Why Apple’s Patent Infringement Matters

James Skyles | Attorney

Intellectual property (IP) rights are the cornerstone of U.S. innovation and the economy—providing more than 40 million jobs and $5.8 trillion of the nation’s GDP. While IP theft from foreign countries is a national security priority, it’s worth turning our attention towards the IP theft that has been happening in our own backyard by one of the world’s most iconic companies: Apple. Over the last few years, Apple has been systematically infringing on the patents of other companies and slowly undermining IP rights in our country.

Recently, two high-profile cases of Apple’s patent infringement have been highlighted in the media. In July, the Los Angeles Times reported that Apple had been using a patent owned by the University of Wisconsin-Madison’s research arm for years without paying them, which resulted in an award of $506 million in damages. Last year, Nokia sued Apple alleging infringement on dozens of patents. According to reports, Apple declined to settle, citing “unfair terms,” but continued to use the technology. In May, the two companies resolved their dispute, and Apple paid Nokia $2 billion.

As these are relatively small fines for a company of Apple’s financial size, the company hasn’t felt the need to change its abusive patent behavior and is in fact doing the exact same thing to Qualcomm, a company that has been at the forefront of developing mobile technology since the 1970s. Qualcomm’s patents have paved the road leading to the development of the smart phone as we know it. Not only that, but many of the capabilities of the modern phone were developed by Qualcomm and licensed out to phone makers like Apple and Samsung.

In January, Apple sued Qualcomm for nearly $1 billion to dispute the amount the company charges for its patented technology. Since April, Apple also took the outrageous step of illegally withholding payments until the suit is resolved, all while continuing to use and profit off of Qualcomm’s patents.

Due to the way that the licensing agreements are structured, the companies that actually make the phones (the “contract manufacturers”) are caught in the middle. Apple contracts directly with the manufacturers to build the phone, and the manufacturers contract directly with Qualcomm to include its technology.

Apple has stopped paying the contract manufacturers to use Qualcomm technology and has instructed them to withhold payment to Qualcomm until the suit is resolved. The manufacturers have followed Apple’s instructions and are now in breach of contract with Qualcomm and infringing on the company’s patent rights by continuing to utilize its IP in iPhones. This move forced Qualcomm to file suit against the contract manufacturers alleging breach of contract and seeking a preliminary injunction requiring them to follow the terms of their agreement and pay for the IP they are incorporating into the phones (which the contract manufacturers continue to do with regard to phones they make for companies other than Apple).

If there was any doubt that Apple is behind the contract manufacturers’ decision to withhold payments, it was recently put to rest when Apple filed a motion to fold the contract manufacturers’ case into its original lawsuit and offered to pay their legal fees. It is likely that had Apple not made this move, they would have been forced to indemnify the contract manufacturers for any breach of contract with Qualcomm that might be linked to any possible malfeasance by Apple.

The first milestone in the case is expected this week as Qualcomm seeks a preliminary injunction against the contract manufacturers. Given the high bar of proving irreparable harm that must be met, a preliminary injunction might not be granted. However, even if the manufacturers overcome this procedural hurdle, the fact that they are blatantly breaching their contract and infringing upon Qualcomm’s patent rights will be incredibly difficult to refute over the course of this likely protracted legal battle.

Ultimately, Apple has put its partners in an untenable position and is actively damaging not just an American company but the system that protects and enables innovation and invention in the U.S. This pattern of behavior has been demonstrated before, and it’s time that it comes to an end.

It is critical that we stand up to all companies that infringe on valuable patents and technologies. While it’s easy for Apple to dominate the tech world globally with over $256 billion cash on hand, it’s important to protect American innovators that are helping push us to the forefront of 5G and other mobile inventions.

James Skyles is a Chicago-based Intellectual Property and Business Law Attorney.

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