, charge additional royalties, etc. If they drop Qualcomm, then they'll have to drop CDMA support (Verizon, Sprint, 3g, 4g).
  - RandVal30142 9y ago
    >Apple can't really do that (sell a phone without Qualcomm IP). Maybe they should do some long term investments in this realm if it is where they choose to make their profits from? Or pound sand in court..
  - lanaius 9y ago
    Sewell is directly quoted as saying cellular "isn't as important as it used to be." When they thought 3.5mm TRS wasn't as important as it used to be they cut it. Seems like cellular is perhaps still more crucial to the viability of the phone than they want to admit.
  - tooltalk 9y ago
    in what ways did Qualcomm violate FRAND terms? Nokia, Ericsson and pretty much everyone else uses the entire device as a royalty basis. This is a fairly standard industry practice -- and has been so for decades. While Qualcomm is the largest contributor of wireless standards, it is far from a monopology. Also note that Apple accuses of every wireless patents holders of some sort of unfair pricing and violation of FRAND terms whenever Apple is up for license renewal. This is coming from a company that audaciously asked about $30 per device for a handful of frivolous design and utility patents from Samsung.
jeffdavis 9y ago
I don't understand what the problem is. Qualcomm invents something, patents it, and then they have a monopoly. Apple's answer should be to open their own EE labs and start inventing things and getting their own patents. Instead, they complain and go to court. Of course, that assumes the patents are good ones.
- dpark 9y ago
  > I don't understand what the problem is. Qualcomm invents something, patents it, and then they have a monopoly. Apple's assertion is that the pricing is not Fair or Reasonable, which Qualcomm agreed to as a concession to make their patents part of the cellular network standards. > Apple's answer should be to open their own EE labs and start inventing things and getting their own patents. Instead, they complain and go to court. Apple cannot simply invent their own cell technology and have it work with the cellular networks that actually exist.
  - hajile 9y ago
    Qualcomm's R&D budget is around 25% of net sales. Google, Cisco, Intel, and Microsoft (for example) are considered big spenders, but they only spend 12-15% of net sales (apple spends 2.2% of net sales on R&D). Qualcomm sounds a lot more fair and reasonable than any of the other multi-billion dollar companies I know of.
    - AlphaSite 9y ago
      Actually don’t they spend 5-7%? It’s not huge percentage wise, but it’s still 10billion.
      - hajile 9y ago
        My number was taken from another source (I lost it). You can get higher or lower numbers by comparing to other things. For an apples to apples comparison (latest Qualcomm data I found was 2015) gives 3.4%. http://appleinsider.com/articles/15/10/28/apple-rd-spending-hit-81b-in-2015-suggests-continued-work-on-massive-project http://appleinsider.com/articles/15/10/28/apple-rd-spending-...
aetherson 9y ago
It's kind of hilarious to hear Apple bitching that when it marks up its phones a ridiculous $100 for $20 worth of memory, it has to share its $80 profit. Neither of these companies deserves our sympathy. They are two big amoral profit-seeking entities wrestling for money in a way that won't meaningfully affect your life. Whether Apple wins or Qualcomm wins or they split the difference, it's neither justice nor injustice.
- briandear 9y ago
  What can you do with the $20 worth of memory by itself? That $100 "markup" is because it's part of a great whole -- a whole that took millions to engineer and create. It isn't like Apple is just reselling memory chips. I could buy all the raw materials that go into an iPhone, but that doesn't mean that I personally could make an iPhone. I'm glad to pay a premium because I don't have time to build a phone.
  - ianamartin 9y ago
    Not sure why this is being downvoted. The existence of Apple at all today is exactly because people perceive a value greater than the sum of the cost of parts. This isn’t a new idea, and people put tens of billions of dollars behind this concept every fiscal quarter.
    - ananthraghavan 9y ago
      > The existence of Apple at all today is exactly because people perceive a value greater than the sum of the cost of parts. yes and Apple loves that and that's why it makes its phones notoriously hard to repair or upgrade. that's why there are no SD card slots. that's why you have to buy an overpriced Apple exclusive lightning earphones or connector or whatever. everyone is acting like the price of the phone must go up so much if it has higher storage, like there is no other engineering option.
