Apple recently filed a lawsuit in an attempt to bully the mobile technology company Qualcomm into giving away its intellectual property for next to nothing. The troubling move by the tech titan could harm U.S. workers, stall vital research and development efforts, and threaten America’s lead in the wireless technology sector.
Intellectual property developed by San Diego-based Qualcomm is found in just about every smartphone in the world. Consequently, Qualcomm is one of Apple’s key suppliers, licensing thousands of mobile technologies it invented for use in Apple’s products, and selling the chips used in many iPhones.
In exchange for licensing its crucial intellectual property for use by Apple, Qualcomm collects a small fee for every iPhone and iPad Apple sells. Analysts estimate the fee amounts to as little as $15 for a $650 iPhone.
This agreement allows Apple to spend a miniscule amount on research and development— — publicly available data show Apple annually spends about 2 percent of its revenue in research and development, compared to more than 20 percent by Qualcomm — and enjoy an astronomical 60 percent profit margin. Still, that’s not good enough for the world’s second most valuable company.
Apple is declaring war on Qualcomm, the very company whose inventions allow the iPhone to work. The corporate giant is suing Qualcomm to lower its already reasonable licensing fee.
A careful look at the facts of the case show the lawsuit isn’t so much Apple vs. Qualcomm, but rather another step in Apple’s overarching effort to systematically squeeze its supply chain, exploiting the unique position of iPhones in the telecommunications market.
Qualcomm licenses allowed hundreds of cellular device suppliers around the world to easily enter the market without incurring the billions of dollars in research and development costs necessary to invent the technologies used by their products.
As a result of this cooperation between Qualcomm and cellphone makers, there are now more smart devices than there are people on Earth.
When it entered the mobile market, Apple benefitted from the same easy-entry deal with Qualcomm. But now, nearly a decade after the introduction of the iPhone made Apple the most profitable company in history, Apple wants to bite the hand that feeds it.
Apple decided squeezing its suppliers and devaluing the very intellectual property that built the mobile ecosystem is an easier way to increase profits than inventing its own technology. The company determined a dubious lawsuit was the simplest way to make that happen.
This relatively unknown lawsuit will ultimately impact every American who uses a smartphone, as well as threaten thousands of jobs.
The technology that powers the software and hardware inside your smartphone is what really makes it "smart." While most people have never heard of Qualcomm, it’s the engineering company that invented so much of the technology necessary for calling, tweeting, hailing an Uber, sharing a Snapchat and pretty much everything else we do with our smartphones.
Apple is able to include Qualcomm technology throughout its devices thanks to the industry’s standard practice of calculating patent royalties as a percentage of the selling price for the device – a practice that has existed since the cellular industry began.
These royalties allow Qualcomm to invest in expensive research and devlopment projects to create new technologies that make possible even faster, more reliable and more useful connected devices. This cycle of innovation ensures continued advancement in the mobile industry, and is already helping to usher in groundbreaking new technologies like 5G and the Internet of things.
But Apple wants to upset that cycle, even though Apple alone already makes 90 percent of all global smartphone profits.
Apple’s strategy is troubling — intimidate a key supplier and alter the longstanding marketplace rules for paying fair market value for essential technology. If Apple succeeds, U.S. companies like Qualcomm will no longer be able to sustain their traditional role as the inventors of next-generation wireless technology.
This vacuum will likely be filled by ambitious upstarts in China who can rely on the support of the nation’s communist government instead of licensing revenues to fuel their research and development. That may suit Apple fine, since the company already outsources virtually the entirety of the manufacture of the iPhone to Chinese contractors. But it would be a painful loss for U.S. workers and American innovation.
Drew Johnson is the national director of Protect Internet Freedom and the founder of the Tennessee’s free market think tank. To read more of his reports — Click Here Now.
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