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Apr 16, 2019

Qualcomm, Apple agree to drop all litigation worldwide

Qualcomm, Apple agree to drop all litigation worldwide

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Apple Inc. and Qualcomm Inc. agreed to end a two-year legal battle over billions of dollars of technology licensing fees that had threatened to jeopardize the chipmaker’s most profitable line of business. Qualcomm’s shares jumped 23 per cent on the announcement.

Apple will make a one-time payment to Qualcomm, and the two reached a multiyear agreement whereby Qualcomm will supply chips and license its technology to Apple in exchange for royalty payments, the companies said Tuesday in a statement. The companies said their litigation around the world will be dismissed, but didn’t disclose details of the payments or fees.

A victory for Apple would have hampered Qualcomm’s ability to collect fees on the technology that powers mobile phones around the world. But Apple had an incentive to settle too. The arrangement helps the iPhone maker keep from falling behind in fifth generation, or 5G, technologies designed to provide blanket wireless coverage and propel faster and more versatile mobile services. Apple’s current modem supplier, Intel Corp., won’t have its 5G chip in phones until next year -- about the time Qualcomm expects to have an updated 5G modem available.

Apple’s biggest rival, Samsung Electronics Co., already has a phone in the market that will support that new technology based on a Qualcomm chip.

“There were worries that this was going to be a nasty court battle, and I think that Apple realized, despite wanting to make a statement, that it was in their best interest, based on 5G and licensing issues, to settle,” said Dan Ives, an analyst at Wedbush Securities. “Apple and Qualcomm both had more to lose in trial than if they just settled.”

Qualcomm said it anticipates the agreement to add US$2 per share to its earnings when it begins shipments of chips to Apple. While it’s not clear how much Qualcomm gave up in concessions in terms of payments and rates, the settlement lets it continue one of the most profitable businesses in the US$400 billion semiconductor industry. Apple was the remaining holdout from a licensing practice that allows the San Diego-based chipmaker to charge patent royalties on technology that underpins all modern smartphones.

The two sides began a jury trial Monday in San Diego that was to decide whether Apple owed Qualcomm unpaid royalties or the iPhone maker was right to argue that it was the victim of unfairly inflated charges.

Qualcomm’s stock, which had underperformed this year, jumped to US$70.45 at the close in New York. Apple was little changed at US$199.25. Representatives for Apple and Qualcomm declined to comment beyond the statement. Qualcomm is scheduled to report earnings May 1, when it will likely give more financial details.

Qualcomm is still waiting for a federal judge’s ruling on claims by the U.S. Federal Trade Commission that the company’s licensing practices are anti-competitive. The regulator accused Qualcomm in a 2017 lawsuit of using its dominance in the smartphone technology market to thwart competitors’ growth and force companies including Apple and Huawei Technologies Co. to pay inflated patent royalties. A nonjury trial in San Jose, California, was held in January.

Separately, Qualcomm faces a class action on behalf as many as 250 million consumers seeking as much as US$5 billion in damages over claims they suffered from inflated retail prices. The company has said it’s probably the largest class action in history and is asking an appeals court to block the consumers from proceeding as a group.