Qualcomm Says Apple Breached Contract on Phone-Chip Software

(Bloomberg) -- Qualcomm Inc. has sued Apple Inc., accusing the iPhone maker of failing to abide by the terms of a software license and said it may have used its unprecedented access to that code to help Qualcomm-rival Intel Corp.

The chipmaker filed the lawsuit against Apple on Wednesday in California state court in San Diego, adding yet another front to their bitter legal battle. Apple is being sued for breach of a contract that governs the use of software needed to make chips work with other parts of mobile phones and communicate with networks.

The two companies are embroiled in an escalating dispute over technology licensing fees that Qualcomm charges for patents that cover the basics of how mobile phone systems work. Apple says Qualcomm is unfairly charging too much and leveraging its strong market position in chips illegally. Qualcomm has countered that Apple, one of its largest customers, has lied to regulators in an unfair attempt to bully it into charging less.

Apple uses Qualcomm modems, chips that connect the iPhone to cellular networks. It widened its suppliers to include Intel for some versions of the iPhone beginning with the 7 model. Apple representatives didn’t immediately respond to requests seeking comment.

Qualcomm alleges in the latest suit that Apple failed to protect the chipmaker’s software and isn’t allowing an audit to review how the iPhone maker handles the software, an obligation that Qualcomm says is included in their contract. Apple made an email request for proprietary information from Qualcomm and included an Intel engineer on the distribution list, according to the suit. It also alleges an Apple engineer working with a competitor asked a colleague to request information from Qualcomm on data download technology.

The suit comes a few days after it emerged that Apple is designing iPhones and iPads for 2018 that don’t use components from Qualcomm, according to a person familiar with the matter. If Qualcomm loses that business, it would cut the company’s revenue by about 7.5 percent, Raymond James & Associates estimates. The product plans are in the early stages and may still change, said the person, who asked not to be identified because the matter is private. Apple made the decision amid a dispute over the iPhone maker’s access to the San Diego-based company’s proprietary technology, said people familiar with the matter.

Qualcomm shares were up 3.8 percent to $55.47 in New York trading after the company reported better-than-expected earnings Wednesday. Apple was little changed at $167.85 ahead of its financial results later in the day.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net.

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Molly Schuetz, Andrew Pollack

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