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Qualcomm Hits Back at Apple With Patent Infringement Suit

By Evan Niu, CFA – Jul 7, 2017 at 1:22PM

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A successful import ban could cripple Apple's most important product in one of its strongest markets.

It's official: Qualcomm (QCOM -1.62%) is seeking an import ban on Apple's (AAPL -3.00%) iPhone.

Two months ago, reports surfaced that the mobile chip giant was preparing to seek an import injunction from the International Trade Commission (ITC), so investors saw this coming. Yesterday, Qualcomm formally announced that it has filed a patent infringement suit against the Cupertino company, its largest customer.

iPhone 7 and AirPods

Image source: Apple.

Qualcomm isn't required to license these patents

There are six patents at the heart of the complaint, which is just the latest twist in an escalating legal battle between the two tech heavyweights. These patents are not considered standards-essential patents (SEPs), which is a meaningful distinction because there are no requirements to license them out to other companies on fair, reasonable, and non-discriminatory (FRAND) terms. That makes the intellectual property (IP) more potent in lodging legal complaints.

Qualcomm has put together a handy infographic that details the "Six inventions iPhones use everyday," all of which were issued within the last four years. Apple uses these patents but does not pay for them, according to Qualcomm. The patents are:

  • S. Patent No. 8,698,558 (issued in April 2014): "Extends battery life by building intelligence into the system so the antenna is always using just the right amount of battery power to transmit, whether it be video, text, or voice."
  • S. Patent No. 8,633,936 (issued in January 2014): "Enables high performance and rich visual graphics for games while increasing a mobile device's battery life."
  • S. Patent No. 9,608,675 (issued in March 2017): "Enables a mobile device to send high speed data such as live video from your phone by combining many lanes of traffic into a data super-highway while prolonging battery life."
  • S. Patent No. 8,838,949 (issued in September 2014): "Enables 'flashless boot' which allows your smartphone to connect to the internet quickly after being powered on, while extending battery life and reducing memory size.

  • S. Patent No. 9,535,490 (issued in January 2017): "Enables the applications on your smartphone to get their data to and from the internet quickly and efficiently by acting as a smart 'traffic cop' between the apps processor and the modem."
  • S. Patent No. 8,487,658 (issued in July 2013): "Maximizes smartphone performance while extending battery life by connecting high voltage circuits and low voltage circuits with efficient interfaces."

Qualcomm says the ITC's investigation should kick off next month, and the case should be tried next year.

Qualcomm only wants to block iPhones with Intel modems

The company is asking the ITC to issue a Limited Exclusion Order (LTO), which would block the importation of infringing iPhones. The LTO would only apply to "iPhones that use cellular baseband processors other than those supplied by Qualcomm's affiliates." In other words, it is targeting the iPhones released last year that have Intel modems inside -- the models that are designed for AT&T and T-Mobile. The news comes as Intel is expected to win even more iPhone business this year and beyond, as Chipzilla continues to improve cellular modem performance.

Furthermore, Qualcomm is requesting a Cease and Desist Order that would block sales of infringing iPhones that have already been imported into the U.S. If Qualcomm is able to secure an import ban, it could cripple sales of Apple's most important product in one of its strongest markets. The silver lining is that the ITC proceedings will take quite some time, and won't affect this year's 10th-generation iPhone launch, which is expected to trigger a massive upgrade cycle. But next year's outlook could be a bit murkier.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Qualcomm. The Motley Fool recommends INTC and TMUS. The Motley Fool has a disclosure policy.

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