Qualcomm (NASDAQ:QCOM) and Apple (NASDAQ:AAPL) have been embroiled in a lengthy legal battle. While AAPL started the fight, QCOM quickly went on the offensive and it just turned up the heat in a big way. The company is now directly accusing Apple of stealing trade secrets, then passing them to Intel (NASDAQ:INTC). QCOM’s rival began supplying modems for some iPhone 7 versions, and is now the sole iPhone modem supplier for the 2018 models.
Ironically, a growing number of new iPhone XS owners are complaining about wireless connectivity issues, which could potentially point to an issue related to those Intel modems.
Qualcomm Accuses Apple of Stealing iPhone Modem Tech
Qualcomm has previously accused Apple of intentionally slowing the performance of its modems in the iPhone 7, in an attempt to make Intel’s modems — used for the first time, although in limited quantities — look better. But yesterday, QCOM filed court documents accusing Apple of far more nefarious behavior.
The company claims that Apple worked closely with Qualcomm for years, gaining access to proprietary modem source code and testing tools. QCOM says once Apple had access to the tech, the company turned around and shared it with Intel in order to help Intel improve the performance of its LTE modems. This allowed Apple to turf QCOM as an iPhone supplier, which has materially damaged Qualcomm’s business.
MacRumors published part of Qualcomm’s court filing and it doesn’t pull any punches:
“Although discovery is ongoing, it is clear that Apple’s conduct went far beyond simply breaching the contract originally sued on. Indeed, it is now apparent Apple engaged in a years-long campaign of false promises, stealth and subterfuge designed to steal Qualcomm’s confidential information and trade secrets for the purpose of improving the performance of lower-quality modem chipsets, with the ultimate goal of eliminating Qualcomm’s Apple-based business.”
The Apple-Qualcomm Legal Battle Gets Nastier
The Apple versus Qualcomm legal battle kicked of in January 2017, with Apple suing QCOM over royalties. It quickly escalated, with Qualcomm going on the offensive and trying to ban iPhone imports over smartphone battery performance patents. The company also accused Apple of fudging the performance of Intel modems in the iPhone 7, in an effort to make them look equal to Qualcomm’s versions.
This latest salvo by QCOM contains much more serious allegations. If it has evidence that Apple actually plotted to obtain and ultimately stole proprietary technology, and then handed that over to Qualcomm’s competitor for the iPhone modem business, that is very damning.
At this point, QCOMM has not actually provided any evidence. Its new filing attempts to add the latest accusation to the existing lawsuit, which is expected to have an April court date. Qualcomm says it uncovered the plot during a discovery phase in the current lawsuit, when it was examining e-mails between Apple and Intel engineers. There is allegedly evidence in both Apple’s source code history and code used in iPhones equipped with Intel modems as well.
This Could Be a Big Win for QCOM
While the legal fight with Qualcomm amounts to an annoyance to Apple, it has been huge for QCOM. When this all kicked off, Apple was QCOM’s biggest customer. Losing Apple’s iPhone modem business has cost Qualcomm billions in lost revenue, with billions more in royalty payments up in the air pending settlement of the lawsuit.
At one point, QCOM stock had dropped 24% from the start of 2017. Despite the loss of Apple’s business, it now trades higher than it did when the whole legal mess began. Part of the company’s recovery has been thanks to Chinese smartphone makers like Xiaomi. As Chinese manufacturers have gone upscale, their flagship smartphones often feature high-end QCOM Snapdragon CPUs, as well as QCOM modems. Qualcomm is also leading the race to next generation 5G modems.
If the company is able to prove the Apple and Intel conspired to steal its trade secrets, that would obviously be good news for QCOM. Ultimately, it could mean Apple is forced to resume paying royalties to QCOM — despite no Qualcomm modems being inside iPhones — as well as a payment for royalties withheld during the lengthy legal battle, and the possibility of damages.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.