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That's an argument that Qualcomm would push. If Qualcomm charged a flat $25/phone, that would hugely drive up the price of low-cost phones. However, why shoul

by mdasen 9y ago

That's an argument that Qualcomm would push. If Qualcomm charged a flat $25/phone, that would hugely drive up the price of low-cost phones. However, why should Qualcomm get more money if a manufacturer includes a better display or camera? Qualcomm isn't adding more value, the better display or camera is adding the additional value. Qualcomm is just demanding more money. Microsoft is saying that Windows makes a computer better by $N and so manufacturers need to pay that. If you sell a computer with an integrated monitor (rather than an external display), there's no reason for Microsoft to get more money. One big difference between Microsoft and Qualcomm's situation is that technologies like CDMA, UMTS, and LTE are official standards that only use patents from those willing to commit to FRAND licensing (fair, reasonable, and non-discriminatory). Microsoft never agreed to FRAND licensing while Qualcomm did. Because Qualcomm wants a percentage of the selling price, it refuses to license the patents to, say, Intel or MediaTek. If they licensed the patents to Intel, Qualcomm couldn't then ask for royalties from Apple on devices that use the Intel modem. For example, when you buy an iPhone, Qualcomm can't come up to you and say, "you're using our patents so you owe us money." Likewise, if you sell the iPhone to someone else, they similarly can't ask for money from that person. But Qualcomm wants to get a percentage of Apple's selling price, not a percentage of Intel's selling price on the modem alone. You brought up Microsoft's practice of requiring an OEM that uses Windows on some machines to pay for Windows for all machines, even ones shipped without Windows. In fact, Qualcomm has a similar arrangement called "no license-no chips". If you want access to Qualcomm's modems for your high-end phones, you must agree to elevated royalty rates for Qualcomm's patents even on your devices that don't use Qualcomm chips. Much of the information in this comment comes from: https://www.ftc.gov/system/files/documents/cases/170117qualcomm_redacted_complaint.pdf https://www.ftc.gov/system/files/documents/cases/170117qualc.... It's a decent read.

projektfu 9y ago
Interesting. It seems it should be illegal to require someone to pay for IP in a phone that doesn't contain it. I wish the Microsoft trial had made that practice explicitly illegal.
- mdasen 9y ago
  All the phones contain Qualcomm IP so it's a variant of what Microsoft did. With FRAND licensing, you can challenge the royalty rates in arbitration or court. Let's say that a court would set the royalty rate at $5 and we somehow know that and let's rewind a couple years before Intel was seriously making modems. LG comes up to Qualcomm and says, "we need those Qualcomm modems for our $650 flagship phone, but we're happy using non-Qualcomm lower-end modems in our cheap phones." Qualcomm says, "Great! We'll sell you the chips for $N per chip and you agree that you'll pay patent royalties of $15/phone." LG could retort, "but the patents are only worth $5/phone and you agreed to FRAND licensing! We'll see you in court!" Qualcomm confidently says, "well, we might be required to FRAND license you our patents, but nothing requires us to sell you chips. If you challenge our preferred $15 royalty rate, good luck selling a $650 phone with a low-end modem in it. You'll be paying $5 royalties, but you won't have a flagship phone and those are the only phones you make money on." Because phone manufacturers had no other high-end modem option, they had to agree to Qualcomm's preferred royalty rate rather than a true FRAND rate that a neutral third party would say is fair. If they went without Qualcomm's modems, they could make low-end phones with low-end modems, but the money is in the flagship phones. At the same time, no company had enough incentive to invest in a high-end modem. It would take many years and many billions to get close to Qualcomm's modems and they might still stay one step ahead. Plus, all that royalty money could be poured into making sure their chips were always a step ahead. If you're thinking about competing, what's your business model? Pour billions into a few generations of LTE chips that no one buys in the hopes that you'll produce a generation close enough that customers will dump Qualcomm? Even if they buy your chips, unless they're willing to write-off Qualcomm, they're still on the hook for the higher-than-fair royalties. If Apple didn't force the issue with Intel, nothing would have happened. Apple made a big bet there that they could break Qualcomm's hold. It's different from Microsoft's case since the devices without Qualcomm chips would still have to pay Qualcomm a royalty, just a lower one that was either negotiated or set by a court/arbitrator. Imagine if Microsoft owned the BIOS and had committed to license it to anyone under fair, reasonable, and non-discriminatory terms of $1. Then they turned around and said, "if you want to run Windows on any of your computers, we'll only sell you Windows if you pay $20 for the BIOS on all the machines." If you cut Windows out of your company entirely, you'd still need to pay Microsoft the $1 for the BIOS. But you couldn't run a PC company without Windows - just as you couldn't be a phone company without Qualcomm modems. Technically, nothing requires them to sell you Windows or sell you modems. FRAND only requires the BIOS/IP portion. By tying the two together, they can make it so that you pay elevated rates because you can't forgo the Windows/modems on all your devices. To paraphrase Rick and Morty, that just sounds like what Microsoft did with an extra step.
dis-sys 9y ago
> Qualcomm isn't adding more value, the better display or camera is adding the additional value. Qualcomm is just demanding more money. Qualcomm never license modem techs alone, they give you the whole package they have which includes a huge load of camera related patents. When snapdragon chips are being shipped in a few hundred million a year, and all of those chips & associated software/firmware provided by Qualcomm are built on top of those mode/display patents, of course phone maker should pay for using those camera/display patents invented and owned by Qualcomm.
golergka 9y ago
You're framing this discussion in terms of what's fair, while in reality it's just about having negotiation power. Phone manufacturers can't produce a phone without Qualcomm tech. Computer manufacturers can't realistically sell their computers without windows pre-installed. So both these companies have very strong negotiating positions and extract as much as they can from it.

