It's not a bribe. A bribe would be if Qualcomm offered a personal reward to Apple execs for using their chips. This was a price reduction meant to keep a key buyer of chips from choosing competitors. It's a key difference.
For example, Amazon Web Services can offer discounts to keep companies from switching to Azure and Google Cloud. That's legal. If Amazon Web Services offered the CEO of Snap a billion dollars (to them personally, not to the company) to use AWS instead of Google Cloud, that's illegal (both for AWS to offer it and for the CEO to accept it).
The only reason why it's illegal for Qualcomm to have taken this action is because it falls afoul of competition regulations. For example, AWS may be the largest cloud provider and it may be a key market, but they aren't so large that they can really shut off the market to competitors. Similarly, none of their customers are so large that they're a significant portion of the market for buying servers. Finally, because AWS doesn't control buying servers or data centers (and companies often do invest in that when they hit a certain scale), it's hard to argue that they're shutting out competition.
By contrast, Qualcomm specifically created a plan to make sure it wouldn't be profitable for competitors to develop high-end modems. While more Android phones are sold than iPhones, the iPhone is a very significant portion of the high-end phone (and modem) market. If Apple committed to Intel or another manufacturer, that company would have the sales necessary to create high-end modems that would challenge Qualcomm. Absent Apple committing to that, it's unlikely that any company would be willing to spend the money developing competition to Qualcomm. Plus, Qualcomm's discounts mean that a company like Intel would look at the situation and note that if they did develop a competitor, Qualcomm would simply discount their chips for a year or two and drive them out of the business. If you're Intel and you develop a competitor and no one buys your chips for a couple years, you'll exit the business.
You're allowed to offer discounts to get companies to choose your products or stay with your products. However, you're not allowed to use discounts to choke off competition.
From what I understand of the situation Qualcomm is accused of: 1) Qualcomm has patents on LTE and other wireless technology that they committed to licensing under FRAND (fair, reasonable, and non-discriminatory) terms. 2) If you want Qualcomm chips, you need to agree to a license for those patents on Qualcomm's terms and not challenge the terms as violating FRAND. 3) Because Qualcomm got you to agree to very high licensing rates for their patents, they could then discount their chips a lot to keep competitors from getting a foothold.
Let's say you're Apple. You need Qualcomm's modems because they're the only high-end modem supplier in the world. So you agree to their non-fair license rates. Intel looks like they might enter the market and create a second seller of high-end modems. Qualcomm offers a steep discount on chips so that you won't buy Intel's and so Intel doesn't have enough sales to continue in the market. You have to pay Qualcomm's very high non-fair license rates even if you use Intel chips because you still need Qualcomm chips for some of your phones. Qualcomm's discount on their modems came with the caveat that you only use Qualcomm modems. So, Apple could buy some modems from a competitor, but they'd still have to pay Qualcomm's very high license rates and more for the Qualcomm chips they needed -or- they could take the discount on Qualcomm chips.
Over the past two generations of iPhone, Apple has been trying very hard to break Qualcomm's monopoly. They're propping up Intel's modem business with the hopes that they can switch 100% off Qualcomm in the future and get rid of what they see as Qualcomm violating their FRAND licensing requirements. But they couldn't do that without a competitor for modems. Because Qualcomm operated "no license, no chips" and Apple couldn't shut down iPhone production for years until a competing high-end modem came around, they had to play ball. At this point, they only really need Qualcomm for Sprint and maybe some other small carriers. In a pinch, Verizon does have non-CDMA, VoLTE-only (voice over LTE) phones.
It is illegal to accept bribes, but this isn't a bribe. A bribe would have been to offer a reward to some Apple execs to tip the scale in Qualcomm's favor against Apple's interests. "If your town chooses us for your broadband, you might find a new Porsche in you driveway," is a bribe. "If your town chooses us for your broadband, we'll charge residents 20% less than Comcast," isn't a bribe. "...we'll also upgrade the town's electrical system...we'll sponsor after-school coding classes for students in town...we'll throw a dance party for everyone in town," aren't bribes because the benefit isn't a personal one for the person making the decision. Qualcomm isn't accused of offering a bribe to key execs at Apple. If Qualcomm's actions hadn't been anti-competition, there's nothing wrong with discount payments. Almost all companies offer discounts off list prices if they're dealing with enterprises. The issue is that it's anti-competition and that's why Qualcomm is the only one in hot water. Apple wants the competition and has been doing more to stimulate it than anyone else seems to have been.
