Well, that risk factor took all of a day to materialize.

On Apple's (AAPL 1.30%) earnings call on Tuesday, analysts asked CEO Tim Cook whether or not he thought the legal battle with Qualcomm (QCOM 1.29%) could potentially result in Qualcomm either withholding modem chip supply or even going as far as seeking an injunction against the iPhone, particularly as Apple is approaching "what will arguably be [its] most significant and largest product launch in history." Cook dismissed the idea and didn't think such a scenario was likely.

Qualcomm is now reportedly seeking exactly that.

Multiple colors of iPhone 7

Image source: Apple.

Why can't we be FRANDs?

For context, here's the full quote from Bernstein analyst Toni Sacconaghi:

And really specifically, I wonder what you believe is the risk that Qualcomm could have a detrimental response such as withholding modem chip sales or potentially even getting an injunction on iPhones in select geographies around the world. And I'd like to understand your perspective on whether either of those are real risks to any degree and why would Apple potentially take on those risks just in advance of what will arguably be your most significant and largest product launch in history.

Cook's response to that part of the question was brief:

Anyone that has a standards-essential patent has a responsibility to offer it to everyone that would like it under what is -- are called FRAND terms. FRAND stands for fair, reasonable, and nondiscriminatory terms. That's both the price and the business terms. Qualcomm has not made such an offer to Apple, and so I don't believe that a -- I don't believe anyone's going to decide to enjoin the iPhone based on that. I think that there's plenty of case law around that subject. But we shall see.

The hammer comes down

Less than 24 hours after Cook's comments, Bloomberg, citing an anonymous source, reported that Qualcomm is indeed looking to strike back at Apple's decision to withhold royalty payments by requesting U.S trade agencies impose an import ban on iPhones. The mobile chip giant is also reportedly about to ask the same of the International Trade Commission (ITC). If Qualcomm secures an injunction, it could block the import of iPhones into Apple's core U.S. market, which accounted for 35% of revenue last quarter (including all products and services).

The ITC tends to favor patent owners when these types of disputes arise, according to the report.

That escalated quickly

Beyond seeking a trade injunction, whether or not Qualcomm wants to further escalate the situation by disrupting Apple's modem supply is another major risk factor. Just a few weeks ago, Qualcomm said that it would continue supplying modems to Apple despite the ongoing legal battle, but the situation has only gotten worse since then.

There are a lot of moving parts here, and some of Qualcomm's retaliatory acts could also hurt it. Blocking the import of iPhones would hurt iPhone production, as Apple could potentially reduce production at contract manufacturers to accommodate, translating into fewer modem sales and royalties for Qualcomm. Qualcomm withholding modem chips would certainly translate into lost revenue directly. It's not clear if self-inflicted wounds would help Qualcomm, but naturally the goal is to apply greater pressure to Apple to start paying the royalties that it owes and ultimately resolve the dispute.

Meanwhile, it's not realistic for Apple to single-source 100% of its baseband needs from Intel (INTC 2.96%), which only became a modem supplier in recent months. The prospect of Qualcomm withholding chips could be utterly devastating for Apple, and it would be far more painful for the iPhone maker than the mobile chip maker. A few weeks ago, the notion of Qualcomm withholding chips would have seemed untenable. It's still incredibly unlikely, but the fight is rapidly escalating, so all options could be on the table.