Micron Technology Inc. Double-Data-Rate Synchronous Random-Access Memory (SDRAM) chips are arranged for a photograph in Tokyo, Japan. (Photographer: Tomohiro Ohsumi/Bloomberg)

Qualcomm Seeks to Cut Patent Claims From Apple License Fight

(Bloomberg) -- Qualcomm Inc. is trying to steer a big chuck of its billion-dollar dispute with Apple Inc. over the use of fundamental technology for mobile phones away from what it sees as a sideshow over patents.

At a hearing Friday, Qualcomm asked a federal judge in San Diego to throw out as moot all claims by Apple related to nine “handpicked” patents, whose validity Apple challenges, because the company has told Apple and its Asian manufacturers that it won’t assert any infringement claims over them.

U.S. District Judge Gonzalo Curiel didn’t rule on Qualcomm’s request at the hearing and said he hoped to issue a decision by the time of the next hearing on Nov. 9.

Apple alleges Qualcomm is trying to avoid any scrutiny of individual patents the chipmaker says are part of the standard technology for mobile phones to operate. Qualcomm argues that the specific intellectual property Apple has challenged -- the company says it has more than 130,000 patents and patent applications worldwide -- isn’t relevant to the broader licensing dispute between the two technology giants.

Qualcomm Litigation Primer: Bloomberg Intelligence

If Qualcomm succeeds in lobbing off as many as 56 claims and counterclaims in the case, it would put a dent in Apple’s effort to expose any alleged vulnerability in the chipmaker’s patent portfolio. That would give Qualcomm more leverage in negotiating a settlement of a myriad of cases in courts in China, Germany and before the U.S. International Trade Commission over how much it can charge Apple for the use of its inventions in iPhones and iPads.

“The endgame is a settlement,” according to Anand Srinivasan, an analyst for Bloomberg Intelligence. “But this is a fight for Qualcomm’s business model, and if they have to settle under duress, or if Apple wins this outright, everyone will ask for a similar deal.”

Qualcomm’s income from its intellectual property accounted for about two-third of its profits before Apple and its manufacturers ceased paying royalties last year, Srinivasan said.

Apple, in its opposition to throwing out the patent claims, argues that Qualcomm is trying to sidestep the question whether it improperly slaps, or has slapped, a licensing fee on top of the sale price of the baseband processor chipsets in Apple’s phones and tablets. If a patented technology is already embedded in the chips, the patent is “exhausted” by the sale of the chip and Qualcomm can’t demand an additional license to use the technology, according to Apple.

“Qualcomm is trying to prove that Apple and the contract manufacturers owe billions in royalties based on the value of its entire portfolio,” Apple said in response to Qualcomm’s request to dismiss the patent claims. The chipmaker’s pledge not to sue over the nine patents “does nothing to moot the broader case and controversy over the exhaustion of other patents in Qualcomm’s portfolio.”

Apple claims that Qualcomm uses its huge patent portfolio to extort excessive royalties for basic technology needed to communicate over cellular networks. Qualcomm has countersued, alleging among other things that Apple has illegally interfered with its contractors’ obligations to pay Qualcomm royalties. In addition, Qualcomm has sued Apple for infringing patents that pertain to technology that isn’t essential to standard communications, such as power management.

Last year, Apple stopped its Asian contractors from making royalty payments to Qualcomm, depriving the San Diego-based chipmaker of billions of dollars in revenue. Apple doesn’t have a direct licensing agreement with Qualcomm but would reimburse its contractors who did have such deals. Meanwhile, Apple has shifted to using Intel Corp. chips in its iPhone models rather than Qualcomm’s.

According to Apple and its contractors, Qualcomm sells a license for a broad portfolio of its patents needed to connect mobile phones with telecommunication networks, without disclosing the specific patents that are included, and seeks a cut of the value of the entire phone. In its lawsuit, Apple is trying to test whether individual patents in this portfolio are infringed by its products and, if so, whether they are valid and enforceable.

In addition to the patent-related claims, Apple’s suit includes antitrust and unfair competition allegations.

In all, there are some 100 legal proceedings around the world between Apple and Qualcomm, including patent challenges at the U.S. Patent and Trademark Office and the suits in China and Germany. Qualcomm also is facing an antitrust lawsuit filed by the U.S. Federal Trade Commission.

The case is In re Qualcomm Litigation, 17-cv-00108, U.S. District Court, Southern District of California (San Diego).

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