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Apple, Qualcomm Dispute has Consequences for Consumers

Smartphone giant Apple and chip manufacturer Qualcomm have been engaged in a legal back-and-forth over royalty payments and patents for the devices Apple uses to sell consumers the high-speed mobile devices they want.

Apple alleges that Qualcomm owes it $1 billion over what it says are unpaid royalties and noncompetitive licensing. Qualcomm refutes this allegation, on the grounds that Apple breached agreements and did not engage in good faith negotiations, including Apple’s alleged cooperation with the Korea Fair Trade Commission on an investigation into Qualcomm’s practices (this resulted in an $853 million fine levied against Qualcomm). Apple, in turn, is retaliating by underpaying its iPhone contract manufacturers (such as Foxconn and others). These manufacturers themselves make payments to Qualcomm, and they are said to be underpaying Qualcomm in exchange for Apple underpaying them. Qualcomm alleges that Apple has throttled the company’s modem features by not making full use of its technology, which would have increased data rates by 33 percent. Apple uses Qualcomm chips in its phones sold through Verizon and Intel chips in its AT&T devices.

The throttling of Verizon phones is the portion of this saga that most concerns consumers. Independent testing found that Qualcomm chips used in iPhone 7 models sold through Verizon were technically capable of faster speeds than the phones sold through AT&T (with Intel chips), but both phones performed about the same with respect to data rates. Some have said that Apple has done this in an attempt to leverage a competitive advantage with its chip suppliers, others have implied that Apple simply wants all iPhones it sells to perform the same. However, another way that could be interpreted is that Verizon customers are having their phones unfairly slowed down while AT&T customers are unaffected. According to ZDNet, Apple also threatened Qualcomm in order to prevent it from revealing the throttling of its chips in Verizon devices. In addition, it has been rumored that Apple will do the same with the upcoming iPhone 8, which could make Samsung’s Galaxy S8 more powerful.

Apple should be open about the differing capabilities of its smartphones and consumers should be able to use the full power of their devices. Consumers should get what they pay for, especially given the high prices of Apple’s in-demand smartphones and mobile devices. The consequences of this royalty dispute could have important consequences going forward, and Consumers’ Research will be tracking how this issue unfolds.

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