Last week, Apple and Qualcomm agreed to settle their multi-year, billion-dollar patent infringement lawsuit, ending a variety of ongoing legal actions between the companies worldwide. As part of this settlement, the companies reached a six-year licensing agreement for Qualcomm’s patented technology and have agreed for Qualcomm to supply chips for the iPhone. That is exactly the way the patent system is supposed to work.
Patents are rights given to innovators that allow them to exclude other companies from using their new technology for a limited time. Enshrined in the Constitution, patent rights are a key driver of innovation. The period of exclusivity for the innovator provides an opportunity for the innovator to attempt to recoup the costs of developing the new technology. During this period, the innovator may be able to manufacture and sell products that include the new technology or may be able to license the right to manufacture and sell these products to other companies.
The Apple-Qualcomm case demonstrates these concepts well. Qualcomm is incredibly good at innovating, particularly in the telecommunications and wireless arena. Much of the 3G, 4G and 5G networks that we enjoy today (or will be soon) are based, in part, on technologies that Qualcomm developed. To support its innovative technology, Qualcomm licenses the rights to manufacture and sell products that include the technology it developed. Apple is also an innovative company, but relies on the technologies that others develop with respect to wireless networks. After long using Qualcomm chips, Apple switched to Intel amid the dispute over licensing fees. According to numerous media reports, Apple was not satisfied with Intel’s chip technology for its 5G phones. Now, as the patent system is intended to work, Apple will pay Qualcomm for these chips instead thanks to the settlement.
While in general the patent system does not require a patent owner to license his technology, even if he himself is not planning to make the technology available to the public, here Qualcomm is required to license this technology. This is because some of Qualcomm’s innovative technologies are essential for today’s telecommunications standards, like 4G or 5G. Because Qualcomm owns what are known as “standard essential patents,” it has agreed to license these necessary patents under what is known as fair, reasonable, and non-discriminatory licensing (FRAND). This means that Qualcomm, unlike a typical patent owner, is not permitted to refuse to license this technology and must do so fairly.
The lawsuit between Apple and Qualcomm, however, was not because Qualcomm refused to license these standard essential patents to Apple, but because Apple objected to paying the requested FRAND license fees. Apple thought the licensing fees were too high and that Qualcomm’s policy of “no license, no chips” was unfair. But given the reasons for the patent system and the period of exclusive rights that a patent is intended to grant, is it really unfair to expect that Apple should pay for using the technologies that Qualcomm spent extensive time and money to develop? No, instead that is how the patent system works.
Apple wants to compete. To keep up with competitors like Samsung, Apple has to be ready to roll out 5G capable iPhones soon. But to do so, it needs to get its 5G chips from some other company. It had expected to get this technology from Intel, but Intel could not keep up. It is not clear whether Apple settled because it knew that Intel was planning to abandon its efforts to develop a 5G chip or whether Intel abandoned its efforts after the Apple-Qualcomm settlement, but in any case, it is clear that Apple needs Qualcomm’s technology to compete — and both companies (and consumers) will benefit.
Qualcomm also wants to compete — and so far, the company is competing well in the 5G space. While other companies, such as Huawei and Samsung, make 5G components, Qualcomm is a key player in developing the innovative technology required for this newest network technology. Being able to obtain license fees from companies that wish to use this technology is a big reason that Qualcomm can continue on this innovative trajectory. That is how the patent system is supposed to work.
Although the litigation between Apple and Qualcomm settled, there is still a related lawsuit outstanding against Qualcomm. Shortly before Apple brought its lawsuit, the Federal Trade Commission (FTC) brought a lawsuit against Qualcomm, asking the court to prohibit Qualcomm from requiring a patent license as a condition of selling its chips the so-called “no license, no chips” policy. However, rather than being anticompetitive as alleged by the FTC, the ability of an innovative company to obtain license fees during the exclusive period granted by a patent is how the patent system works. Although the evidence and arguments have been presented in the FTC-Qualcomm lawsuit, the judge has not yet rendered a verdict. However, there is no reason for her to do so; as demonstrated by the Apple-Qualcomm settlement, the patent system is working in this case, and so the FTC should drop its case against Qualcomm and let the company get back to innovating.
• Kristen Osenga is professor of law at the University of Richmond School of Law.