Just when their legal battle was just beginning the trial phase, Apple and Qualcomm have ironed out their differences in a surprise settlement. The terms of the agreement include the dismissal of all litigation between the two companies as well as any pending cases brought by Apple’s global contract manufacturers, and basically returns the relationship to the way it was before the allegations started flying.
Most notably, Apple has agreed to pay Qualcomm a one-time payment of an undisclosed sum, as well as royalties going forward. Both companies issued short press releases to announce the agreement, but it’s hard to find much good news in it for Apple. Qualcomm is getting paid and keeps Apple as a customer, and there’s no indication that they will be changing their business practices.
Why this matters: While the Qualcomm case has yet to have a material impact on iPhone sales or users, it was certainly a cloud hanging over Apple’s most popular product. The fact of the matter is, Apple needs Qualcomm, especially if Intel wasn’t able to provide a solid roadmap for 5G. The settlement clears the deck for Apple to continue using Qualcomm’s chips and opens up a potentially quicker road to 5G adoption.
A surprising about-face
In the dispute, Apple claimed that Qualcomm charged too much for chips and licensing fees, and argued that “Qualcomm has used its monopoly … to set unfair prices and stifle competition and dictate terms to some of the biggest, most powerful companies in the world.”
In his opening statement early Tuesday, CNET reports that Apple attorney Ruffin Cordell argued that Qualcomm refused to provide processors unless a licensing agreement was signed, effectively allowing the company to “double dip” on fees. “The other thing it does is allow them to charge patent royalties that are far in excess of that fair and reasonable level,” he said.
A few hours later, however, Apple changed its tune. Not only did it agree to write Qualcomm a check, Apple also entered into a six-year license with Qualcomm, including “a two-year option to extend, and a multiyear chipset supply agreement.”
That means future iPhones could and very well may return to using Qualcomm modems, which likely paves the way for a faster route to 5G. While it was never confirmed that Apple had settled on a specific supplier for its first 5G iPhone, Apple currently sources LTE modems in the iPhone XS from Intel. However, recent rumors suggest that Apple soured on its deal with Intel and was exploring other options. While it’s extremely unlikely that this year’s iPhone would have a 5G modem, next year’s likely will, and chip buys at Apple’s magnitude need to be made sooner than later.
A deal with Apple would have been a major coup for Intel, but with friendlier relations between Apple and Qualcomm, that’s seriously in doubt. And by in doubt, we mean never happening, since Intel announced hours later that it has abandoned its plans for a 5G smartphone modem.
Still, the timing of this announcement is nothing less than shocking. Apple and Qualcomm have been fighting court battles for months and many more were presumably on the horizon. Just last month, an International Trade Commission judge ruled that iPhones infringed on a Qualcomm patent and should be banned from sale, while a second judge said the patents were invalid. Neither of those decisions matter now.
Apple and Qualcomm have been battling in court since 2017, but Monday marked the first day of a high-profile jury trial. Qualcomm is being sued separately by the Federal Trade Commission over anti-competitive pricing.