      - ianamartin 9y ago
        I wasn't making a value judgement about whether or not this is a good thing. I was just pointing out that many people do find this a good thing. The product is more valuable than the price of the components to a large number of people. Whether or not that should be the case is better left to a different discussion. But the objective fact is that it's true for a huge number of people, and that provides an incentive for Apple to do more of the same. If people were buying tens of billions of dollars worth of your product every three months, what would you do? Make it worse? Not find ways to make it more profitable? I think you're incorrect about why Apple devices are not easy to repair and upgrade. But we may have to agree to disagree or have a different conversation about that.
wyldfire 9y ago
IMO the debate over whether QCOM can/should charge based on the finshed cost of the device hinges on which analogy you pick. Is it the sofa from your house [1] or the powertrain that powers your luxury automobile? [1] https://www.imore.com/tim-apples-ceo-companys-2017-q1-earnings https://www.imore.com/tim-apples-ceo-companys-2017-q1-earnin...
bactrian 9y ago
All the money spent on patent wars will be paid for by consumers. Abolish all patents. Let the free market sort things out.
- xigency 9y ago
  Doubtful. Did you see the graphic in the article which shows Apple's margins on an iPhone?
  - prewett 9y ago
    Those were Apple's gross margins. Cost of goods is never the total cost, even for retail. In Apple's case, a lot of the magic of the iPhone happens through the effort of R&D. The media saying Apple's profit margin is their gross margin is disingenuous and grossly misleading. Most companies' gross margins are somewhere around 70% for products, but Apple is the one that gets singled out.
    - aetherson 9y ago
      Apple's total profit after everything, for 2016, was $45.69B on $214.23B. That's over 21% net profit after every expense they have, which is insanely high. Apple's entire reputation is based on having crazy high profits for their revenue. That you're arguing that they have ordinary profit margins is insane. And no, "most companies" do not have gross margins of 70%.
mkhalil 9y ago
I love battles when you can't really feel sorry for either side. As much as I or anyone hate patent trolls, one can't sit here and complain that a percentage of the value isn't a fair price to pay if one thinks it's okay for Apple to charge Music + App devs 30% to improve their OS + provide content for it's users.
- MBCook 9y ago
  App developers agreed to the 30%. Qualcomm agreed to FRAND pricing. But that’s not what they’re charging Apple. They broke an agreement. What Apple is doing doesn’t violate an agreement, whatever you think of it.
  - tooltalk 9y ago
    and Apple agreed to pay Qualcomm's FRAND rates, didn't it? Like Apple's 30% cut known to the public, Qualcomm's FRAND licensing rates are published time to time and Apple agreed to abide by it. Apple pays according to the article about $10 per device, or 1.33% of the retail price. This is far below what Qualcomm is charging, 3% to 5%, and what most handset makers pay. Further the royalty Apple pays (indirectly) is based on Apple's manufacturer's build cost, not retail cost.
  - atka 9y ago
    And FRAND doesn't mean anything. It just means fair reasonable and non discrimatory. If Qualcomm charges everyone the same then how is this not met.
    - MBCook 9y ago
      Just because they charge everyone the same thing doesn’t make it fair or reasonable. What if they sold their chip for $10 and sold licenses to the necessary patents for $100/unit? That’s not fair or reasonable. It’s one kind of situation FRAND was designed to prevent.
- briandear 9y ago
