Geek Tested:

Is Apple Using a Technicality to Avoid 3G License Fees?

Posted 11/20/09 at 08:10:29 PM by Ryan Whitwam

You may not be aware, but Qualcomm holds a number of patents on modern 3G cellular technology. Any company making a 3G cell phone has to pay patent royalties to Qualcomm. Analyst Sanford Bernstein pointed out in a report this week that Apple appears to be taking advantage of a licensing loophole to avoid paying all those fees for the iPhone. The loophole is estimated to save Apple $290 million in fiscal 2009 alone.

Licensees must pay 5% of the wholesale price of a 3G device to the patent owner. Qualcomm’s website lists over 145 companies that have licensed their 3G technology. The list includes all major makers of 3G handsets. The one notable exception? Apple. One surprise on the list is Foxconn, the Taiwanese manufacturer of the iPhone.

The Bernstein report says that Qualcomm is being paid royalties not on the price Apple charges (average $590), but on the unit price Apple pays Foxconn, a mere $244. So instead of making $23.60 per iPhone, Qualcomm is only seeing $9.70. Apple is able to get away with this because the entire manufacturing process is done externally. Qualcomm seems fine with the arrangement. After all, $9.70 per iPhone is pretty good considering how they fly off the shelves.

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"Licensees must pay 5% of
Submitted by mrclean816 on Sun, 11/22/2009 - 11:58am

"Licensees must pay 5% of the wholesale price of a 3G device to the patent owner."

"The Bernstein report says that Qualcomm is being paid royalties not on
the price Apple charges (average $590), but on the unit price Apple
pays Foxconn, a mere $244."

Did I miss something? Didn't the first part say Qualcomm gets payed on the wholesale price and not the retail price.

Where is the loophole?

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The wholesale price being
Submitted by aviaggio on Sun, 11/22/2009 - 1:16pm

The wholesale price being what Apple sells the units for to AT&T, NOT the price that Foxconn sells them to Apple. This is why it's a technicality. Are they supposed to pay royalties on the wholesale price they pay, or the wholesale price they charge?

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Oh, I assumed the 590 was
Submitted by mrclean816 on Sun, 11/22/2009 - 3:36pm

Oh, I assumed the 590 was retail and not wholesale.

Didn't realize those phones cost so much.

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Words like loophole and technicality are meaningless
Submitted by schwit on Sat, 11/21/2009 - 8:57pm

Either Apple is complying with the law or contracts or they are not. Apple is a public company and therefore has a legal obligation to its stockholders to get their stock as high as possible. The Qualcomm arrangement is a clever but legal way to ensure expenses are kept to a minimum.

It would be naive to think that every company paying Qualcomm is not looking for methods to reduce royalty payments.

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Typical. Apple uses every
Submitted by aviaggio on Sat, 11/21/2009 - 10:40am

Typical. Apple uses every trick in the book to scam every single penny it can, but when consumers use "loopholes" to jailbreak their phones or create hackintoshes Apple goes all apeshit.

Hypocrisy much Mr. Jobs?

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and they pass the saving on to you...
Submitted by keithfreitag on Sat, 11/21/2009 - 8:44am

And they pass the saving on to you... oh wait, no they don't. Mac's are the most expensive per underperformance price ratio around. It may save apple $290 Million a year but they are still making money off suckers who think a macbook, imac or mac pro are worth the apple tax. Get real qualcom, change your licensing fee's to include the sold price in store to collect and not the sold to apple price.

Steve Jobs is the Devil and loves it when someone plays with his loophole and he qualcomm's all over.

Keith

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