The dispute resolution lessons of Apple's settlement with Qualcomm

Emma Stevens, an associate solicitor at law firm Coffin Mew, explains how to avoid the kind of dispute that cost Apple as much as $4.7bn

The news that the recently settled dispute between Apple and Qualcomm will cost the iPhone maker as much as $4.7 billion should make anyone considering a business partnership pause for thought.

The dispute between the two involved a number of claims and counterclaims across multiple jurisdictions, coming to a surprise global settlement in mid-April.

The large-scale dispute focused on a 2013 deal for Apple to buy Qualcomm modem chipsets for its iPhone smartphones, but also covered Qualcomm patents that Apple was obliged to pay for in order to use Qualcomm-developed technology in products connecting to cellular networks. With 5G looming, however, Apple had to strike a deal with Qualcomm in order to integrate the next-generation technology into its forthcoming iPhones and iPads.

The dispute is an important reminder of carefully considering the effect of contractual terms and/or licensing provisions at the outset of a contract

Apple used Qualcomm communications chipsets in its iPhones from 2011 onwards and, between 2013 and 216, had an exclusive use agreement, which included significant rebate provisions based on volumes to be paid by Qualcomm to Apple.

Qualcomm is the exclusive holder of a number of enabling patents in 3G and 4G technology; specifically, enabling smartphones to connect to the internet via a baseband processor. The long-running legal battle between the parties arose in 2017 when Apple disputed the level of royalties that Qualcomm was charging for the use of its technology in Apple's iPhones, on the basis that the royalties were excessive.

In response, Apple began working with Intel instead and the parties subsequently refused to pay their respective rebate and royalty fees.

Initially, Apple argued that the royalty fees charged by Qualcomm, which were based on a percentage of Apple's product revenue received, were excessive. Qualcomm disputed this and claimed that not only had Apple breached their exclusivity agreement, but argued that Apple had infringed its patents, among a number of other claims.

The resolution reached between the tech giants involved the settlement of all ongoing litigation worldwide. Apple has announced that the settlement deal includes a payment from Apple to Qualcomm for an undisclosed amount and includes a six-year patent licensing agreement, effective as of 1 April 2019, with a two-year option to extend and a multiyear chipset supply agreement.

So, what does the settlement mean?

The Apple versus Qualcomm settlement involved a number of different jurisdictions and was not subject to the law of England and Wales. As the settlement was reached out of court it is not a binding decision on the English courts and it does not set any binding precedent on the parties. Nevertheless, the high-profile settlement does provide a useful opportunity to consider the importance of the terms agreed in relation to any licence or third party use of intellectual property rights, both from the perspective of the licensor and the licensee.

Royalty payments and licensing agreements, such as those at the centre of the dispute, are a common means of managing third party use of registered intellectual property rights in the UK. A royalty is a usage-based payment to the registered owner for the use of the intellectual property.

The dispute is an important reminder of carefully considering the effect of contractual terms and/or licensing provisions at the outset of a contract to ensure that the potential costs and any future costs involved are clear, both at the time the agreement is entered into and the subsequent effect of these.

Parties reaching a clear and properly recorded agreement at the outset of an arrangement is, in our experience, the most likely means of avoiding issues and disputes later on

For example, as in the case of Apple versus Qualcomm, agreeing a payment calculated on a percentage basis payment could mean a significant increase in sums due under the agreement in the event of business growth.

Common disputes and how to avoid them

Common disputes in the technology sector arise in a wide variety of circumstances and often include: Supply disputes, breaches of contract, domain name disputes and infringement of, and/or disputes regarding ownership of, intellectual property rights, both registered and unregistered.

An awareness of rights and the protections available is often a key factor in avoiding disputes. Relevant intellectual property rights in the technology sector include:

It is important to take steps at an early stage in any venture or invention to understand the extent of your intellectual property rights and to consider what steps can be taken, in the case of registrable rights, to protect these against third party infringement.

In addition to issues with the ownership of intellectual property rights, which early registration can often help to avoid, disputes in relation to the use of rights by third parties can also often be avoided by clear negotiation and contractual licensing. Intellectual property is a complex area of law, and licences need to be carefully worded.

Some of the main points to consider when entering in to such an agreement include:

There are a number of other relevant points to consider in addition to these depending on the circumstances of the licence; however, in particular, the recent issues between Apple and Qualcomm demonstrate the need for parties to consider both current and potential future scenarios when agreeing terms.

This is because, while not all disputes are avoidable, the parties reaching a clear and properly recorded agreement at the outset of an arrangement is, in our experience, the most likely means of avoiding issues and disputes later on.

Emma Stevens is an associate solicitor - dispute resolution at law firm Coffin Mew