  App developers are free to find customers elsewhere. Perhaps app developers could create their own distribution system that guarantees security, updates and ease of use and create a device upon which it can run. App developers can also handle the multiple country's tax laws, create a payment system and do all of that on their own as well. Apple devs don't have to deal with collecting taxes in the countries in which they sell. They don't have to deal with fraudulent transactions, chargebacks or distributing updates to users. The idea that the 30% is somehow unfair is ridiculous. Look at retail markup rates for products sold in conventional stores. That's what that 30% is -- a retail markup and it's completely fair. Whole Foods sells olive oil for $20 that they buy from a supplier for $8. How unfair does 30% seem now? The supplier prices their product at the price they need to collect. What the end-distributer charges really isn't a concern to the supplier. But unlike Whole Foods, Apple doesn't give preference to certain suppliers over others. Everyone on the App Store has an equal chance to sell their product.
dheelus 9y ago
An analogy for this in the real world would be tips for waiters. As a foreigner, I'm aghast at the tipping culture in the US but more importantly, I fail to understand why tips are calculated on a percentage basis. It is no more effort to bring me out a $60 steak than it is to bring me a $5 coffee. So why should I tip $12 for the steak and $1 for the coffee? To Apple's point, they want a "fixed" tip charge. But then again, Apple charges devs 30% of revenue from their App store when really it's (arguably) no more effort for them to host/monitor a 99-cent app vs. $10 app.
- smm2000 9y ago
  Throughput, expectation of service and number of tables/waiter are very different for coffeeshop/casual diner and place that sells $60 steak. In casual restaurant you can expect one waiter per 8 tables compared to 4 tables/waiter in fine dining place. People easily take 2x time to eat the same amount of food in fine dining place compared to something cheaper. In fine dining place waiters are better trained/educated (ever tried to ask for wine recommendation at Denny's?) and dress nicer. Higher tips per person are totally expected in fine dining place purely from economic perspective.
  - dheelus 9y ago
    Agreed and my analogy is imperfect at best. However, assuming I am eating at a fine-dining establishment, why should tips be percentage calculated? Shouldn't the tip amount be the same regardless of whether I order the expensive items on the menu or the (relatively) cheaper ones? Which is basically what Apple's argument boils down to. FWIW, I don't really have a dog in this race (except as an AAPL stockholder I want the stock to do well). If any judgement mandates that the license fee be charged on the cost of the chip and not the device, then I'd like to see that be extended to the App Store ToS as well.
    - firethief 9y ago
      Proportional tipping is much better at aligning the waiters' interests with the restaurant's than a flat tipping model would be; better customers get better service.
guftagu 9y ago
The title is too clickbaity to resist
alexandercrohde 9y ago
You guys are making this a really irrational, really emotional "Apple vs Qualcomm" issue. The root of the problem is not that. The root of the problem is bad patent law. It really doesn't matter what apple does, it doesn't matter if their CEO eats babies, the merits of a patent are irrelevant to whether the company "feels like a baddy." If you think apple has bad monopolistic practices in its app store, that only reinforces the fact that our system is anticompetitive, and that both Qualcomm should lose its patent as well as potential opening up of the IOS ecosystem.
- ballenf 9y ago
  And a broken cellular standards body that doesn't nail down in explicit detail how the IP will be licensed before granting a government-sponsored & mandated monopoly.
- philjohn 9y ago
  It's a difficult one - Qualcomm have invested a huge amount of money in developing some awesome baseband hardware - so should see some protection of that.
  - deleted 9y ago
    [deleted]
- svantana 9y ago
  Who said anything about a "problem"? It's a fight between corporations, I don't see anything about this that is bad for society at large. Apple already turns a huge profit on each phone, it's not likely that they would pass on a potential saving to the consumer. And Qualcomm is hardly a patent troll, they use their licence fees to fund R&D. There are plenty of problems with our IP laws but is this really one of them?
  - deleted 9y ago
    [deleted]
petraeus 9y ago
Imagine if your employer paid you on your cost rather than your value. Same concept.
tzakrajs 9y ago
Reads like a fluff piece for Qualcomm, I wonder how much they paid.
donarb 9y ago
"...we invented airplane mode. That patent’s out in the lobby." Now that is truly an innovation from Qualcomm, a switch that turns off the cell modem.

