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So reading this, Qualcomm straight up paid Apple to only use their products? I have a limited understanding of how these agreements, but isn't that just comple

by Jonnax 9y ago

So reading this, Qualcomm straight up paid Apple to only use their products? I have a limited understanding of how these agreements, but isn't that just completely illegal? How do you structure an agreement to be even a tiny bit plausible?

Joe-Z 9y ago
>How do you structure an agreement to be even a tiny bit plausible? They don't have to. They do whatever the hell they want and know they'll have to pay some tiny amount of their exorbitant profits to the EU for it. And even that they try to drag out as long as possible. (The article also mentioned Intel dragging out paying a fine for 9 years now) I'm pretty sure these sorts of fines are already factored into their business plan.
- shakna 9y ago
  The fine against Qualcomm is $1.23 billion. Qualcomm reported a revenue of $6.2 billion in 2017 [0]. Taking a fine worth 1/6th of your annual revenue is not insignificant. [0] https://9to5mac.com/2017/11/01/qualcomm-earnings-slump-on-apple-battle/ https://9to5mac.com/2017/11/01/qualcomm-earnings-slump-on-ap...
  - zaroth 9y ago
    That’s quarterly revenue. But if anyone thinks the Board of a company is figuring $1.2B is just the cost of doing business / worth the risk of making the payments to Apple I think they are talking out their ass. Even a trillion dollar company is going to care deeply about a $1.2B fine. Companies care about fractions of a percent of operating margin. What do you think a $1.2 billion dollar expense line item, which also probably isn’t deductible, does to their margin? This is a highly material fine.
    - post_break 9y ago
      Maybe they are playing the long game? If everyone uses qualcomm chips then the competition will be little to none. Sure 1.2B is a big number, but after that gets paid you're still on top. They basically gambled for 5 years and won, then the house took a little back.
  - MagnumOpus 9y ago
    The actual numbers: - Fiscal year 2017 revenue was $23.2 billion - Fiscal year 2017 pre-tax profit was $7.5 billion 1/6 of a single year's profits for a practice that cemented their dominant market position for 6-7 years is not punitive.
    - raphaelj 9y ago
      Yes, but the fine should only cover Qualcomm's EU activities. EU account for about 15% of the smartphone market sales, so it's more like one year worth or EU profits.
    - detuur 9y ago
      Do note, this is only a punitive fine. The fine is limited to 4% of annual revenue (afaik), but it is a regulatory acknowledgement of wrongdoing. The fact that this fine is at the near maximum of the limit also cements the idea that this was a grave violation. This opens up the door to lawsuits from competitors, which can impose damages which are much, much greater, which in my knowledge aren't limited by revenue and can easily exceed all the money a company has ever made. This is the sort of stuff that can kill your business. Qualcomm has to tread very carefully now.
Voloskaya 9y ago
> I have a limited understanding of how these agreements, but isn't that just completely illegal? Well they are being given a hefty fine for it... so yes.
- nothrabannosir 9y ago
  I think his point was “what were they thinking?” Imagine Qualcomm made “shooting competitors in the face point blank” a standard operating procedure, and put it black and white in auditable contracts. After the smoke settles, you’d have to wonder: “How did they ever even think that would work?” But they’re not stupid. The more obvious explanation is that we are missing something. If we’re confused, it’s probably us who misunderstand.
  - grigjd3 9y ago
    Never explain by malice what can be explained as the actions of stupid sales executives.
    - nothrabannosir 9y ago
      There comes a point where attributing something we don’t understand to stupidity, veers on hubris. It is akin to underestimating your opponent. Writing things off as stupidity is a dangerous game when the stakes are high. Contract negotiation and legalese is their bread and butter, I would definitely ask and ask again to see what’s really going on. Not saying it’s impossible, but wow. If they honestly did not see this coming, that would be some industrial-grade, top-of-the-line stupidity DeLuxe. I’m suspicious.
tooltalk 9y ago
That's the narrative Apple told every regulators, but Qualcomm's is very different. According to Qualcomm's countersuit, Qualcomm did not demand that exclusivity first. It was Apple who proposed "discount" or "rebates" in exchange for the exclusivity and Qualcomm acquiesced to Apple's demand. Apple then turned around started telling regulators all around the world that Apple was FORCED to sign the exclusivity. Qualcomm was not allowed to directly counter Apple's claims, unlike US lawsuits, and Qualcomm's only recourse was to withhold the $1B rebate in breach of their business agreement -- their agreement forbids Apple from giving false testimony about their contract to regulators. I'm fairly sure that EU's findings are similar to those of China, Taiwan and Korea. Qualcomm's anti-competitive baseband licensing was well known before and I think Qualcomm got dinged for the right reason. But Apple's claims are directly countered by Qualcomm and, given Apple's past problem with GTA and other suppliers and unless there are other victims of Qualcomm's "exclusivity" agreement -- I'm inclined to believe Qualcomm was tricked by Apple's clever lawyers.
- joncrane 9y ago
  How does it help Apple to have Qualcomm go down, though?
  - tooltalk 9y ago
    Apple's interest here is the patent licensing policy change. Apple has been losing legal battles against wireless patent holders for as long as the iPhones have been around. In their quest to squeeze their wireless suppliers (Nokia, Ericsson, Qualcomm, etc...), Apple has challenged their licensing practices -- ie, royalty rates and basis -- every time their licensing contract was up for renewal, claiming that their licensing practices are in breach of FRAND. Of course, Apple never had any evidence of such violation and lost or settled every lawsuit. Now that it's evident that they can't win in courts, they are trying to convince policy makers/regulators to do it for them. It helps Apple's cause mightily when their largest patent holder is found in violation of anti-trust/competition laws and, contrast to their past policy of letting the market work things out, now Apple's friends in DC and FTC have to implement draconian licensing policies in favor of Apple to better control abuses in wireless patent licensing.

