Those of us with iPhones all love what they can do, but most of us don't think much about the components inside the device. Depending on which phone you have, there's a good chance that relies heavily on technology created by a company called qual Colm. Qualcomm invented key technologies that let phones send and received data, and it has a mass more than a hundred and thirty thousand patents, some of which let Qualcom collect royalties as high as five
percent of the selling price of mobile phones. That adds up to billions of dollars from better known companies like Apple. It's big money, and it has led to a high stakes, worldwide legal battle between Qualcom and Apple. The fight is the subject of a story in the upcoming edition of Bloomberg Business Week, and here with us to talk about it is Max Chafkin, who's one of the reporters who wrote that story. Max, thanks for being here. Yeah. So, as my kids could tell you, I am pretty much
technologically illiterate. So tell us tell explained to me what Qualcomm's great technology is and why it is so important to my my iPhone. Sure so, so one point of clarity is actually, pretty much any phone you own today relies on this Qualcom technology, which is the technology that allows you to send and receive data through a cellular connection.
So if you're making a phone call or or sending a mobile message, or going on Snapchat, or doing pretty much anything you do in the modern world that is that is using a three G or four G connection, you rely on basically this this big basket of patents that that Qualcom developed, which which sort of figures out how to squeeze data into radio signals and to do it efficiently. Um. It's it's really an amazing uh sort
of miracle of of of modern technology. The contention here, though, is that Qualcom has basically been been asking too much for this. Uh. They charge a a flat royalty on the on the price of every handset that's sold around the world. Um. And Apple uh, and it appears maybe there there may be a couple other companies joining them. Has has basically said enough enough and and they're fighting this uh, this this big legal battle. Yeah. So walk
me through the relationship between Apple and Qualcom. In your story, you talk about how they a little while back had a deal. Um. But but but I guess that's that deal maybe breaking down. So what's what's kind of ingenious or maybe, depending on your perspective, diabolical with with Qualcom's business model is they so so they do two things. One is they have the patents and the other is they manufacture the chips that are used in many phones.
But they don't they don't. They're not the only manufacturer of chips. They're just the manufacturer of the best chips basically. And whether you buy your chips from Qualcom or from one of its competitors, you still have to pay that that royalty. And what happened with Apple, and this is Apple's contention in in the lawsuit UM is that Qualcom used it's basically basic power as a chip manufacturer to force Apple to agree to terms that that it now
says our our ownerous. So Apple was afraid that if it complained about this thing, which is known in the industry as the Qualcom tax. Um. Apple's contention is that that then Qualcom would be able to withhold its modems and basically your iPhone would not you know, stream video or something like that, so it would be pretty much useless. Um. And and and the thing that changed, and this is Ian King, and I'm a co writer report is basically
that Apple got a second supplier. Apple convinced Intel uh to invest some money to make a competing modem, which which is now in some iPhones but not all iPhones. And it was that, um, that sort of buying power that allowed Apple to turn around and and and now um you know, start negotiating harder, which led to this dispute. You also in the story talk about um some conversations between Apple and Samsung, which of course is uh Apple's
big rival in the smartphone market. But um also somebody who who um uh supplies uh Apple for some components for the Yeah, this is a pretty juicy allegation. So in Qualcom's complaint, UH, Qualcom alleges that counterclaim, sorry that Qualcomm alleges that at a conference in Idaho in the summer of which almost certainly was the Sun Valley Conference, which is this big con confab held by an investment bank, it's it's only it's like top level people go there.
You know, an Apple executive and a Samsung executive had a conversation during which Court and Qualcom. The Apple executive urged Samsung to complain to the Korean regulatory body that that that regulates uh, you know, all this stuff in
South Korea. Now this is particularly uh juicy and a little and you know, as we say in the story, kind of explosive because of course Samsung's um you know, de facto ceo j Lee uh you know, was convicted of bribing the president and as part of this whole inquiry, one of the commissioners on that group uh stepped down. So so you know, it's it's not clear that anything inappropriate happened. UM CEOs you know talk all the time.
On the other hand, Qualcom is kind of saying that Apple basically went around the world and and sort of whispered in the ears of regulators and and and got a bunch of these regulators, including in South Korea and also in the US. There there's also regulatory inquiries and in the EU and in Taiwan to uh to basically go after Qualcom. So they're alleging this kind of vast international conspiracy. Apple of course says like, that's that's crazy.
The reason the regulators are looking into this is because you know, what you're doing is wrong. So so we've alluded to lawsuits, and we talked about regulators. What are the big legal cases that are out there that people should be watching. So in this dispute that they're they're sort of two key things going on. One is there's a lawsuit in UH southern California and in a federal court in San Diego where UM, Apple and Qualcom have have sued one another a should started I should say
three suits. So there's that. And then there is an FTC complaint in or in California. This is the federal government looking into Qualcom's pricing. That complaint dropped in almost the exact same time that Apple brought its stuff UM. And the sort of really interesting one is this complaint in the I t C, which is the the U. S government UH group that regular that's sort of supposed
to protect American businesses. Qualcoms countersuit Apple and is basically trying to prevent the import of iPhones UH that that are made without Qualcom chips. And that ruling is supposed to happen UH you know, by I think September so so sometimes soon. And the thought is that that could create some leverage that Qualcom might be able to use to to negotiate a settlement. Basically, Qualcom wants to settle this thing Apple says, you know we want to go
to trial, is that because Apple has more resources? What's what started behind the motivations of either side. So, uh, you know, if you talk to Apple, they say, the reason we want to try this is because it's all about fairness. Um, if you if you look at it, maybe with a little bit of adductivity. I think one thing that's fair to say is that Apple has a lot of resources. Apple can afford a drawn out fight for Qualcom. Uh. This is very Apple is a very
important customer, possibly their biggest customer. Um. And so so you know, if Apple just stops paying them, which is what has happened, you know at some point that they would have to come to the bargaining table. I want to thank Max Chafkin. He's a reporter for Bloomberg Business Week talking about the brewing legal fights between Apple and Qualcom over smartphones. Thanks very much for joining us here on Bloomberg Law