113 points by SirLJ 9y ago

mtgx 9y ago

That sounds very expensive. I believe a few years ago the whole SoC with the modem included was something like $20-$25. Qualcomm is basically trying to make Apple and others pay almost as much for the modem as they would pay for the SoC. This is a tactic Intel itself is also very familiar with, as they've done with their CPU and GPU bundles. I believe in some cases it was even more expensive to buy the CPU alone, so OEMs were coerced into putting an Intel GPU into any device they sold, whether it had another dedicated GPU or not. I understand at some point it becomes more expensive (but maybe not that much more) to keep those separated, but at the end of the day I believe it was an anti-competitive tactic through which Intel used its CPU monopoly to gain a much larger portion of the GPU market than they would've gained were it not for such bundles and price coercion tactics (and probably a few threats thrown into the mix against the OEMs too, if they dared to use AMD chips). I wish regulators would catch on to stuff like this early and nip them in the bud, rather than act 10 years later, when the damage is already done, the monopoly is already well established, and the companies are forced to pay a fine of like 5% of what they gained from achieving that monopoly through the anti-competitive tactics.

Shivetya 9y ago
I don't think it is expensive. Qualcomm is doing everyone a service by allowing anyone to buy the chipset from anyone else, just pay a small fee relative to the cost of device. This lets anyone with enough capital to get into the business and start off with good technology. Apple simply has enough money they apparently have decided they don't have to follow any rules they don't want. How do they handle licensing their patents? The article made no mention.
- lttlrck 9y ago
  This is specifically about the FRAND terms Qualcomm agreed to when their patented methods were included the cellular standards. These methods were included because they may have been the best way to solve the issue but more importantly because an industry giant is ready to build chips to adhere to the standard, helping adoption and time to market. To offset that vested interest, they have to agree to FRAND terms.
jrs95 9y ago
>I wish regulators would catch on to stuff like this early and nip them in the bud, rather than act 10 years later, when the damage is already done, the monopoly is already well established, and the companies are forced to pay a fine of like 5% of what they gained from achieving that monopoly through the anti-competitive tactics. Reminds me of Mr. Robot & how Evil Corp still profited from ignoring regulations (which got people killed).
hajile 9y ago
We have very small companies (in the low tens of millions) that make decent SoC. Nobody is going to make 4G anything for less than the tens of billions). The entire market cap of ARM is half that of Qualcomm (and around a third before they lost a quarter of their valuation). Building modems is way harder than building SoCs (all the SoC challenges plus all the modem ones too). It's taken a decade of work on 5G to just begin preliminary sampling (How many SoC generations would that be?). You also have to keep in mind that it's not just the modem in the phone. You have huge software stacks, protocol design and testing, and an entire cell tower worth of electronics to design and build. There's no free lunch. You have to strike a balance between forcing the cost onto the service provider (higher cell bills and/or slower adoption) and forcing the cost onto the phone. Considering that Qualcomm's net sales to R&D ratio is basically unmatched (most companies spend half what Qualcomm does by that metric), it's not easy to make the case for gouging in my view.

jimrandomh 9y ago

Qualcomm's chips have a very bad computer security track record, and their patent-enforced monopoly status makes this a serious problem. If they would go the way of Flash and Acrobat, this would make the world much better off.

simonh 9y ago
Would whoever supplanted them necessarily have a better record? Competition is a fine thing, but doesn't necessarily optimise for every desirable outcome. Usually the optimised factor is price, not quality metrics like security.
mschuster91 9y ago
> Qualcomm's chips have a very bad computer security track record, Better hope you never see the source of a MediaTek Android kernel code dump. Someone with more malicious intent than me could instantly compromise a boatload of devices.
- tmzt 9y ago
  Are you referring to exploits in the modifications made to kernel source or to something underlying in the hardware or bootloader that is exposed by looking at kernel source. Are they actually making GPL source availible for their kernels?
  - mschuster91 9y ago
    I am referring to kernel modifications and especially custom module source code. But given the state of the kernel code I've seen, I don't put much trust in bootloader and hardware either. Go search on Github for leaked sources, I am not sure if they're legal to post here...
samfisher83 9y ago
Qcom is not a chip company. It is an IP company that happens to make some chips on the side. A majority of their profits are based on their IP portfolio. As a percentage of revenue they spend more on R&D than most Tech companies especially apple. Apple spends less than 5% on R&D. However I am not a fan of their chips. Their chips aren't that great, but its hard to compete with them since you have to use their patents on your radio. It would be good if they just split the IP and Chip parts.

