Apple has used Qualcomm technology and licensed patents for its iPhones for many years. That technology is focused on the most basic mobile-phone systems, including connectivity and communications. The two companies are already engulfed in legal disputes surrounding that technology, intellectual property and Qualcomm’s right to enforce existing contracts that Apple claims are unfair.
The longstanding legal battle between Apple and Qualcomm took another surprising turn this week.
Qualcomm QCOM, +12.71% has filed a complaint against Apple AAPL, +2.61% in San Diego court, alleging that Apple breached its contract by not allowing for a security audit stemming from an apparent lack of intellectual property (IP) protection.
As the dispute continues to ratchet up, both companies are taking risks. For Qualcomm, Apple is a large customer, and losing that portion of modem sales would be an immediate impact. Longer term, a losing battle in court could embolden other mobile partners to question existing contracts.
Apple risks falling further behind in the mobile connectivity areas in which Qualcomm is the clear leader, including 5G technology and Gigabit LTE. If this most recent legal complaint holds ground, it could also lead to invalidation of Intel’s INTC, -1.61% ability to develop competing modem technology if it is based on stolen IP, hindering Apple’s ability to replace Qualcomm at all on future devices.
Starting with the iPhone 7, Apple began dual-sourcing modem chips to lessen its dependence on Qualcomm. It continues that practice today with the iPhone X.
As part of the arrangement between Apple and Qualcomm, Apple had access to software and tools to help it integrate modem technology into the iPhone. Qualcomm believes that Apple may have shared some sensitive data with competitor Intel, the vendor supplying the other portion of the iPhone modems to Apple, against the contracts in place.
According to a report from Bloomberg, an email chain between Apple and Qualcomm engineers that requested proprietary information had an Intel engineer included on it by Apple. The complaint also alleges that an Apple engineer working with Intel specifically requested information from Qualcomm, with a logical next step being intent to share.
Qualcomm’s legal action is based around Apple’s non-compliance on requests to perform a formal audit that would determine if the breach of contract surrounding intellectual property had occurred. This audit is a standing part of the contract and is the basis of this most recent legal conflict between the two mobile titans.
Interestingly, a recent report from the Wall Street Journal discussed upcoming Apple products for 2018 that might be designed to remove Qualcomm modems completely. That would be a dramatic hit to Qualcomm’s revenue. The WSJ report also mentions that the reason for Apple’s potential move away from Qualcomm was because the company was withholding specific information necessary to further develop the product, pushing the idea that Qualcomm was a “bad supplier.”
The filing of this legal complaint paints that story in a different light, as it seems reasonable for Qualcomm to withhold proprietary information from an organization that might be illegally sharing that IP and also not allowing for proper audits to prove that it is not sharing it.
