Qualcomm Inc. said on May 17 that it filed a breach of contract complaint against the companies that manufacture Apple Inc.’s iPhone and iPad mobile devices.
The move follows Qualcomm (Nasdaq: QCOM)’s April 28 announcement that it is reducing its financial forecast for the current quarter; it attributed the reduction to Apple (Nasdaq: AAPL) withholding payments to its contract manufacturers. Apple pays royalties for using Qualcomm’s intellectual property, but it routes those payments through the third parties that actually manufacture the phones.
The San Diego company filed its complaint in federal court in San Diego against FIH Mobile Ltd. and Hon Hai Precision Industry Co. Ltd. (collectively known as Foxconn), Pegatron Corp., Wistron Corp. and Compal Electronics. The complaint alleges breach of license agreements and other commitments with Qualcomm, and refusing to pay for use of Qualcomm’s licensed technologies.
The complaint seeks declaratory relief and damages along with a court order that the companies comply with longstanding contractual obligations to Qualcomm.
In a public statement in April, Apple CEO Tim Cook said that his company has been trying to negotiate a new license agreement with Qualcomm, but Qualcomm will not negotiate fair terms. Apple said Qualcomm is unfairly charging Apple on Apple-created innovations. Qualcomm collects a royalty payment based on the selling price of a smartphone.
As a holder of industry standards, Qualcomm is required to negotiate on fair, reasonable and nondiscriminatory terms. Courts may determine what is fair if two parties cannot, a law school professor told the Business Journal early this month.
Qualcomm issued a statement that it attributed to its general counsel, Don Rosenberg.
“It is unfortunate that we must take this action against these longtime licensees to enforce our agreements, but we cannot allow these manufacturers and Apple to use our valuable intellectual property without paying the fair and reasonable royalties to which they have agreed. As Apple continues to collect billions of dollars from consumer sales of its Qualcomm-enabled products, it is using its market power as the wealthiest company in the world to try to coerce unfair and unreasonable license terms from Qualcomm in its global attack on the company. Our license agreements with Apple’s manufacturers remain valid and enforceable. The manufacturers must continue to live up to their obligations under these agreements and Apple should immediately cease its tortious interference.”
Qualcomm said on April 28 that it expects revenue of $4.8 billion to $5.6 billion in its current, third quarter — down from its previously announced range of $5.3 billion to $6.1 billion. It revised its earnings per share forecast to a range of 52 cents and 62 cents, down from its previous range of 67 cents to 92 cents.
Qualcomm has already filed a claim against Apple alleging unlawful interference with license agreements between Qualcomm and the manufacturers.