You are right in that it's not a bribe. It's a common industry practice to offer "discount" or "rebates" for volume customers, or those with longer contract duration.
Qualcomm did not specifically created a "plan" to discourage potential customers from choosing competitors. It was Apple who proposed the rebate deal with exclusivity and Qualcomm acquiesced to Apple's demand. Then Apple started parading around telling regulators that they were FORCED into that agreement. In hindsight, it was Qualcomm's contract lawyers' oversight to have let that big one slip. Qualcomm has been under regulators' radar for decades, but they might have felt it was ok to let that one in since it was their own customer Apple, not Qualcomm, demanding that exclusivity.
Your understanding of the situation is a bit skewed: (1) yes, Qualcomm is a leading wireless inventors and owns the largest wireless patent portfolio (2) even if you don't use Qualcomm chips, you have to pay Qualcomm licensing fees. You are allowed to challenge their FRAND licensing practices and, for almost a full decade, Apple has done this every time their contract is up for renewal with Nokia, Ericsson, Samsung and pretty much every wireless patent holders WITHOUT any evidence that there is a breach of FRAND. (3) Qualcomm's rate is higher because the share and importance of their IPs and, again, because Apple is a huge volume customer. Apple was never in rush to get the latest and greatest tech.
Apple and others would require a license for Qualcomm's IP, but the allegations are that Qualcomm forced others to agree to Qualcomm's preferred license terms or lose access to Qualcomm chips. If you tried to license Qualcomm's IP under FRAND terms rather than Qualcomm's preferred terms, you couldn't make a flagship phone since they wouldn't sell you the only high-end modems available.
In the FTC complaint against Qualcomm, they say that Qualcomm, "Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors."
They also say that Qualcomm, "Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks."
So, the situation alleged seems to be that 1) phone makers can't forgo access to Qualcomm's chips because they need them for high-end phones; 2) Qualcomm won't sell you chips unless you agree to their preferred license terms rather than FRAND terms; 3) Qualcomm's control of the only high-end modems means that they can charge a much higher royalty on their patents (since companies will pay the higher royalty because they need Qualcomm's chips) and they can accept lower margins on the chips to make sure that competitors can't get into the market (and competing chips get subject to Qualcomm's anticompetitive tax if the manufacturer wants access to Qualcomm chips for any of its devices).
Qualcomm also refuses to license their patents to competitors like Intel or MediaTek because they want a percentage of the handset cost rather than a fixed fee. The FTC has alleged that this alone is a violation of FRAND.
According to one study cited by the FTC, Qualcomm's share of "highly novel" LTE patents was 13% compared to 19% for Nokia and 12% for Ericsson and Samsung, but Qualcomm gets paid far more than they do in licensing fees.
You've said that Apple could challenge the licensing fees, but what's alleged is that Qualcomm would stop selling you their modems if you challenged their preferred licensing fees. Yes, Apple would still have to pay some fee, but it might be much lower than Qualcomm's preferred fees. The problem is that they'd lose access to Qualcomm's chips.
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Before the iPhone's Intel use, if you were a phone maker and you wanted to ship a flagship phone, you had to use Qualcomm's chips. There was no alternative modem you could use. Qualcomm had agreed to FRAND terms for their IP. But they saw that phone manufacturers couldn't force them to sell their chips. So, if a phone manufacturer wanted their chips, they'd say, "here are the royalties we prefer for our IP. If you don't agree to these rates, you could challenge them, but then we won't sell you any chips. Without our chips, you can't sell the high-end phones that are your entire margin. So, agree to the rates even if you think they're a bit higher than FRAND."
