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Apple's Tim Cook: Qualcomm Lawsuits Were A Last Resort

Apple CEO Tim Cook isn't a fan of litigation, he said during the most recent earnings call, but he "didn't see another way forward" with Qualcomm.

Cook's statement follows lawsuits in San Diego and Beijing seeking $1 billion and 1 billion yuan, respectively, from the baseband processor supplier. Apple told CNBC that Qualcomm "insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined" and "has taken increasingly radical steps, most recently withholding nearly $1B in payments from Apple as retaliation for responding truthfully to law enforcement agencies investigating them," as part of its efforts to maintain its position of power over the Cupertino giant.

That position results from Qualcomm's status as the king of baseband processors, which manage a device's connection to wireless networks. A February 2016 estimate said that the company had 65% of the LTE baseband market. Combine that market share with the company's vast patent library, and you have the recipe for a near-monopoly. Manufacturers can't make smartphones without baseband processors or licensing critical patents, and with Qualcomm being the biggest game in town, it wouldn't be hard for the company to get other businesses to do essentially whatever it wants them to do.

Qualcomm executive vice president and general counsel Dan Rosenberg responded to Apple's suit in San Diego with the following statement:

While we are still in the process of reviewing the complaint in detail, it is quite clear that Apple's claims are baseless. Apple has intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed and shared with all mobile device makers through our licensing program. Apple has been actively encouraging regulatory attacks on Qualcomm's business in various jurisdictions around the world, as reflected in the recent KFTC decision and FTC complaint, by misrepresenting facts and withholding information. We welcome the opportunity to have these meritless claims heard in court where we will be entitled to full discovery of Apple's practices and a robust examination of the merits.

Apple's claims were made after the Federal Trade Commission accused Qualcomm of bullying manufacturers, harming innovation, and driving up the prices consumers must pay for new smartphones. The commission said it "has asked the court to order Qualcomm to cease its anticompetitive conduct and take actions to restore competitive conditions." Rosenberg said in response that the FTC "still lacked basic information about the industry and was instead relying on inaccurate information and presumptions" and "was driving to file a complaint before the transition to the new Administration."

Here's Cook's full statement from the earnings call, via Seeking Alpha:

I feel the same way I did in April of 2012. I don't like litigation and view it as a last resort. And so you should take from our filing that we viewed it as we didn't see another way forward. They were insisting on charging royalties for technologies that they had nothing to do with. And so we were in a situation where the more we innovated with unique features like Touch ID or advanced displays or cameras, just to name a few, the more money Qualcomm would collect for no reason and the more expensive it would be therefore for us to innovate.And so it's somewhat like buying a sofa, and you charge somebody a different price depending upon the price of the house that it goes into. Just from our point of view, this doesn't make sense, and we don't believe it will pass muster in the courts. In addition to that, as a part of their increasingly radical steps they were taking to try to hold up that model, they withheld $1 billion in payments that they owed us. And so we felt like we had no choice was the net of it.In terms of where it goes, we'll see. I don't like litigation. And so if there's another way, then that would be great, but at this point I don't see it. I fully expect at this point in time that it will take some time, but in the end I think common sense will prevail and the courts will see it for what it is. And so that's the way I see it. Thanks for your question.