yaantc 9y ago

That's a very one-sided pro-Qualcomm piece. The big issue with Qualcomm IP practice is that they don't charge IPR on the modem function, but over the whole device. So put the same modem in a cheap phone, or in an expensive laptop, and the IPR will be very different. This is really charging IPR on a lot of value completely unrelated to the modem. Historically, the cellular/3GPP world was very phone centric. The specs were for a phone, and the chipset was really the core of the phone. At that time, charging cellular IPR on the device embedding the chipset was reasonable: the device was just a phone, with all the intelligence coming from the chipset. We're obviously no longer living in such a world. But Qualcomm keeps this practice, as it's very profitable for them and their dominant position let them do it (so far). Apple is mad at this, as most of the value of a smartphone is outside of the modem part nowadays (even more for a PC). Other device makers hate it too, but don't have the muscle to go against QCOM and can't afford alienating them. Europe is looking into it too, and will issue a recommendation that cellular IPR is charge only on the modem subsystem, not the including device (basically, Apple position). It will start as a recommendation, but could become law later on. So it looks like it's QCOM against everybody else. Considering the money involved, I'm sure that QCOM has a pretty fat budget to push their angle. Hello Bloomberg ;)

mchafkin 9y ago
did you read the story? we discuss the very disagreement you reference.
- kartD 9y ago
  From the guidelines: Please don't insinuate that someone hasn't read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
  - ksk 9y ago
    The guidelines are indeed a nice idea. Its a pity a tiny minority seems to care for or follow them. IMO Using them to selectively criticize is worse than not having them in the first place.

yoz-y 9y ago

Is it a common practice in other fields to charge a percentage of final product as a fee? To me it seems that while this can make sense to some extent there should be a cap. If I put a modem which uses Qualcomm IP in a car should I also pay 5% of the price?

newusertoday 9y ago
there is cap at 300$, max royalty at this cap is 15$.
rgbrenner 9y ago
A patent holder can charge whatever they want, or even refuse to allow anyone to license it. The difference is that Qualcomm agreed to FRAND (fair, reasonable, and non-discriminatory) licensing terms in exchange for their patent being included in the standard. Once they got their patent in the standard, now they're saying they get to charge whatever they want. That's the problem. That wasn't the deal they and everyone else agreed to, and it's too late to remove their patent from the standard.
- atka 9y ago
  There is nothing in FRAND that says what they can charge. They can charge whatever they want as long as it is fair reasonable and non discrimatory.
  - robhu 9y ago
    Isn't the point that the R of FRAND is being violated because it is not reasonable to charge a % of the cost of the entire device when they are contributing only the modem.
- tooltalk 9y ago
  no, a patent holder CAN NOT charge whatever they want. Apple tried it during their quest to destroy Android (Samsung) a few years back, but most of their utility claims were "apportioned" accordingly. Apple was able to gorge the entire profit on per device on a couple of frivolous design patents, but the SCOTUS stepped in to reverse that absurd ruling last year. Contrary to your unsubstantiated claims, Qualcomm's licensing rates are publicly available and published time to time -- often in the range of 3% to 5%. Apple according to this article pays nowhere close to the published rate that most other handset makers are paying.

throwaway000002 9y ago

If AAPL thinks QCOM doesn't add proportional value to their phone, let them sell their phone without QCOM ip. Because we all know AAPL takes its proportional percentage of flesh from an app developer for having the audacity to add value to iOS, whilst simultaneously holding back the web. Hypocrisy all around.

