Qualcomm's business model is on trial over a $7.50 per-iPhone fee

iPhone maker's complaint about fee follows deal Jobs accepted

Apple Inc didn’t mind paying a modest technology fee to Qualcomm when it first launched the iPhone, but times have changed.

Testimony in the US Federal Trade Commission’s antitrust case against Qualcomm reveals that Steve Jobs gladly agreed to the San Diego-based chipmaker’s request for a licensing royalty in 2007 when Apple’s chief executive needed chips for his company’s nascent smartphone.

On Monday, Apple’s current second-in-command took the witness stand to denounce the $7.50-a-phone fee as an unfair business practice. The regulatory agency called Apple Chief Operating Officer Jeff Williams as a witness to help show that Qualcomm has abused its global dominance in the smartphone market.

“That may not sound like a lot, but we’re selling hundreds of millions of phones,” and that’s “a billion dollars a year,” Williams told US District Judge Lucy Koh Monday as the non-jury trial moved into its second week in San Jose, California. “We had a gun to our head.”

Apple has come a long way since Jobs made his deal with Qualcomm — and that helps to explain why the Silicon Valley giant now views the fee as a ransom. Twelve years ago, Apple was late to enter the mobile phone market and was desperate for technology. Today, it defines that market and sells more than a billion devices a year. 

Qualcomm’s fees are at the heart of the government regulator’s case against it. Fees provide the company with the majority of its profit, enabling it to fund technology development that helps cement its position as the leading chipmaker in the industry.

The FTC and Qualcomm’s customers accuse the company of exacting too high a price for only one part of what makes smartphones so attractive to consumers — and doing so by illegally bullying its customers into paying up.

Qualcomm counters that the fees are relatively small for technology that’s so fundamental to phones and claims that the patents it owns underpin how modern, high-speed-data networks work. Its technology determines how handsets are able to efficiently access high-speed data — without which the iPhone would be just an expensive iPod, the chipmaker has said. Qualcomm maintains that it continues to contribute technology to other areas of the industry and its practices follow industry norms.