Jury Selection Begins In Antitrust Lawsuit Between Apple And Qualcomm

Speaker 1: 00:00 It's a question of who owes whom? Does Apple, oh, Qualcomm, billions and unpaid patent royalties or does Qualcomm, apple and other companies billions in refunds for breaking antitrust laws. That case over patent licensing fees. Heads to court here in San Diego today. Mike Freeman, who is the technology reporter with the San Diego Union Tribune, has been in court today as jury selection gets underway. Mike, Welcome. Thank you. You know, so this is a complex case and I tried to sum it up as best I could, but why are these tech giants feuding? What are the issues here? Speaker 2: 00:34 Well, the issues are, you're right, very complicated. And the key issue is Qualcomm's business practices or business model or the guard to patent licensing. Apple does not believe that the way Qualcomm separates out if chip business and its patent licensing portfolio into separate products is actually legal. And it also believed that Qualcomm has leveraged its dominance in a chip business to extract the higher than it should fees for its patent licenses. And so that's kind of the core, the crux of the apple argument. Qualcomm says that there is a, you know what it's doing, it's completely legitimate. Um, that is patent portfolio reads, you know, well beyond the chip spans the entire phone and covers things such as power management and airplane mode and I mean 130,000 patents in this thing and that they don't overcharge for it. Um, you know, they have 300 companies that have signed patent licenses with them over the years and um, you know, that's proof that the market kind of accepts their rates. Speaker 1: 01:39 I mean, did apple agree to pay both the licensing and patent fees when they decided to go with Qualcomm on these chips? Speaker 2: 01:46 Well, initially they did. So that was something that they negotiated over time. Now, you know, apple says that yes, we did it, but we were coerced into doing it. Apple side of the argument is that Qualcomm, uh, the wait to call com charges for it's patents is illegal. The applicant tends that qualcom's levies its patent fees based on the total price of the smart phone, which applicant tends, allows it to charge for a charge royalties on inventions that it had nothing to do with like, you know, the retina display and the, uh, pinch screen, uh, software and so forth. Secondly, applicant tends to Qualcomm strong arms, a smartphone makers in the overpaying for it's patents by threatening to cut off chips supply. And because, um, you know, smart homemakers need it's chips, Qualcomm's chips, they, uh, acquiesce to Qualcomm's high patent demands. Uh, so that's a, a violation of antitrust laws in Apple's eyes. Speaker 1: 02:43 This is how Qualcomm makes most of its money through the licensing. Is that right? Speaker 2: 02:47 This is how Qualcomm makes most of its profits. So you need to distinguish, you know, most of their revenue comes from actual actual chips, chips, sales, the failing of the semiconductor and the part, you know, itself sells for you, let's say between 20 and $30. Um, the licenses, uh, though, you know, are the most profitable part of their business. And they, you know, they will tell you that we took a big risk and invested in a lot of research and development to create these cellular technologies that, you know, we had no idea if they would pay off. Right. They may not have worked. So, you know, they've spent $5 billion a year in r and d to invent this stuff and they feel like the licensing businesses, the way they get paid for that. Speaker 1: 03:32 And at this point, uh, they're, they're selecting a jury today, right? Speaker 2: 03:36 Yes. And that's going to be an all day process. Speaker 1: 03:39 What else can we expect to happen in court? Speaker 2: 03:41 You know, I mean if it's going to be a little star power in, in court. So, uh, Tim Cook of apple who is in tech circles of mayor, very much a heavyweight and well known executive, he will, he's going to testify in this case and he did not testify in the US Federal Trade Commission case, which is very, very similar to this one. Um, in uh, northern California in January. And they, he'll be new Irwin Jacobs Co, founder of Qualcomm and very well known around San Diego. He will take the stand. Um, I'm not sure what Tim Cook Books we'll talk about, but clearly it, we'll talk about the relationship between the two companies. Irwin Jacobs, we'll talk about, you know, the invention and you know, what Qualcomm brought to cellular technology. Speaker 1: 04:23 So when all is said and done, if apple is forced to pay these fees, will that trickle down to consumers of apple products? Speaker 2: 04:30 Apple has not been paying Qualcomm patent licensing fees for more than two years. And I don't think the iPhone, the price of the iPhone is dropped in, in that timeframe. So I think how it affects consumers and the prices of devices, I'm not sure how it will manifest itself. Speaker 1: 04:48 Also, I'm curious to know if any of this will have an impact on Qualcomm's goal to be a major provider of, of five g technology. Speaker 2: 04:56 Well, I mean again that is something that is not clear. How come he's going to get paid something for his fans, but that hadn't licensing business while being the most profitable part of the company. It was also kind of the end generate is the engine that funds a lot of their research and development into the next generation of wireless. And so if they are forced to change their business model and licensed patents would say at the component level rather than at the device level, which is how they connect, collect royalties today, you know, that could affect how much they make and royalty payments and could affect how much they spend in r and d for future wireless technologies. So that, I mean, that does have the potential to impact them going forward. You know, we'll have to see. Speaker 1: 05:40 Hmm. And when can we expect a ruling? Speaker 2: 05:42 Well, so this case is going to be into mid May. The jury will then start deliberations. Um, and then of course, which, uh, they're likely to be appealed and stays, you know, the case will be postponed. The outcome or the recommendation might be postponed. Well, the case is appealed to a higher court. So, I mean, it's gotta be some time, but we will, we should know probably by the end of May what the, at least this jury has decided. Speaker 1: 06:10 I have been speaking with Mike Freeman, technology reporter for the San Diego Union Tribune. Mike, Thanks for joining us. Thank you. And in the interest of transparency, I should also add that Qualcomm is a corporate sponsor of KPBS.