Apple Attacks Qualcomm's Business Model In Chip Suit
By Kelcee Griffis
Law360, New York (June 20, 2017, 6:30 PM EDT) -- Apple has expanded the scope of its suit against Qualcomm that originally accused the chipmaker of grossly overcharging for chip patent licenses and withholding nearly $1 billion in rebates, taking aim in a Tuesday amended complaint at the chipmaker’s entire business model.
In the 170-page filing in California federal court, Apple Inc. particularly called attention to Qualcomm Inc.’s alleged practice of requiring Apple to purchase both chips and patent licenses, saying it goes against the Supreme Court’s recent Lexmark precedent.
Apple’s original complaint, filed in January, centered around claims that Qualcomm was trying to extort Apple after it cooperated in a Korean regulator’s investigation into the chipmaker’s licensing practices. In the complaint, Apple alleged that Qualcomm has breached industry agreements covering patents determined to be essential to cellular standards, which require the owner to license those patents on fair, reasonable and nondiscriminatory, or FRAND, terms.
Now, Apple says it is renewing its previous claims and bringing "new and expanded claims based on the continuing — and mounting — evidence of Qualcomm’s perpetuation of an illegal business model that burdens innovation.”
Apple expanded the suit to cover nine more patents that Qualcomm has allegedly been using as evidence that Apple should pay it more royalties. None of those patents are essential to manufacturing iPhones, and Apple has not infringed them, the tech giant argued.
Apple specifically pointed to the Supreme Court’s May ruling in Impression Products Inc. v. Lexmark International Inc., which held that the doctrine of patent exhaustion does not allow post-sale restrictions on patented items and that patent rights are exhausted once a product is sold anywhere in the world.
“The Lexmark decision makes clear that Qualcomm’s separate sale and license business model is an illegal practice,” Apple said. “Every time Qualcomm demands a separate patent royalty for a Qualcomm chipset, Qualcomm is exceeding the legal limits of its patent monopoly.”
Qualcomm mandates that Apple’s contract manufacturers pay for both the chipsets and separate patent licenses, which is expressly forbidden by the patent exhaustion doctrine, according to the amended complaint.
“Qualcomm, by its own admission, will not sell chips to manufacturers who do not also pay separate royalties and enter Qualcomm licenses at usurious rates,” Apple said. “This is precisely the kind of double-dipping, extra-reward system that the court’s decision in Lexmark forbids.”
Apple also filed a 95-page answer to Qualcomm's counterclaims that Apple lowballed it and is profiting from other companies' technology, saying that the claims “are premised on Qualcomm’s extortionate scheme to restrict competition and demand exorbitant royalty payments.”
Qualcomm is no stranger to scrutiny over its business model. In addition to international probes, the Federal Trade Commission has accused Qualcomm of using its dominance to wrangle higher royalties from cellphone makers and anti-competitive licensing terms for its standard-essential patents.
Counsel for the parties could not be immediately reached for comment.
Qualcomm is represented by Evan R. Chesler, Keith R. Hummel, Richard J. Stark, Antony L. Ryan, Gary A. Bornstein, J. Wesley Earnhardt, Yonatan Even and Vanessa A. Lavely of Cravath Swaine & Moore LLP, David A. Nelson, Alexander Rudis, Sean S. Pak and Stephen Swedlow of Quinn Emanuel Urquhart & Sullivan LLP, and Karen P. Hewitt and Randall E. Kay of Jones Day.
Apple is represented by Karen L. Dunn and William A. Isaacson of Boies Schiller & Flexner LLP, and Juanita R. Brooks, Ruffin B. Cordell and Lauren A. Degnam of Fish & Richardson PC.
The case is Apple Inc. v. Qualcomm Inc., case number 3:17-cv-00108, in the U.S. District Court for the Southern District of California.
--Additional reporting by Bonnie Eslinger, Ryan Davis and Melissa Daniels. Editing by Aaron Pelc.