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Yes, Apple would still have to pay Qualcomm a royalty. However, if they didn't tie Qualcomm's preferred licensing to their chips, that royalty might be lower. If Qualcomm licensed their IP to competitors (as the FTC says is required under FRAND commitments), Apple's royalty would be a lot lower.
"When Apple sought relief from Qualcomm’s excessive royalty burden,
Qualcomm conditioned partial relief on Apple’s exclusive use of Qualcomm baseband processors from 2011 to 2016. Qualcomm’s exclusive supply arrangement with Apple denied other baseband processor suppliers the benefits of working with a particularly important cell
phone manufacturer and hampered their development into effective competitors."
Apple wanted lower royalties. Maybe Qualcomm worried they'd get another company to create a flagship modem and then challenge Qualcomm's royalties. If I were Qualcomm, I would have. So, by requiring exclusivity, I could choke off competition to my modems and make sure that phone manufacturers had to continue paying me high royalties.
If Qualcomm legitimately thought that their IP was worth as much as they were getting paid for it, then they wouldn't have to tie the rates to access to their chips.
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1) According to the FTC, Qualcomm doesn't have the largest portfolio for LTE technologies. Nokia has 46% more "highly novel" standards essential patents for LTE than Qualcomm.
2) The complaint is that you couldn't challenge Qualcomm's preferred rates because they'd deny you access to their modems and without their modems, you'd be dead in the water.
3) The FTC complaint alleges the opposite. a) Qualcomm's IP is less important; b) Apple wasn't in the driver's seat and it was Qualcomm's plan to require exclusivity when they asked for relief from royalties they believed were too high.
Your narrative is rather nakedly anti-Apple, and I'm having trouble understanding how it even makes sense. You say there was "no evidence" Qualcomm breached FRAND. If that's the case, then why would Apple induce Qualcomm to offer them an exclusivity licence with partial rebate that still winds up being higher than FRAND? Why not just get a cheaper straight FRAND licence with no rebate? Conversely, if the rebate nets Apple sub FRAND rates, then why would they challenge it "every time"? A successful challenge would then result in higher net costs to them.
Sure. 1) You are putting words in my mouth -- never claimed there was no evidence Qualcomm breached FRAND -- at least with respect to Apple, that is yet to be determined. There is no doubt that Qualcomm's licensing respect to competing baseband makers (or lack thereof) is clearly a violation of FRAND. What was said: there are real court cases involving Apple and wireless suppliers/patent holders (again, Nokia, Ericsson, Samsung) demonstrating my points that Apple challenged pretty much every wireless patent holders and lost or settled before trial. See Apple vs Samsung in particular where Apple made unsubstantiated claims against Samsung's FRAND violation and was dismissed. Even Apple's own ETSI expert came out testifying against Apple.
2) No, Qualcomm's FRAND licensing rate is published to the public time to time, so they don't look like they are ripping off anybody (or unfair). It's around 3%-5% range per device -- and it is not cheaper than whatever their agreed "preferential" rate is. Apple and FTC fanangled some nebulous calculus to come up with that absurd figure and claim that Qualcomm overcharged Apple. Ask them, not me -- and I bet you'd be surprised how far and silly they are willing to go to make their case against Qualcomm.
3) Apple's view on patent licensing is that while Apple's own frivolous design/utility patents are worth $7-$8 per end-user device (see Apple vs Samsung), everyone else's should be $0.00000X per smallest component that embodies them (see Apple vs Samsung, Nokia, Ericsson, Moto, etc). So Apple's problem here is that wireless companies like Qualcomm have for decades collected 3%-5% per end-user device and Apple doesn't want to pay that much, or anything close to that amount. Apple has little negotiating power since they have so few wireless patents to cross-license, but they are a huge volume customer. With Qualcomm, Apple managed to negotiate some discount, or "rebates" in exchange for exclusivity -- which btw was purposed by Apple, not forced upon by Qualcomm. But Apple still thinks it's too much. Instead of direct legal challenge which had not worked for Apple for years, Apple cleverly persuaded regulators to go after Qualcomm for anti-trust/anti-competition violations, which apparently looks like Apple had planned all long with the exclusivity deal.
