Apple vs. Qualcomm – Pressure cooker pt. III.

A Christmas present from Germany.

• Qualcomm has struck another blow against Apple with a permanent injunction being granted against Apple which can only serve to further increase pressure on Apple to do a deal.
• The District Court of Munich has ruled that all iPhones up to and including iPhone X are infringing an envelope tracking patent belonging to Qualcomm and that sales of these devices need to stop immediately.
• Qualcomm brought the suit against Apple in Germany and as a result, only the Apple stores are affected and 3^rd parties will continue to sell the devices for now.
• I am pretty sure that Qualcomm will now go after both the newer iPhones and the 3^rd party sellers.
• A further eight allegations of infringement will be adjudicated in January which could prove crucial as I think that this finding is on somewhat shaky ground.
• The infringing technology is contained in a chipset that Apple uses from a semiconductor company called Qorvo and Qorvo has declined to allow its product to be fully examined so that infringement can be properly determined.
• The court has determined that in the absence of a full view of the technology, the devices are deemed to be infringing Qualcomm’s patent.
• This could be seen as guilty until proven innocent but seeing as Qorvo declined to help Apple out, this does seem to have been self-inflicted.
• Hence, there could be grounds for successful appeal if Qorvo can be convinced to open the kimono.
• However, my suspicion is that the Qorvo product does infringe Qualcomm’s IP for the following reasons:
  • Envelope tracking: This is a relatively recent technique that is used to provide optimal radio reception performance while also being very power efficient.
  • A Cambridge UK-based company called Nujira pioneered this technique long before it was used commercially and patented the best implementation of the idea.
  • There were other ways of implementing the technology but none of them were deemed to be particularly good.
  • This is why Qualcomm bought Nujira for $50m in 2015 as its in-house, non-infringing implementation of this technology was not as good.
  • iPhone performance: when it comes to radio, the iPhone is every bit as good as its peers both in terms of quality and power consumption.
  • There are certainly some performance differences between Qualcomm and Intel basebands but when it comes to battery life, Apple devices can match those powered by Qualcomm chips.
  • There has been no indication that the Qorvo power amplifier (where envelope tracking is implemented) is any less efficient than others hinting that it is using the Nujira technique.
• This opinion is based on a lot of assumptions and so I don’t put a great deal of faith in it but I think on balance the chip is more likely to infringe than not.
• Apple has already appealed the decision and so the seemingly endless battle will continue although Qualcomm is gaining the upper hand with injunctions both in China and Germany.
• Qualcomm does not really want to block the sale of iPhones as that will cost in money in the long run, and so what it is really trying to do is force Apple to the negotiating table.
• Apple is notoriously intransigent on these sorts of issues, and so the more pressure Qualcomm can pile on to Apple, the better for Qualcomm.
• These sorts of disputes typically play out as a series of smaller skirmishes where each side wins one or two victories.
• These victories have no real impact other than to affect the willingness of each side to negotiate.
• At some point, an event will occur (probably non-public) that will materially bring the two parties closer together and a deal will be done very quickly.
• Not being able to sell any iPhones in China would be just such an event.
• It could happen at any time and so it is just a question of waiting for the press release to be issued and then digging through the changes in expectations to deduce what has been agreed.
• Apple has the upper hand as it can wait for much longer than Qualcomm can, but I think the injunction in China and now in Germany further tips the balance back in Qualcomm’s favour.
• Qualcomm’s shares have sold off pretty hard this year and this uncertainty is likely to keep a lid on a recovery.
• However, for anyone willing to take the risk of the legal uncertainty, the shares are a bargain.