Right, but if I give a hefty discount to one of my buyers, presumably they'll shun my rivals in exchange for the hefty discount. If that's ok, what's preventing me from locking in the quid pro quo with a 5 year deal?
The point is: the price is not the only factor that matters in a buying decision. Even if you give hefty discounts, thus are the cheapest source for the parts, the buyer might want to source a percentage of parts from another supplier which might be more expensive, but in return the buyer gets some independence from you - like if you can't deliver on an order, the buyer may be able to shift more orders to the other source relatively quickly. And of course the buyer will be in a much better position regarding future price negotiations with you if he already sources the part from two suppliers and thus can potentially increase orders from the alternative source easily (which usually entices them to give the buyer a bigger discount as well) without encountering large additional switching risks.
Apple in particular always tries to have multiple sources for any parts they don't develop themselves. And even for the stuff they develop, they try to have multiple manufacturers. This is a very good idea to do at their scale. Them legally preventing from doing this by forbidding it in a contract is way different than "preventing" them from doing this by just offering them chips at super-cheap prices and hoping for them to take up your offering and to ignore all the other competing offers.
It works out well for Apple, to be honest. The contact parts that them lock-in in to only one vendor just got nullified. They can now source parts from other vendors if they do choose - something tells me the ramifications of this for Qualcomm are worse than just st the fine... Apple can now do some hard nosed negotiating to reduce the price they pay for Qualcomm goods.
I am pretty sure that the Apple lawyers were absolutely expecting this outcome, which is probably the reason why they signed such a contract. The risk was mostly on Qualcomm's side, as they were the ones writing the shady contract, while Apple would benefit from cheap components, which is a safe benefit that they would not lose in case the shady parts of the contract would come to light and provoke law enforcement to step in.
Most likely they didn't yet plan to source the LTE chips from a second supplier at the time they signed the contract, so that limit didn't affect them. Nowadays they do have multiple sources, which is probably why they did not prolong the contract any further after 2016 - because having multiple sources was worth more to them than having this discount.
The Apple Qualcomm exclusivity agreement expired in 2016. So this doesn’t help Apple at all, except to the extent it sways public opinion on their worldwide litigation over Qualcomm’s sketchy not-really-FRAND approach of charging a percentage of the final device price, rather than a fixed price per chip.
Rights holders generally have to agree to license their patents on FRAND terms to get their technology included in wireless standards, in this case CDMA and LTE.
Qualcomm’s license pricing is, unusually in the industry, a percentage of the final retail price of the final device.
Apple’s argument is that this is not, in fact, a reasonable and non-discriminatory price for a license to use Qualcomm’s patents.
the price is not the only factor that matters in a buying decision.
It can be. What if Qualcomm gives discount only if Apple buy as many as it need which is fairly predictable. Then Apple would have enough supply and wont need to look for another supplier.
In that case Apple is still free to just buy a few percent of the chips they need from a different supplier, use those as well in production and in the worst case shelve the surplus chips from the Qualcomm supply agreement (if the quantities set in the agreement perfectly match the needs of Apple at that moment).
Whether this makes economic sense depends on whether savings_due_to_discount - (price_of_chips_from_second_supplier + lost_value_of_surplus_chips) works out for Apple. That may be a negative number, which means that Apple has these costs for getting the majority of chips from Qualcomm at the super-cheap discount while still having a second supplier actively used in production. But these costs may still be worth the risk mitigation that occurs when having a second supplier in the chain. Especially for Apple, for which lost revenue due to supply constraints can quickly eat up any marginal savings on one component in the supply chain.
The point is: it is an economic decision, which is exactly what it should be, and the decision can be made and re-evaluated at any time. If you exclude second suppliers by contract, it's only an economic decision when the contract is signed, after that the economic decision becomes a non-decision, even if the economic rationale changes (for example because a competitor became better). And that is exactly why this contract clause is anti-competitive and was deemed illegal.
> In that case Apple is still free to just buy a few percent of the chips they need from a different supplier,
If supplier only needed few % sales from Apple, then Apple could have just given them money for other reasons (funding etc). Thus no loss of choice for consumers. This case is simply money grab.
If those % of sales are not enough, then supplier dies. Loss of choice but now due to legal means.
Qualcomm is persona-non-grata to Apple at this point.
Apple doesn’t want to buy Qualcomm chips at any price, if it can get replacements from anywhere else. It wants reliable partners, and if possible, to contract manufacture its own baseband chip designs, without paying more to Qualcomm in ostensibly FRAND fees for chips it designs itself than just buying the chips from Qualcomm.
"Rivals" is just it. The whole point of competition law is to restrict actions which would be legal in a competitive environment but become illegal when a company has a monopoly.
Yes, that would be okay, as long as you don't make it part of the contract that "they can't buy from anyone else".
You can offer a -50% discount to customers (as long as you aren't selling below cost, which would also be illegal in the EU), and then you'd have to assume that the customer will stick with you as long as you offer that discount, or develop a good relationship, and so on.
But you can't enforce that the customer can't also buy the product at 100% of the price or whatever it is from a competitor at the same time it's buying it at -50% from you. If the customer does that, it should be their choice. You can't ban the transactions with your competitors in the deal.
Yes, but it's not a legal requirement to shun the competitors. You can still purchase at 2x the price if you want to. That's the issue here. Qualcomm banned Apple from purchasing at any cost from competitors, essentially. It was in the deal that there would be significant consequences from purchasing from other competitors.