It's not difficult to understand where Apple stands on these licensing issues if you've followed their lawsuits past several years. I don't want to sound like a tin-foil hat, but at this point, especially after seeing Qualcomm's countersuit, it's not difficult to see how Apple might have plotted all this years ahead.
> In fact, internal documents show that Apple gave serious consideration to switching part of its baseband chipset requirements to Intel. Qualcomm's exclusivity condition was a material factor why Apple decided against doing so, until the agreement came to an end. Then, in September 2016, when the agreement was about to expire and the cost of switching under its terms was limited, Apple started to source part of its baseband chipset requirements from Intel. But until then, Qualcomm's practices denied consumers and other companies the benefits of effective competition, namely more choice and innovation.
Would this sort of agreement be legally binding? Even though it it was against EU law, could Apple be sued for breach of contract if they used Intel chips?
I think I t would depend on the forum and choice-of-law provisions of the contract itself. If it were entirely under, say, the UK's jurisdiction, common law countries generally permit the nullification of a contract provision that is against public policy (I am an American lawyer, not a U.K. lawyer, and my practice area is not contracts, so take my only-slightly-educated guess with a grain of salt.)
Chances are good it says that any disputes are to be governed by the laws of, say, the State of California. Since California doesn't adopt EU law as its own public policy, it would be likely to enforce the contract (unless it violated California law in some way).
Note there's no such thing as UK jurisdiction, as there are three separate legal systems in the UK (English, Scottish, and Irish). But yes, all three would likely nullify the contract provision.
IANAL but in Roman Law countries - and just for the record - not necessarily applying to this case, there is the concept of contracts (or clauses in contracts) that can be deemed nullum ab initio and Quod nullum ab initio nullum producit effectum if they are against or contrasting any Law, i.e. ipso jure.
Qualcomm already stopped paying Apple rebates, not because they are now using Intel chips, but because Apple gave false testimony about their contracts to regulators, which is in violation of their business agreement.
I think it's better to only have one party fined over bribes, because then the other party can report the first one (kind of like it's happening with Apple and Qualcomm now).
Debatable. I'm more inclined to believe it should be the party paying the fines, because then the punishment would try to deter the first part of the process, rather than the latter (receiving the money). So you'd try to nip the bribing process in the bud.
Plus, if you're say a politician, and everyone throws money at you to bribe you, because they have no risk in doing that (only you do), you may eventually take that risk and cave in (especially since you'd be in a position of power, and you'd think nothing bad could happen to you, even if you do get discovered).
But if you were to punish companies for giving bribes to politicians, I think that would be a more effective way of stopping the whole thing.
Or think if you wanted to bribe a government clerk to do some papers for you faster. You'd know there is a risk for being punished over it, so you may not even try. Even if the clerk would tell you to pay them money to quicken the process, you may think it could be a trap, since he'd be working for the government.
But if the punishment wouldn't affect you, then "it wouldn't hurt to ask" if the clerk accepts bribes to quicken processing your papers. The clerk would be taking the risk, and you wouldn't care if she gets caught. And you'd be willing to pay to get those papers faster.
Based on existing laws, accepting bribes is unethical and usually illegal. There will always be someone willing to bribe you no matter what the penalties are, and going after those who paid bribes will not actually stop that IMO. Companies act illegally all the time, and when its in their interests to do so they will continue.
Making the penalties for accepting bribes be more significant (more than the benefit gained by accepting the bribe) would significantly deter people from taking bribes regardless of how many people or how often.
I think we both have good points, so maybe the solution would be offering and accepting bribes should be illegal and penalized, and both parties should be penalized more than the benefits gained by offering/accepting the bribes. In this case, Qualcomm should be fined a much more significant amount of 4.9%, and apple too should be fined more than the price reductions + payouts they received from Qualcomm
According to some other reports, Apple accepting the bribe does not violate any antitrust rules. (Can't find an english-language source for that unfortunately)
Bribe is such an incorrect word for this. A discount isn’t a bribe, nor is a rebate. If Tim Cook got extra money in his bank account, then that would be a bribe. This situation isn’t.
