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Apple Sues Qualcomm for $1B, Alleging Extortion

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Re: Apple Sues Qualcomm for $1B, Alleging Extortion

#31
post #17

Earlier quoted context omitted.

It's a way more complicated story, and it's important to disambiguate between "CDMA" the standard and "CDMA" the channel access method. The core issue was that in the 2G era, "CDMA" (the Qualcomm name for IS-95/IS-2000) was built on CDMA (code division multiple access), while GSM was built on TSMA (time division multiple access). CDMA (the channel access method) is more spectrum efficient than TDMA, and has some othe…

> The core issue was that in the 2G era, "CDMA" (the Qualcomm name for IS-95/IS-2000) was built on CDMA (code division multiple access), while GSM was built on TSMA (time division multiple access). CDMA (the channel access method) is more spectrum efficient than TDMA, and has some other nice properties. When the time came for carriers in many countries to deploy their 2G networks, it seemed like a win to use CDMA (th…

>You mention that Sprint and Verizon have significant CDMA networks. What is their migration strategy for 4G? To my knowledge the only 4G standard in use is from GSM.

I think you are confusing the terms. GSM is a family of standards some of which are based on CDMA, like aforementioned UMTS which is the most widely deployed network standard in the world right now. Because UMTS was not based on TDMA it was a very costly upgrade for most operators since it required entirely new equipment. LTE on the other hand is yet another completely different beast (OFDMA) not compatible with any existing infrastructure so everyone has exactly the same migration strategy to LTE regardless if they are CDMA or TDMA based.

Re: Apple Sues Qualcomm for $1B, Alleging Extortion

#32
post #21
post #18

Earlier quoted context omitted.

> I saw the headline and rolled my eyes, because as a consumer, I have absolutely no recourse for Apple's extortion. Android, Windows.

All sorts of cool innovations are locked up in Apple's patent portfolio. Nobody else is allowed to use these features in their products, at any cost, without getting sued. As a consumer, if I want those features, I can only buy from the one manufacturer. This feels like extortion to me.

Which patents are you concerned about? When I think about why I use Apple products, it's not for the things they do that competitors don't—there are a few, but most get adopted within a year or two—it's the things that everybody does, that Apple does better.

Re: Apple Sues Qualcomm for $1B, Alleging Extortion

#33

For years Apple has insisted on charging royalties for app features they have nothing to do with. When I make my app better and raise the price of my app, a bigger fee goes to Apple. Now all of a sudden, Apple finds royalties oppressive? I am sick of large corporations getting better treatment than consumers. If consumers can't sue pharmacy companies for using patents to set a high price for a life saving drug, then…

When the LTE standard was created, all of the companies agreed that their patents would be available under FRAND (fair, reasonable, and non-discriminatory) terms. If they didn't agree, they'd be left out of the standard. Qualcomm agreed that it wouldn't use its patents to push market power. That's an essential part of this.

When a standard is created, companies want their patents to be used in the standard because it means they get a cut of an entire industry. To get this cut, they have to agree that the cut will be small and that they won't exercise market power. Basically, they should get a somewhat reasonably objective amount of compensation for what they've provided.

Apple never agreed to that for the App Store. The app store wasn't a standard that everyone had to implement. Google runs a completely independent app store as do Microsoft and Amazon (on different platforms). Apple doesn't get a cut of those other app stores.

The thing is that Qualcomm is (allegedly) not following the law. That's the issue here. Qualcomm (allegedly) had agreed that its patents couldn't be used that way in order to ensure that its patents would be incorporated into standards that would give them a cut of an entire industry. Corporations are left to their own negotiations - but in this case, the complaint is that Qualcomm isn't following the law and therefore requires intervention.

The thing about wireless is that you need broad compatibility. That means that everyone has to implement the same stuff using the same patents. With operating systems, people can and do use different ones. No operating system vendor agreed to FRAND licensing in exchange for getting a piece of everything (albeit a smaller piece of more items).

I certainly understand the annoyance. Apple has substantial market power, but that market power came about because consumers chose Apple's products, not because Apple's products were blessed as an industry standard. Consumers do have alternative choices in a way that they don't with mobile standards. It might not be enough choice. Apple may still hold more power than you'd like, but Apple never agreed to FRAND licensing.

With a mobile standard, it uses the IP of many companies like Qualcomm, Ericsson, Nokia, and Samsung. When creating the standard, they all agree that they'll license under FRAND terms or be excluded from the standard. That way, no one can screw up the standard with patent claims.

When a drug company creates a new drug, it's usually 100% their IP. So, they haven't made an agreement on IP costs. That's not to say that drug prices aren't problematic, but because drugs are wholly owned there isn't the issue of one company of many IP holders deciding a year later to charge a lot more for their IP.

Let's say one takes 5 different drugs. You don't have to take all 5. You can take 4 and get many of the benefits of the 5. With a wireless standard, you can't implement 4 of 5 patents and be able to communicate. That's what necessitates the FRAND terms. Without them, a standard would be agreed, but never actually rolled out because each patent holder would want to be the hold-out. Oh, you've licensed the other 4 patents? Now pay ALL THE MONEY for my last patent! With drugs, the idea is that you can take 4 of the 5 and then that 5th gets zero money from the patients that don't use it.