rgbrenner 9y ago
Apple can't really do that (sell a phone without Qualcomm IP). Qualcomm agreed to FRAND terms in exchange to adding their patents to the 3G standard. Once that happened, Qualcomm then violated their FRAND terms to create a monopoly on CDMA chipsets, charge additional royalties, etc. If they drop Qualcomm, then they'll have to drop CDMA support (Verizon, Sprint, 3g, 4g).
- RandVal30142 9y ago
  >Apple can't really do that (sell a phone without Qualcomm IP). Maybe they should do some long term investments in this realm if it is where they choose to make their profits from? Or pound sand in court..
- lanaius 9y ago
  Sewell is directly quoted as saying cellular "isn't as important as it used to be." When they thought 3.5mm TRS wasn't as important as it used to be they cut it. Seems like cellular is perhaps still more crucial to the viability of the phone than they want to admit.
- tooltalk 9y ago
  in what ways did Qualcomm violate FRAND terms? Nokia, Ericsson and pretty much everyone else uses the entire device as a royalty basis. This is a fairly standard industry practice -- and has been so for decades. While Qualcomm is the largest contributor of wireless standards, it is far from a monopology. Also note that Apple accuses of every wireless patents holders of some sort of unfair pricing and violation of FRAND terms whenever Apple is up for license renewal. This is coming from a company that audaciously asked about $30 per device for a handful of frivolous design and utility patents from Samsung.

jeffdavis 9y ago

I don't understand what the problem is. Qualcomm invents something, patents it, and then they have a monopoly. Apple's answer should be to open their own EE labs and start inventing things and getting their own patents. Instead, they complain and go to court. Of course, that assumes the patents are good ones.

dpark 9y ago
> I don't understand what the problem is. Qualcomm invents something, patents it, and then they have a monopoly. Apple's assertion is that the pricing is not Fair or Reasonable, which Qualcomm agreed to as a concession to make their patents part of the cellular network standards. > Apple's answer should be to open their own EE labs and start inventing things and getting their own patents. Instead, they complain and go to court. Apple cannot simply invent their own cell technology and have it work with the cellular networks that actually exist.
- hajile 9y ago
  Qualcomm's R&D budget is around 25% of net sales. Google, Cisco, Intel, and Microsoft (for example) are considered big spenders, but they only spend 12-15% of net sales (apple spends 2.2% of net sales on R&D). Qualcomm sounds a lot more fair and reasonable than any of the other multi-billion dollar companies I know of.
  - AlphaSite 9y ago
    Actually don’t they spend 5-7%? It’s not huge percentage wise, but it’s still 10billion.
    - hajile 9y ago
      My number was taken from another source (I lost it). You can get higher or lower numbers by comparing to other things. For an apples to apples comparison (latest Qualcomm data I found was 2015) gives 3.4%. http://appleinsider.com/articles/15/10/28/apple-rd-spending-hit-81b-in-2015-suggests-continued-work-on-massive-project http://appleinsider.com/articles/15/10/28/apple-rd-spending-...

aetherson 9y ago

It's kind of hilarious to hear Apple bitching that when it marks up its phones a ridiculous $100 for $20 worth of memory, it has to share its $80 profit. Neither of these companies deserves our sympathy. They are two big amoral profit-seeking entities wrestling for money in a way that won't meaningfully affect your life. Whether Apple wins or Qualcomm wins or they split the difference, it's neither justice nor injustice.

