Like I said last week in my article entitled “If The FTC Case Against Qualcomm Seems Like a Clown Show Right Now, It's Because It Started That Way”, if you haven’t been following the FTC versus Qualcomm case and are in the tech industry, you probably should. What’s likely at stake are future inventors’ rights to monetize their inventions, the U.S. government becoming an IP price fixer, U.S. 5G competitiveness, and competitiveness in related industries like self-driving cars and smart cities and potentially even national security.
One of the things that caught my eye last week was Apple COO Jeff Williams’ FTC testimony that Qualcomm wouldn’t sell it chips for its 2018 iPhones. This could be viewed as support for the FTC’s “no license-no chips” accusation against Qualcomm and be damaging to Qualcomm’s defense. Williams testified that “But in the end, they (Qualcomm) would not support us and sell us chips- I contacted Steve (Mollenkopf), I sent him emails, I called. We tried to get them to sell us chips and they would not.”
Three days ago, Bloomberg’s Ian King and Mark Gurman ran a piece from leaked emails in September 2017 between Apple and Qualcomm suggesting Qualcomm CEO Steve Mollenkopf did offer to sell Apple its wireless chips for use in 2018 iPhones. The article said that Apple wanted source code for the modems and Qualcomm wanted a commitment to 50% of the supply over two years. If accurate, this article would support what Qualcomm CEO Steve Mollenkopf testified to when asked, “was there ever a time when Qualcomm withdrew from competing for business at Apple?” and Mollenkopf answered, “no.”
While I would have preferred to see the Qualcomm-Apple emails in testimony versus leaked emails, no one so far is questioning the email authenticity with me. I’ll assume this wasn’t part of FTC evidence because the FTC limited its investigation through 2016. I want to peel back the onion a bit and dig in on a few things.
First off, this exchange seems like good, old fashioned negotiating. I spent over 20 years at hardware OEMs and chip companies, did a lot of negotiating from both sides, and this is what negotiation looks like. It appears Qualcomm wanted a volume commitment and Apple, based on Williams’ testimony, seemed prepared to offer it, given Williams’ earlier testimony on a desire to “dual-source.” Apple also appears to want the source code for the thin modem.
I will assume that Apple wanted Qualcomm’s latest X20 LTE modem at the time and the X20 source code. What I don’t understand is why Apple wouldn’t just keep using the X16 modem, which lined up well right next to Intel’s XMM 7560 gigabit class modem from a feature and speed standpoint. Apple already had the source code for the X16 modem and continues to ship the X16 in older iPhone models today. Why was Qualcomm so touchy about the modem source code?
In November 2017, Qualcomm asked a San Diego court to force Apple toprovide a software audit on how Apple was using its source code. In September 2018, Qualcomm filed a breach of contract lawsuit against Apple for trade secret misappropriation. What is evident from this chain of events from September 2017 to September 2018 is that Qualcomm was worried Apple was going to misappropriate its X20 source code as Qualcomm believed it did with the X16.
Apple’s stock response to these trade secret theft accusations was, "Qualcomm's illegal business practices are harming Apple and the entire industry. They supply us with a single connectivity component, but for years have been demanding a percentage of the total cost of our products - effectively taxing Apple's innovation." Even though Qualcomm had its fears over trade secret theft, according to the Bloomberg emails, the company was still prepared to sell it modems with a volume commitment.
To the core of the FTC’s suit against Qualcomm is that it wouldn’t sell chips unless customers paid for licensing fees. If the emails referenced to in the Bloomberg article are accurate, then it looks like Qualcomm's Mollenkopf was prepared to sell its chips to Apple but Apple didn’t like the terms. This all strikes me as negotiation, not anti-trust harm, particularly when Apple could have used the X16 modem with which it already had the source code and is still buying. This he said-she said are what courts are for, to piece through these things and as I have said, I’m no lawyer and don’t play one on TV.
I hope to see a day that Apple and Qualcomm can resolve its differences and focus all on what consumers want- innovative products and great experiences, because I’m getting sick of all this.