Apple’s prolonged licensing battle with Qualcomm just took a major turn as the Fuzhou Intermediate People’s Court in China court ruled in favor of Qualcomm in two patent infringement lawsuits and granted an injunction on the importation and sale of any iPhone 6S through iPhone X in China.
The battle between the two companies has involved regulatory bodies and courts around the world but essentially boils down to the licensing rates Qualcomm and other wireless intellectual property (IP) holders charge smartphone OEMs for use of their standard essential patents (SEPs). For the most part, regulatory bodies in multiple countries have upheld the licensing model, cases in South Korea and the U.S. are still in process.
But the dispute has resulted in legal battles over Apple’s use of Qualcomm’s non-essential patents. The current ruling relates to patents that “… enable consumers to adjust and reformat the size and appearance of photographs, and to manage applications using a touch screen when viewing, navigating and dismissing applications on their phones” according to Qualcomm.
In September, a U.S. ITC administrative judge preliminarily ruled that Apple had infringed on a Qualcomm patent but recommended against granting an import ban of some iPhones into the U.S. This finding of infringement by a company, but recommending against a ban was unprecedented. The ITC will review the case and issue its final ruling in late-January.
The Fuzhou court ruled that Apple infringed two of Qualcomm’s patents and granted a requested injunction against the sale of the Apple products that are currently in the market ranging from the iPhone 6S to the iPhone X. This means that Apple is essentially banned from selling all infringing iPhones in China. Apple currently sells more iPhones in the U.S. than in China, but China is one of the largest potential markets for Apple and iPhones still account for around 11%of all phones sold in China or roughly 24.5 million units through Q3 of 2018 according to IDC.
Considering the ITC and China court findings of infringement, we believe similar findings are possible in Germany and/or remaining U.S. court cases, but it is too early to determine if similar injunctions will be granted. Note that other there are still more than 20 other cases pending in China as well.
Because of the potential financial impact on Apple, the decision is likely to force both companies back to discussions where Apple’s negotiating leverage is greatly reduced. However, this could be the beginning of the end of this prolonged battle that has dragged on governments, the wireless industry, and courts around the world.
Note that Apple has already designed out Qualcomm modems in favor of Intel, but still requires a license(s) from Qualcomm because both the Intel modems and other aspects of the iPhone leverage many of Qualcomm’s essential and non-essential patents even with the transition to 5G, which Apple is trailing a year behind other smartphone OEMs in launching.