briandear 9y ago
What can you do with the $20 worth of memory by itself? That $100 "markup" is because it's part of a great whole -- a whole that took millions to engineer and create. It isn't like Apple is just reselling memory chips. I could buy all the raw materials that go into an iPhone, but that doesn't mean that I personally could make an iPhone. I'm glad to pay a premium because I don't have time to build a phone.
- ianamartin 9y ago
  Not sure why this is being downvoted. The existence of Apple at all today is exactly because people perceive a value greater than the sum of the cost of parts. This isn’t a new idea, and people put tens of billions of dollars behind this concept every fiscal quarter.
  - ananthraghavan 9y ago
    > The existence of Apple at all today is exactly because people perceive a value greater than the sum of the cost of parts. yes and Apple loves that and that's why it makes its phones notoriously hard to repair or upgrade. that's why there are no SD card slots. that's why you have to buy an overpriced Apple exclusive lightning earphones or connector or whatever. everyone is acting like the price of the phone must go up so much if it has higher storage, like there is no other engineering option.
    - ianamartin 9y ago
      I wasn't making a value judgement about whether or not this is a good thing. I was just pointing out that many people do find this a good thing. The product is more valuable than the price of the components to a large number of people. Whether or not that should be the case is better left to a different discussion. But the objective fact is that it's true for a huge number of people, and that provides an incentive for Apple to do more of the same. If people were buying tens of billions of dollars worth of your product every three months, what would you do? Make it worse? Not find ways to make it more profitable? I think you're incorrect about why Apple devices are not easy to repair and upgrade. But we may have to agree to disagree or have a different conversation about that.

wyldfire 9y ago

IMO the debate over whether QCOM can/should charge based on the finshed cost of the device hinges on which analogy you pick. Is it the sofa from your house [1] or the powertrain that powers your luxury automobile? [1] https://www.imore.com/tim-apples-ceo-companys-2017-q1-earnings https://www.imore.com/tim-apples-ceo-companys-2017-q1-earnin...

bactrian 9y ago

All the money spent on patent wars will be paid for by consumers. Abolish all patents. Let the free market sort things out.

xigency 9y ago
Doubtful. Did you see the graphic in the article which shows Apple's margins on an iPhone?
- prewett 9y ago
  Those were Apple's gross margins. Cost of goods is never the total cost, even for retail. In Apple's case, a lot of the magic of the iPhone happens through the effort of R&D. The media saying Apple's profit margin is their gross margin is disingenuous and grossly misleading. Most companies' gross margins are somewhere around 70% for products, but Apple is the one that gets singled out.
  - aetherson 9y ago
    Apple's total profit after everything, for 2016, was $45.69B on $214.23B. That's over 21% net profit after every expense they have, which is insanely high. Apple's entire reputation is based on having crazy high profits for their revenue. That you're arguing that they have ordinary profit margins is insane. And no, "most companies" do not have gross margins of 70%.

mkhalil 9y ago

I love battles when you can't really feel sorry for either side. As much as I or anyone hate patent trolls, one can't sit here and complain that a percentage of the value isn't a fair price to pay if one thinks it's okay for Apple to charge Music + App devs 30% to improve their OS + provide content for it's users.

MBCook 9y ago
App developers agreed to the 30%. Qualcomm agreed to FRAND pricing. But that’s not what they’re charging Apple. They broke an agreement. What Apple is doing doesn’t violate an agreement, whatever you think of it.
- tooltalk 9y ago
  and Apple agreed to pay Qualcomm's FRAND rates, didn't it? Like Apple's 30% cut known to the public, Qualcomm's FRAND licensing rates are published time to time and Apple agreed to abide by it. Apple pays according to the article about $10 per device, or 1.33% of the retail price. This is far below what Qualcomm is charging, 3% to 5%, and what most handset makers pay. Further the royalty Apple pays (indirectly) is based on Apple's manufacturer's build cost, not retail cost.
- atka 9y ago
  And FRAND doesn't mean anything. It just means fair reasonable and non discrimatory. If Qualcomm charges everyone the same then how is this not met.
  - MBCook 9y ago
    Just because they charge everyone the same thing doesn’t make it fair or reasonable. What if they sold their chip for $10 and sold licenses to the necessary patents for $100/unit? That’s not fair or reasonable. It’s one kind of situation FRAND was designed to prevent.
briandear 9y ago
App developers are free to find customers elsewhere. Perhaps app developers could create their own distribution system that guarantees security, updates and ease of use and create a device upon which it can run. App developers can also handle the multiple country's tax laws, create a payment system and do all of that on their own as well. Apple devs don't have to deal with collecting taxes in the countries in which they sell. They don't have to deal with fraudulent transactions, chargebacks or distributing updates to users. The idea that the 30% is somehow unfair is ridiculous. Look at retail markup rates for products sold in conventional stores. That's what that 30% is -- a retail markup and it's completely fair. Whole Foods sells olive oil for $20 that they buy from a supplier for $8. How unfair does 30% seem now? The supplier prices their product at the price they need to collect. What the end-distributer charges really isn't a concern to the supplier. But unlike Whole Foods, Apple doesn't give preference to certain suppliers over others. Everyone on the App Store has an equal chance to sell their product.