by mdasen 9y ago

projektfu 9y ago

Interesting. It seems it should be illegal to require someone to pay for IP in a phone that doesn't contain it. I wish the Microsoft trial had made that practice explicitly illegal.

mdasen 9y ago
All the phones contain Qualcomm IP so it's a variant of what Microsoft did. With FRAND licensing, you can challenge the royalty rates in arbitration or court. Let's say that a court would set the royalty rate at $5 and we somehow know that and let's rewind a couple years before Intel was seriously making modems. LG comes up to Qualcomm and says, "we need those Qualcomm modems for our $650 flagship phone, but we're happy using non-Qualcomm lower-end modems in our cheap phones." Qualcomm says, "Great! We'll sell you the chips for $N per chip and you agree that you'll pay patent royalties of $15/phone." LG could retort, "but the patents are only worth $5/phone and you agreed to FRAND licensing! We'll see you in court!" Qualcomm confidently says, "well, we might be required to FRAND license you our patents, but nothing requires us to sell you chips. If you challenge our preferred $15 royalty rate, good luck selling a $650 phone with a low-end modem in it. You'll be paying $5 royalties, but you won't have a flagship phone and those are the only phones you make money on." Because phone manufacturers had no other high-end modem option, they had to agree to Qualcomm's preferred royalty rate rather than a true FRAND rate that a neutral third party would say is fair. If they went without Qualcomm's modems, they could make low-end phones with low-end modems, but the money is in the flagship phones. At the same time, no company had enough incentive to invest in a high-end modem. It would take many years and many billions to get close to Qualcomm's modems and they might still stay one step ahead. Plus, all that royalty money could be poured into making sure their chips were always a step ahead. If you're thinking about competing, what's your business model? Pour billions into a few generations of LTE chips that no one buys in the hopes that you'll produce a generation close enough that customers will dump Qualcomm? Even if they buy your chips, unless they're willing to write-off Qualcomm, they're still on the hook for the higher-than-fair royalties. If Apple didn't force the issue with Intel, nothing would have happened. Apple made a big bet there that they could break Qualcomm's hold. It's different from Microsoft's case since the devices without Qualcomm chips would still have to pay Qualcomm a royalty, just a lower one that was either negotiated or set by a court/arbitrator. Imagine if Microsoft owned the BIOS and had committed to license it to anyone under fair, reasonable, and non-discriminatory terms of $1. Then they turned around and said, "if you want to run Windows on any of your computers, we'll only sell you Windows if you pay $20 for the BIOS on all the machines." If you cut Windows out of your company entirely, you'd still need to pay Microsoft the $1 for the BIOS. But you couldn't run a PC company without Windows - just as you couldn't be a phone company without Qualcomm modems. Technically, nothing requires them to sell you Windows or sell you modems. FRAND only requires the BIOS/IP portion. By tying the two together, they can make it so that you pay elevated rates because you can't forgo the Windows/modems on all your devices. To paraphrase Rick and Morty, that just sounds like what Microsoft did with an extra step.

dis-sys 9y ago

> Qualcomm isn't adding more value, the better display or camera is adding the additional value. Qualcomm is just demanding more money. Qualcomm never license modem techs alone, they give you the whole package they have which includes a huge load of camera related patents. When snapdragon chips are being shipped in a few hundred million a year, and all of those chips & associated software/firmware provided by Qualcomm are built on top of those mode/display patents, of course phone maker should pay for using those camera/display patents invented and owned by Qualcomm.

golergka 9y ago

You're framing this discussion in terms of what's fair, while in reality it's just about having negotiation power. Phone manufacturers can't produce a phone without Qualcomm tech. Computer manufacturers can't realistically sell their computers without windows pre-installed. So both these companies have very strong negotiating positions and extract as much as they can from it.