Qualcomm Loses Bid to Force Apple Manufacturers to Pay Royalties -- 2nd Update

By Tripp Mickle and Ted Greenwald Features Dow Jones Newswires

A federal judge Friday denied Qualcomm Inc.'s motion for a preliminary injunction in its lawsuit against Apple Inc.'s leading manufacturers, allowing the manufacturers to continue withholding royalty payments as the case continues.

Continue Reading Below

The decision was a small but expected victory for Apple in what is shaping up to be a multiyear battle with Qualcomm over royalty prices for technology used in iPhones and iPads. For Qualcomm, it was the latest setback to its profitable patent-licensing business.

In January, Apple sued Qualcomm in the Southern District of California over its licensing practices, alleging the leading supplier of chips for smartphones demanded unfair terms for its technology. Apple later filed suits in several overseas markets, including the United Kingdom, China, Japan and Taiwan.

In addition to ruling against Qualcomm in the contract manufacturers' case, Judge Gonzalo Curiel denied Qualcomm's motion to unify Apple's overseas suits.

Apple said it was pleased with the decision, adding, "Qualcomm must establish the fair value of its technology and defend its business practices in court."

A Qualcomm spokeswoman said, "While we are disappointed by today's rulings, we recognize that the motions involved high procedural hurdles."

Continue Reading Below

Qualcomm's preliminary injunction motion sought to force the contract manufacturers to pay royalties as its legal dispute with Apple continued. It had tried to convince the court it faced irreparable harm if the manufacturers -- Taiwan-based Compal Electronics Inc., Foxconn Technology Group, formally known as Hon Hai Precision Industry Co., Pegatron Corp. and Wistron Corp. -- continued to withhold those payments.

Florian Mueller, an independent intellectual-property analyst, said it was difficult for the company, which has a market capitalization of $74.43 billion, to argue the business would suffer long-term damage if payments were withheld while the case continued.

"Any other decision than this one would have been a surprise," Mr. Mueller said.

Qualcomm collects a royalty on nearly every smartphone sold world-wide. It owns patents deemed essential to implementing cellular-communication standards, obligating the company to license such technology fairly and widely. Qualcomm says its patents relate to cellular devices as a whole, not just its chips, and thus charges a percentage of the price of an entire device.

The company's licensees and rivals, though, say Qualcomm's royalty rates are unreasonably high. Apple argues Qualcomm's practice allows it to benefit from unrelated technologies added to the iPhone, such as its Touch ID a fingerprint-verification system.

Qualcomm was paid $10 an iPhone by Apple's manufacturers, according to analysts' estimates, before the companies began withholding all royalty payments earlier this year. The withheld payments hit Qualcomm hard in its most recent quarter, triggering a 40% decline in profit from a year earlier.

In May, Qualcomm had sought to blunt potential losses by suing the manufacturers for failing to pay royalties after Apple stopped reimbursing the companies. The manufacturers, who make iPhones or iPads, fired back in July with a countersuit.

Separately, Qualcomm had sought to block Apple's efforts to bring similar lawsuits overseas. The judge's decision allows those cases to continue, forcing Qualcomm to argue its royalty practices are fair in at least four other countries.

Write to Tripp Mickle at Tripp.Mickle@wsj.com and Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

September 08, 2017 20:20 ET (00:20 GMT)