dheelus 9y ago

An analogy for this in the real world would be tips for waiters. As a foreigner, I'm aghast at the tipping culture in the US but more importantly, I fail to understand why tips are calculated on a percentage basis. It is no more effort to bring me out a $60 steak than it is to bring me a $5 coffee. So why should I tip $12 for the steak and $1 for the coffee? To Apple's point, they want a "fixed" tip charge. But then again, Apple charges devs 30% of revenue from their App store when really it's (arguably) no more effort for them to host/monitor a 99-cent app vs. $10 app.

smm2000 9y ago
Throughput, expectation of service and number of tables/waiter are very different for coffeeshop/casual diner and place that sells $60 steak. In casual restaurant you can expect one waiter per 8 tables compared to 4 tables/waiter in fine dining place. People easily take 2x time to eat the same amount of food in fine dining place compared to something cheaper. In fine dining place waiters are better trained/educated (ever tried to ask for wine recommendation at Denny's?) and dress nicer. Higher tips per person are totally expected in fine dining place purely from economic perspective.
- dheelus 9y ago
  Agreed and my analogy is imperfect at best. However, assuming I am eating at a fine-dining establishment, why should tips be percentage calculated? Shouldn't the tip amount be the same regardless of whether I order the expensive items on the menu or the (relatively) cheaper ones? Which is basically what Apple's argument boils down to. FWIW, I don't really have a dog in this race (except as an AAPL stockholder I want the stock to do well). If any judgement mandates that the license fee be charged on the cost of the chip and not the device, then I'd like to see that be extended to the App Store ToS as well.
  - firethief 9y ago
    Proportional tipping is much better at aligning the waiters' interests with the restaurant's than a flat tipping model would be; better customers get better service.

guftagu 9y ago

The title is too clickbaity to resist

alexandercrohde 9y ago

You guys are making this a really irrational, really emotional "Apple vs Qualcomm" issue. The root of the problem is not that. The root of the problem is bad patent law. It really doesn't matter what apple does, it doesn't matter if their CEO eats babies, the merits of a patent are irrelevant to whether the company "feels like a baddy." If you think apple has bad monopolistic practices in its app store, that only reinforces the fact that our system is anticompetitive, and that both Qualcomm should lose its patent as well as potential opening up of the IOS ecosystem.

ballenf 9y ago
And a broken cellular standards body that doesn't nail down in explicit detail how the IP will be licensed before granting a government-sponsored & mandated monopoly.
philjohn 9y ago
It's a difficult one - Qualcomm have invested a huge amount of money in developing some awesome baseband hardware - so should see some protection of that.
- deleted 9y ago
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svantana 9y ago
Who said anything about a "problem"? It's a fight between corporations, I don't see anything about this that is bad for society at large. Apple already turns a huge profit on each phone, it's not likely that they would pass on a potential saving to the consumer. And Qualcomm is hardly a patent troll, they use their licence fees to fund R&D. There are plenty of problems with our IP laws but is this really one of them?
- deleted 9y ago
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petraeus 9y ago

Imagine if your employer paid you on your cost rather than your value. Same concept.

tzakrajs 9y ago

Reads like a fluff piece for Qualcomm, I wonder how much they paid.

donarb 9y ago

"...we invented airplane mode. That patent’s out in the lobby." Now that is truly an innovation from Qualcomm, a switch that turns off the cell modem.