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Qualcomm Under Siege: Apple Files $1 Billion Lawsuit Against Chip Maker For Inflated Royalty Payments

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Qualcomm is under siege from both regulators and customers, with Apple reported to have filed a lawsuit against the chip maker for $1 billion.

The new lawsuit comes days after the Federal Trade Commission accused Qualcomm of anti-competitive practices that stifle innovation in the mobile communications industry.

Apple Lawsuit Against Qualcomm

In the lawsuit filed by Apple, the company said that Qualcomm has unfairly charged Apple with royalties concerning technology that they have nothing to do with. For example, when Apple decided to upgrade the maximum internal storage of the iPhone from 128 GB to 256 GB, Qualcomm collected a larger royalty.

"The more Apple innovates with unique features such as TouchID, advanced displays, and cameras, to name just a few, the more money Qualcomm collects for no reason and the more expensive it becomes for Apple to fund these innovations," said Apple in a statement.

Apple added that despite Qualcomm being one among more than a dozen companies who have contributed technology to basic cellular standard, the chip maker charges Apple with royalty payments that are at least five times higher compared to the royalties that Apple pays to all other licensors of cellular patents.

Apple claimed that Qualcomm has overcharged the company of royalties reaching billions of dollars. In addition, the company claims that Qualcomm has withheld almost $1 billion in payments, claiming that the move by the chip maker was in retaliation for Apple's participation and truthful responses to regulators.

The withheld payments are from the previous deal that the two companies struck, wherein Qualcomm was tapped as the exclusive supplier of Apple for modems in exchange for Apple being able to cut down on the excessive royalties that the chip maker charges in the form of rebates.

FTC Complaint Against Qualcomm

In the complaint that FTC filed against Qualcomm in a federal district court, the commission stated that the chip maker imposes smartphone manufacturers with supply and licensing terms that weaken the competition.

The FTC alleges that Qualcomm, if it is not able to get what it wants in contract negotiations with smartphone manufacturers, would threaten to disrupt the supply of processors. As such, smartphone manufacturers are given no choice but to accept Qualcomm's unfair terms, which include higher royalties and payments when the company decided to use processors made by Qualcomm's rivals.

The outcomes of such practices is that smartphone manufacturers are forced to use Qualcomm chips, and that companies which decide to use a non-Qualcomm chip will have to increase the price of the device, passing on the effect of Qualcomm's unfair tactics to customers.

A major part of the accusations lodged by the FTC against Qualcomm revolve around the relationship between the chip maker and Apple.

Qualcomm In Trouble

"It looks like Qualcomm's business is now under attack from all fronts," said Bernstein Research senior analyst Stacy Rasgon.

After Apple's announcement of the lawsuit filed against Qualcomm, the chip maker's stock dropped by almost 2.5 percent.

Qualcomm continues to lead innovations in processor technology, such as the Snapdragon 835 that will improve the performance of artificial intelligence-powered apps. However, the company will first have to deal with these legal issues and stop its alleged unfair practices if it wants to continue in the industry.

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