“Taxing Innovation”: Apple, Qualcomm, WARF, and the Value of Hardware Patents

July 27, 2017 by Kate Smith

It's a battle of the titans as Apple and Qualcomm tussle over patent licenses.

Apple claims that Qualcomm is "effectively taxing Apple's innovation" by demanding more royalties for permission to use their hardware patents. Here's a look at the business side of innovation in the electronics industry.

There's an ongoing conversation in this industry about the role of patents in design. Whether we're talking about Shenzhen manufacturers "building on" pre-existing intellectual property or employees taking designs from company to company, patents are always on our minds (and in our court systems). Corporations can and frequently do share ideas through legal and mutually beneficial means, often by granting the ability to use patented designs. 

One such relationship appears to be falling to pieces (and very publically, at that). A quarrel between Apple and Qualcomm over patent royalties has been headlining the news recently and it raises some important questions about the value of innovation.

Let's take a look at this showdown and what it says about the state of device design on the corporate scale. Patent disputes can get nasty, especially when there are billions of dollars at stake.

The Suits and Struggles (So Far)

As tends to happen when massive corporations go up against one another, there's a multitude of suits and countersuits up in the air that's piled up over the last several months.

The main suit in question is one filed by Apple against Qualcomm, alleging that Qualcomm is demanding more royalties for patent licenses, even for devices where Intel baseband processors are used over Qualcomm processors.

This is in addition to a related filing against Qualcomm by the US Federal Trade Commission accusing them of anticompetitive practices, as well as suits filed in China and South Korea for similar issues. 

As part of their protestation, Apple is withholding royalties Qualcomm claims they are owed—over a billion dollars of them.

Now Qualcomm is trying to get iPhones banned from being sold in the US. 


Snapdragon processors, like the 430 pictured above, have been hugely important in smartphone design for Lenovo, Asus, Nokia, and others. Image courtesy of Qualcomm.


Intel may stand to gain a lot from the dissolving of the Apple/Qualcomm partnership. Intel seems intent on gaining ground in the smartphone industry. Or, really, it looks as though they're gaining ground in the "Apple industry" as they continue to take part in updating Apple products like MacBooks. Given this context, it seems likely that Intel's waiting in the wings to take over from Qualcomm. It wouldn't be the first time Apple moved in Intel's direction. Apple transitioned away from IBM's PowerPC processors from 2005 to 2006, replacing them with Intel hardware. This could, in fact, be part of a changing of the guard once again.

Unfortunately for Apple, Intel's chips reportedly don't measure up to Qualcomm's at present. This is the basis of Qualcomm's countersuit, which claims that Apple has misrepresented Qualcomm's products in comparison with Intel.

To add to the complexity, Intel also continually faces its own monopoly accusations by the EU in a dispute that's spanned years.

As companies and tech lobbyists take sides, expanding the cast of characters involved, the situation comes ever-closer to Shakespearean levels in twists, turns, and alliances.

There are many nuances to this situation, many of which are related purely to economics rather than device design. But there are consequences to what happens between these giants, particularly when it comes to how hardware designs are patented in an environment of fierce protection of intellectual property.

Meanwhile, in WARF vs. Apple...

Apple, for all of its vocal championing of "innovation", has an ongoing (and high-profile) issue with patents themselves. They're all over the news right now for a separate lawsuit, this time for the use of hardware designs that they were not given permission to use.

In 2014, the Wisconsin Alumni Research Foundation (WARF) sued Apple for its use of a "branch predictor circuit" developed at the University of Wisconsin-Madison. The aptly-named circuit, which was patented in 1998, predicts future instructions based on previous instructions, allowing for faster processing overall. 


Figure 1 of WARF's patent. Image taken from Google Patents


WARF alleged that Apple had infringed on their patent for years, an accusation Apple refuted. Yesterday, however, a Wisconsin judge has ordered Apple to pay over half a billion dollars to WARF with the possibility of owing another several hundred thousand dollars in additional penalties beyond that.

Apple will doubtlessly fight this decision. But what's especially pertinent here is the amount the judge is ordering Apple to pay WARF. In the written order, the royalties Apple owes were calculated at "$2.74 per infringing unit" during the time Apple used the patent before its expiration in December of 2016. The order also includes damages, supplemental damages, costs, and interest compounded on the royalties. 

While Qualcomm faces scrutiny at home and abroad for leverage it purportedly gains through patents, Apple is also under fire for its own patent dealings.

Qualcomm in the Spotlight

There's an interesting side effect occurring here that may also have an effect on the future of the industry. Even if Qualcomm loses this legal dispute, it's still gaining general public attention, which is something that not many chip companies get on a regular basis.

Apple certainly has more star power than Qualcomm, what with being one of the largest and most profitable companies on Earth. But Qualcomm is battling to enter the public consciousness, too. Take this ad, for instance, which seems to make the case that the hardware inside a smartphone is what makes users love it (perhaps implying that the Apple logo and sleek design deserve less credit).


"Why you love your smartphone."


Qualcomm knows it's not as famous as Apple. Engineers designing smartphones and other such devices know their name, but end consumers likely do not—or they didn't before this lawsuit.

Imagine a world where the hardware designers and manufacturers have just as much name recognition as the OEMs that use their technology. Would consumers begin to consider chip designers when choosing products? Qualcomm probably hopes so.

The Bottom Line for Design

Perhaps the most pertinent quote for designers through all of this is by Apple. From Reuters:

"[Qualcomm supplies Apple] with a single connectivity component, but for years have been demanding a percentage of the total cost of our products - effectively taxing Apple's innovation."

This could serve as a convoluted warning about sourcing components. Basically, if your product can be held hostage by a single component or patent (perhaps one whose supplier or owner will want higher royalties over time), you're risking your ability to function independently.

But sourcing components and designs and innovation, itself, is the name of the game. Even Apple, which aims to maintain tight control over all aspects of its manufacturing, is not immune to the problems that come with cooperating with other companies. It seems impossible at this juncture for anyone—even the largest and arguably most influential company in the world—to bring all of the varied steps of product design and manufacture in-house.

No one can escape the patent game.

Let us know your thoughts on this issue in the comments below.