When an owner of a patent, copyrighted material or property allows another party to use their work, they can require the user to pay them royalties. Royalties can equal a percentage of the revenue earned by using the work. When the user refuses to pay the royalties, a royalty dispute will likely arise between the two parties, causing business relationships to suffer.
According to a recent report, Apple originally had a deal with Qualcomm requiring them to pay Qualcomm royalties for every iPhone sold in exchange for use of Qualcomm’s microprocessor chips in the phones. The problem is that Apple recently started using modern Intel chips in half of the iPhones used last year. Apple then refused to pay royalties owed to Qualcomm, saying that they were excessive.
Apple claims that Qualcomm charges the same royalties for every phone sold regardless of whether it has their microprocessor chips or chips from another company. Apple believes that Qualcomm is taking advantage of their powerful status in the marketplace with their refusal to negotiate a fairer direct licensing agreement. Apple has decided to file a lawsuit, and Qualcomm has counter-sued due to Apple breaching contract and harming its business. Qualcomm maintains that the current agreements are fair.
Because of the dispute, Qualcomm is suffering financially. The company’s second quarter revenue is a total of $4.8 billion to $5.6 billion, which is $500 million less than their most recent financial forecast. As a result, the company’s share price recently went down 2 percent, causing Qualcomm shares to have lost 20 percent this year. In the past, Apple withheld royalties totaling $1 billion, but Qualcomm offset the losses by withholding money it owed Apple in a separate agreement. That agreement expired last year, and Apple is continuing to withhold royalties. With both companies unwilling to compromise, it looks like this battle will not be coming to an end anytime soon.
Source: Fortune, “Apple Stops Paying iPhone Royalties Escalating Feud With Qualcomm,” Aaron Pressman, April 28, 2017