The Gulf Today - Business - - TECHNOLOGY -

SAN DIEGO: Ap­ple be­gan talks with Qual­comm about us­ing the San Diego com­pany’s chips in iphones for the first time.

But there was a catch, said Qual­comm Chief Ex­ec­u­tive Steve Mol­lenkopf in tes­ti­mony in fed­eral court in San Jose.

Ap­ple pro­posed switch­ing from In­fi­neon Tech­nolo­gies - which had sup­plied iphones since 2007 - to Qual­comm cel­lu­lar mo­dem chips for the next three years, “but they wanted us to pay them $1 bil­lion to get that op­por­tu­nity,” said Mol­lenkopf.

The US Fed­eral Trade Com­mis­sion has ac­cused Qual­comm of vi­o­lat­ing anti-mo­nop­oly laws - in part by en­ter­ing into de facto ex­clu­sive sup­ply deals with Ap­ple that froze out In­tel and other com­peti­tors.

Mol­lenkopf’s tes­ti­mony be­fore US Dis­trict Judge Lucy Koh at­tempted to give Qual­comm’s per­spec­tive on these sup­ply deals that the FTC and Ap­ple have called out as anti-com­pet­i­tive.

“We wanted to make sure we didn’t pay the in­cen­tive, and then didn’t get the vol­ume,” said Mol­lenkopf. “There was a lot of ne­go­ti­a­tions and es­sen­tially we got to an agree­ment. It worked out for both par­ties.”

Tes­ti­mony con­tin­ued near the half-way point of the 10-day trial, with the FTC con­tin­u­ing to make its case that Qual­comm’s busi­ness prac­tices vi­o­late anti-trust laws.

There is a lot at stake. The FTC’S case strikes at the heart of Qual­comm’s un­usual busi­ness model of li­cens­ing its huge port­fo­lio of cel­lu­lar patents and sell­ing smart­phone chips as sep­a­rate prod­ucts.

The agency has called a steady stream of Qual­comm cus­tomers rang­ing from Sam­sung to Len­ovo to Mo­torola to Ap­ple - that con­tend that Qual­comm threat­ened to cut off sup­ply of its top-tier 4G and 3G CDMA chips dur­ing patent li­cense ne­go­ti­a­tions.

Be­cause they need the chips to launch high-end de­vices, smart­phone mak­ers don’t ne­go­ti­ate as hard as they oth­er­wise would to re­duce Qual­comm’s high patent li­cens­ing rates, ac­cord­ing to the FTC.

Qual­comm col­lects patent roy­al­ties based on the whole­sale price of smart­phones -- with rates run­ning from 3.25 per cent to 5 per cent of the de­vice costs up to a cap of $400.

Since the FTC is pre­sent­ing its ev­i­dence, much of the tes­ti­mony sup­ports its al­le­ga­tions, in­clud­ing from tech heavy­weights In­tel and Ap­ple.

Tony Blevins, Ap­ple’s vice pres­i­dent of pro­cure­ment, tes­ti­fied that the two com­pa­nies en­tered into a sec­ond sup­ply deal in 2013 where Ap­ple would re­ceive “re­bates” if it bought all of its chips from Qual­comm.

Ap­ple was free to add a sec­ond sup­plier, but it would no longer re­ceive the re­bates, said Blevins.

“They made it very unattrac­tive for us to choose a dif­fer­ent chipset sup­plier,” said Blevins. “I won’t men­tion any num­bers but these re­bates were very, very large.” Mol­lenkopf said the 2013 agree­ment was sim­i­lar to the 2011 deal.

Judge Koh ques­tioned Qual­comm lawyers about whether the $1 bil­lion fig­ure was pub­lic in­for­ma­tion or con­fi­den­tial. Qual­comm’s out­side lawyer Bob Van Nest said he be­lieved the amount had not been sealed.

Blevins said the agree­ment led Ap­ple to scrap plans to use In­tel cel­lu­lar mo­dem chips in an ipad Mini tablet model that was launch­ing in 2014.

On cross ex­am­i­na­tion by Qual­comm lawyers, Blevins said Ap­ple de­cided to add In­tel as a sec­ond chip sup­plier for cer­tain iphones any­way in 2016 -- be­fore its agree­ment with Qual­comm ex­pired.

Ap­ple sued Qual­comm over its busi­ness prac­tices in Jan­uary 2017. Ap­ple ditched Qual­comm as a sup­plier for all new 2018 iphones and now uses mo­dem chips solely from In­tel.

Blevins said Ap­ple wanted to ne­go­ti­ate a chip sup­ply deal with Qual­comm, but the re­la­tion­ship soured af­ter it filed its law­suit.

“At the time we made this chal­lenge, they were no longer will­ing to sell us chips,” he said. “We were right back to no li­cense, no chips.”

But Blevins con­ceded that Qual­comm con­tin­ues to sup­ply mo­dem chips for older model iphones to­day - de­spite the fierce le­gal bat­tle.

Aicha Evans, In­tel’s chief strat­egy of­fi­cer, said sup­ply­ing a chip to the ipad Mini in 2014 would have helped the com­pany break into the mar­ket and pave the way for sup­ply­ing iphones. Not get­ting the deal was a sig­nif­i­cant set­back, she said.

Asked if she re­spected Qual­comm, Evans said “As a tech­nol­ogy com­pany, yes. As a busi­ness model, no. They are ex­cel­lent en­gi­neers. That does not give them the right to be the only ones (by) us­ing un­fair busi­ness prac­tices.”

Mol­lenkopf said that he wasn’t aware of Qual­comm threat­en­ing to cut off chip sup­ply dur­ing li­cens­ing ne­go­ti­a­tions, say­ing the com­pany has never stopped ship­ping chips to any smart­phone maker dur­ing a li­cens­ing dis­pute.

The trial con­tin­ues next week. It is now sched­uled to wrap up on Feb.1.

Ear­lier the lead at­tor­ney for the group of Ap­ple Inc de­vice as­sem­blers seek­ing at least $9 bil­lion in dam­ages from Qual­comm Inc said the con­tract man­u­fac­tur­ers are not in set­tle­ment talks with the mo­bile chip sup­plier and are “gear­ing up and head­ing to­ward the trial” in April.

The con­flict is but one as­pect of the global le­gal bat­tle be­tween reg­u­la­tors, Ap­ple and Qual­comm, which sup­plies mo­dem chips that help phones con­nect to wire­less data net­works.

Last week, Qual­comm se­cured a pre­lim­i­nary vic­tory in a patent law­suit in China that would have banned sales of some Ap­ple iphones there. Ap­ple later said it be­lieved it was al­ready in com­pli­ance but would change its soft­ware “to ad­dress any pos­si­ble con­cern” about its com­pli­ance.

But Qual­comm was also handed a set­back in an an­titrust law­suit brought against it by the US Fed­eral Trade Com­mis­sion when a judge said it will not be able to men­tion that Ap­ple ditched Qual­comm chips for com­pet­ing ones from In­tel Corp when the case goes to trial next month.

Qual­comm rep­re­sen­ta­tives did not im­me­di­ately re­turn a re­quest for com­ment on Sun­day out­side of US busi­ness hours.

The group of con­tract man­u­fac­tur­ers - which in­cludes Fox­conn par­ent Hon Hai Pre­ci­sion In­dus­try, Pe­ga­tron Corp, Wistron Corp and Com­pal Elec­tron­ics Inc - be­came em­broiled in the dis­pute be­tween Ap­ple and Qual­comm last year.

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