QCOM QUALCOMM Inc

By Tripp Mickle 

SAN DIEGO -- Trial arguments in the legal battle between Apple Inc. and Qualcomm Inc. were scheduled to begin Tuesday with lawyers representing the tech companies likely to trade barbs in federal court over how royalties are collected on innovations in smartphone technology.

During opening remarks in front of a nine-person jury about 15 miles from Qualcomm headquarters, Apple's lawyers are expected to portray Qualcomm as a monopolist that has used its patent portfolio to charge onerous licensing fees of 5% of the sales price of iPhones sold world-wide, up to $400. They also have said the chip company blocked Apple for years from using another supplier of modem chips.

Qualcomm's attorneys are likely to defend its licensing practices and paint Apple as a bully that is responding to a slowdown in its core iPhone business by forcing Qualcomm to accept less money than it deserves for its contributions to the smartphone era.

Chief Executives Tim Cook and Steve Mollenkopf, of Apple and Qualcom respectively, are expected to amplify those messages when they take the stand in the coming weeks, a testament to the chasm between the companies' competing viewpoints on the value of smartphone innovations .

At stake is the future of Qualcomm's business. An unfavorable ruling could force it to overhaul a licensing business that once accounted for half of its profit.

Meanwhile, Apple's legal challenge has left it without access to Qualcomm's market-leading 5G modem chips, putting its most important product, the iPhone, a step behind Android competitors in the race to the next big advance in wireless.

Billions of dollars in damages are up for grabs. Apple's contract manufacturers, who paid the disputed royalties under the Apple-Qualcomm licensing agreement, are seeking $9 billion in alleged overpayments to Qualcomm -- a sum that could soar to $27 billion under U.S. antitrust law that allows a jury to increase damages in cases involving anticompetitive behavior.

Qualcomm has countered by seeking $7 billion in royalties those Apple manufacturers started withholding as the legal battle commenced more than two years ago. Qualcomm could also argue that Apple, which it says encouraged the manufacturers to violate their contractual obligations, should pay a penalty of as much as $14 billion.

Attorneys in the Apple-Qualcomm case must simplify their clients' complex dispute and make it accessible to jurors unfamiliar with intellectual property law, said Michael Salzman, an attorney with Hughes, Hubbard & Reed who specializes in antitrust law related to intellectual property.

"This is up front and personal between the two parties," Mr. Salzman said. "The jury is trying to figure out between the two who has the white hat and who has the black hat."

The two-year feud started as global smartphone sales slowed, pressuring both their businesses. Apple had paid Qualcomm $7.50 in royalties on every iPhone it sold since 2007 -- a price the parties reached with complex agreements that lowered Qualcomm's standard royalty rate through rebate and incentive payments. Apple also agreed to make Qualcomm the exclusive provider of modem chips for iPhones from 2011 to 2016.

Apple added chips from Intel Corp. to some iPhone models in 2016, as its most recent contract with Qualcomm concluded. It then slapped Qualcomm with a lawsuit in January 2017.

The companies were expected to settle their dispute long before the trial began. However, they have been so at odds over royalties that it has been difficult to make headway, people familiar with the situation said.

Other issues have heightened the distrust. For example, Qualcomm executives suspected Apple of supporting a hostile takeover bid by Broadcom Inc., and Apple executives were angered that Qualcomm hired an opposition-research firm with ties to a news outlet that published articles calling the iPhone maker Silicon Valley's biggest bully.

The companies are awaiting a ruling from a federal judge in an antitrust case brought by the Federal Trade Commission against Qualcomm that could weaken or strengthen Qualcomm's position -- by deciding whether Qualcomm's pricing policy for chips stifled competition.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

April 16, 2019 11:11 ET (15:11 GMT)

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