by Jonnax 9y ago

Joe-Z 9y ago

>How do you structure an agreement to be even a tiny bit plausible? They don't have to. They do whatever the hell they want and know they'll have to pay some tiny amount of their exorbitant profits to the EU for it. And even that they try to drag out as long as possible. (The article also mentioned Intel dragging out paying a fine for 9 years now) I'm pretty sure these sorts of fines are already factored into their business plan.

shakna 9y ago
The fine against Qualcomm is $1.23 billion. Qualcomm reported a revenue of $6.2 billion in 2017 [0]. Taking a fine worth 1/6th of your annual revenue is not insignificant. [0] https://9to5mac.com/2017/11/01/qualcomm-earnings-slump-on-apple-battle/ https://9to5mac.com/2017/11/01/qualcomm-earnings-slump-on-ap...
- zaroth 9y ago
  That’s quarterly revenue. But if anyone thinks the Board of a company is figuring $1.2B is just the cost of doing business / worth the risk of making the payments to Apple I think they are talking out their ass. Even a trillion dollar company is going to care deeply about a $1.2B fine. Companies care about fractions of a percent of operating margin. What do you think a $1.2 billion dollar expense line item, which also probably isn’t deductible, does to their margin? This is a highly material fine.
  - post_break 9y ago
    Maybe they are playing the long game? If everyone uses qualcomm chips then the competition will be little to none. Sure 1.2B is a big number, but after that gets paid you're still on top. They basically gambled for 5 years and won, then the house took a little back.
- MagnumOpus 9y ago
  The actual numbers: - Fiscal year 2017 revenue was $23.2 billion - Fiscal year 2017 pre-tax profit was $7.5 billion 1/6 of a single year's profits for a practice that cemented their dominant market position for 6-7 years is not punitive.
  - raphaelj 9y ago
    Yes, but the fine should only cover Qualcomm's EU activities. EU account for about 15% of the smartphone market sales, so it's more like one year worth or EU profits.
  - detuur 9y ago
    Do note, this is only a punitive fine. The fine is limited to 4% of annual revenue (afaik), but it is a regulatory acknowledgement of wrongdoing. The fact that this fine is at the near maximum of the limit also cements the idea that this was a grave violation. This opens up the door to lawsuits from competitors, which can impose damages which are much, much greater, which in my knowledge aren't limited by revenue and can easily exceed all the money a company has ever made. This is the sort of stuff that can kill your business. Qualcomm has to tread very carefully now.

Voloskaya 9y ago

> I have a limited understanding of how these agreements, but isn't that just completely illegal? Well they are being given a hefty fine for it... so yes.

nothrabannosir 9y ago
I think his point was “what were they thinking?” Imagine Qualcomm made “shooting competitors in the face point blank” a standard operating procedure, and put it black and white in auditable contracts. After the smoke settles, you’d have to wonder: “How did they ever even think that would work?” But they’re not stupid. The more obvious explanation is that we are missing something. If we’re confused, it’s probably us who misunderstand.
- grigjd3 9y ago
  Never explain by malice what can be explained as the actions of stupid sales executives.
  - nothrabannosir 9y ago
    There comes a point where attributing something we don’t understand to stupidity, veers on hubris. It is akin to underestimating your opponent. Writing things off as stupidity is a dangerous game when the stakes are high. Contract negotiation and legalese is their bread and butter, I would definitely ask and ask again to see what’s really going on. Not saying it’s impossible, but wow. If they honestly did not see this coming, that would be some industrial-grade, top-of-the-line stupidity DeLuxe. I’m suspicious.

tooltalk 9y ago

That's the narrative Apple told every regulators, but Qualcomm's is very different. According to Qualcomm's countersuit, Qualcomm did not demand that exclusivity first. It was Apple who proposed "discount" or "rebates" in exchange for the exclusivity and Qualcomm acquiesced to Apple's demand. Apple then turned around started telling regulators all around the world that Apple was FORCED to sign the exclusivity. Qualcomm was not allowed to directly counter Apple's claims, unlike US lawsuits, and Qualcomm's only recourse was to withhold the $1B rebate in breach of their business agreement -- their agreement forbids Apple from giving false testimony about their contract to regulators. I'm fairly sure that EU's findings are similar to those of China, Taiwan and Korea. Qualcomm's anti-competitive baseband licensing was well known before and I think Qualcomm got dinged for the right reason. But Apple's claims are directly countered by Qualcomm and, given Apple's past problem with GTA and other suppliers and unless there are other victims of Qualcomm's "exclusivity" agreement -- I'm inclined to believe Qualcomm was tricked by Apple's clever lawyers.

joncrane 9y ago
How does it help Apple to have Qualcomm go down, though?
- tooltalk 9y ago
  Apple's interest here is the patent licensing policy change. Apple has been losing legal battles against wireless patent holders for as long as the iPhones have been around. In their quest to squeeze their wireless suppliers (Nokia, Ericsson, Qualcomm, etc...), Apple has challenged their licensing practices -- ie, royalty rates and basis -- every time their licensing contract was up for renewal, claiming that their licensing practices are in breach of FRAND. Of course, Apple never had any evidence of such violation and lost or settled every lawsuit. Now that it's evident that they can't win in courts, they are trying to convince policy makers/regulators to do it for them. It helps Apple's cause mightily when their largest patent holder is found in violation of anti-trust/competition laws and, contrast to their past policy of letting the market work things out, now Apple's friends in DC and FTC have to implement draconian licensing policies in favor of Apple to better control abuses in wireless patent licensing.