Qualcomm Sues IPhone Manufacturers Over Royalties

Qualcomm Inc. sued the manufacturers that make iPhones for Apple Inc. for failing to pay royalties on the chip maker's technology, widening its legal battle with the world's most valuable company.

Qualcomm's lawsuit, filed Wednesday in a federal district court in San Diego, accuses Compal Electronics Inc., Foxconn Technology Group, Pegatron Corp. and Wistron Corp. of breaching longstanding patent-licensing agreements with Qualcomm by halting royalty payments on Qualcomm technology used in iPhones and iPads. The suit seeks royalties they have withheld as well as a court order that the four Taiwanese companies continue to pay royalties according to their previous agreements with Qualcomm.

Qualcomm said the contract manufacturers are withholding iPhone royalties because Apple has refused to reimburse them, directed them not to pay and agreed to indemnify them against any damages they may incur by failing to pay royalties to Qualcomm. They have continued to pay royalties for using Qualcomm's patents in non-Apple products, the filing said.

Compal, Foxconn, Pegatron and Wistron representative didn't respond to emails sent by The Wall Street Journal after working hours. Pegatron, Compal and Wistron represenatives didn't pick up calls by the Journal after office hours. Foxconn couldn't immediately comment.

Apple said last month that it had suspended royalty payments because it hadn't been able to work out a deal with the chip company. "We've been trying to reach a licensing agreement with Qualcomm for more than five years but they have refused to negotiate fair terms," an Apple representative said.

The new lawsuit is the latest escalation in a dispute between Qualcomm, whose patents on key cellular communications technology enable it to collect royalties on nearly every smartphone made, and Apple, the world's most profitable smartphone maker.

Apple doesn't have a patent license directly with Qualcomm, relying instead on licenses held by the contract manufacturers, whom Apple reimburses.

Qualcomm last month sharply cut its guidance for the current quarter when it became clear that Apple would continue withholding reimbursements from the contract manufacturers.

Qualcomm's patent-licensing segment in fiscal 2016 contributed roughly 80% of its pretax profit. Apple-related royalties account for about 12% of Qualcomm's total revenue and as much as 30% of its per-share earnings, according to Srini Pajjuri, an analyst at Macquarie Capital (USA) Inc.

Apple sued Qualcomm in January in the U.S. and later in China and the U.K., claiming that Qualcomm abused its monopoly position in cellular chips to impose "onerous, unreasonable and costly" terms on customers and competitors. Apple's suit built upon a wave of international resistance to Qualcomm's patent-licensing business that has included investigations and fines in several countries.

Qualcomm, in its counterclaims to Apple's suit, accused Apple of unlawfully interfering with its agreements with contract manufacturers and of encouraging international regulators to attack it.

Liza Lin contributed to this article.

Write to Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

May 17, 2017 08:27 ET (12:27 GMT)