On Wednesday, it was revealed that Qualcomm has filed a breach of contract lawsuit against four companies based in Taiwan – Compal, Foxconn (formerly known as Hon Hai Precision Industry Co,) Pegatron, and Winston – who manufacture iPhones and iPads, for not paying royalties for chips contained in the devices. This represents an escalation of their current legal battle with Apple Inc. which has been going on since January when Apple filed a lawsuit, seeking $1 billion in damages and alleging that Qualcomm overcharges for the components and has a monopoly on them. Apple also allegedly refused to repay around $1 billion currently owed in rebates to Qualcomm. Days earlier, the US Federal Trade Commission (FTC) had accused Qualcomm of resorting to unfair and anti-competitive tactics to ensure they maintained a monopoly over certain components which are an essential part of today’s smartphones. The FTC said that Qualcomm’s licensing arrangements meant that companies such as Apple were forced to sign deals with them to be able to make and sell their phones.
Don Rosenberg, executive vice president and general counsel of Qualcomm, said in a statement about Wednesday’s filing “It is unfortunate that we must take this action against these long-time 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.” Qualcomm says Apple advised the four Taiwanese contract manufacturers to withhold the royalty payments that were owed to Qualcomm, through the slightly unusual licensing arrangements that are currently in place. Under the terms of the agreement, Apple does not directly license from Qualcomm. The manufacturers of the devices are responsible for paying the royalty fees which are then reimbursed in full by Apple.
In the lawsuit, which was filed late on Tuesday night in the United States District Court for the Southern District of California, Qualcomm also accused Apple of offering to help pay the manufacturers of the devices for any damages incurred by the companies as a result of not paying the correct licensing fees. Their aim is to seek a court order which will force the device manufacturers to honor their contractual arrangements that are currently in place, as well as to continue paying the royalties they owe on technology which Qualcomm owns the patents for.