Now, drugs are still a very problematic market since, as you note, they can be life-saving and there can be only one choice. But because there isn't the same bundling of patents together, it's a very different problem to solve. You're not worried about someone getting their patent into a bundled drug and then being an ass. You're worried about price accessibility of single, a-la-carte patents.

It's certainly very problematic, but it's a different problem and different problems require different solutions. With drugs, part of the solution is that someone comes up with Lipitor and then someone else comes up with a competing statin and now two companies have patents on slightly different drugs that do mostly the same things and I can choose between them. When a drug is really highly priced, there's a lot of incentive to pour some money in that direction: you know solutions are there and you even have a roadmap that maybe you can work around to find a similar (but patent-distinct) route.

By contrast, with mobile, I can't decide that Qualcomm is costing too much and I'll use WiMAX from Intel instead. To an extent, when there's competition, I can do that with drugs. And there are incentives for drug competitors to be created since there's a lot of money to be had even with increased competition. Likewise, Google and Microsoft have pushed their competitors to Apple because of those incentives. But there's little competition to compete against a standard and, well, get nothing for it. You'd rather be on the inside of the standard and agree to give up your market power in exchange for the cut you get from the standard.

That doesn't mean that drug companies or Apple/Google don't have substantial power to do less-than-good things. They do. But they never agreed that they'd give up their power to become part of a monopoly-standard (and they do have competition, even if that competition isn't enough). Qualcomm did agree to that so that they'd be on the inside of a standard everyone would have to use.

Re: Apple Sues Qualcomm for $1B, Alleging Extortion

#34
post #21
post #18

Earlier quoted context omitted.

> I saw the headline and rolled my eyes, because as a consumer, I have absolutely no recourse for Apple's extortion. Android, Windows.

All sorts of cool innovations are locked up in Apple's patent portfolio. Nobody else is allowed to use these features in their products, at any cost, without getting sued. As a consumer, if I want those features, I can only buy from the one manufacturer. This feels like extortion to me.

AFAIK Apple only actually protects patents that they actually implemented.

Re: Apple Sues Qualcomm for $1B, Alleging Extortion

#35

For years Apple has insisted on charging royalties for app features they have nothing to do with. When I make my app better and raise the price of my app, a bigger fee goes to Apple. Now all of a sudden, Apple finds royalties oppressive? I am sick of large corporations getting better treatment than consumers. If consumers can't sue pharmacy companies for using patents to set a high price for a life saving drug, then…

It costs money to charge users credit cards. If your app is $1, and you were handling the credit cards yourself, that could easily be $0.30 (and increases for higher prices). Apple gets better pricing than that obviously.. but they also have to maintain the servers that handle/store the credit card data, etc. And they have to review your app.. which has a real labor cost. If your app is $50, I could understand the ou…

> It costs money to charge users credit cards. If your app is $1, and you were handling the credit cards yourself, that could easily be $0.30 (and increases for higher prices). Apple gets better pricing than that obviously.. but they also have to maintain the servers that handle/store the credit card data, etc.

Credit card processors charge in the ballpark of $.30/transaction + 3%. And Apple could make a single credit card charge totaling every purchase through Apple for the month, which would make the fixed portion a fraction of what the credit card companies charge. If Apple was charging $.10 + 3% or 5% there would be hardly any objection.

And at Apple's scale, all the rest of that stuff costs them something like a penny per transaction.

> And they have to review your app.. which has a real labor cost.

I'm happy to do that part myself, or go price shopping for reviewers on the open market. How do I do that?

> If your app is $50, I could understand the outrage over the price.. but most apps are a dollar or two, and sell little to nothing..

And yet they charge the same percentage for the $50 app, which is why you don't see many of those on iOS -- the people who would make $50 apps make them for PCs instead because Dell doesn't demand a third of their revenue.

> the profits on that have to be insignificant or nonexistent.

If the profits are so low, why don't they leave the market and let some other saps compete to provide app stores?

Re: Apple Sues Qualcomm for $1B, Alleging Extortion

#36
post #27

From my understanding almost every phone with CDMA uses a Qualcomm chip. So why was CDMA adopted if there was only one supplier of the technology? Telco's and manufacturers hate to have one supplier of anything, because it means the supplier can haul them over a barrel. Sounds like Apple's complaint is that they overpaid Qualcomm for CDMA components (among other things) after they introduced a CDMA iPhone. So why was…

It's a bit complicated, but I'll try to address the issues. First, let's say that you want to make an isosceles triangle on a sheet of paper with the base parallel with the bottom of the page (as part of a triangle standard). Nokia owns a patent on lines being parallel to a side of the page. Ericsson owns a patent on figures with two sides of equal length. Qualcomm owns a patent on angles less than 90-degrees. In ord…

Thank you, it very much did. Hacker news seems to have much better blog posts than Medium :)

Re: Apple Sues Qualcomm for $1B, Alleging Extortion

#37
post #27

From my understanding almost every phone with CDMA uses a Qualcomm chip. So why was CDMA adopted if there was only one supplier of the technology? Telco's and manufacturers hate to have one supplier of anything, because it means the supplier can haul them over a barrel. Sounds like Apple's complaint is that they overpaid Qualcomm for CDMA components (among other things) after they introduced a CDMA iPhone. So why was…

It's a bit complicated, but I'll try to address the issues. First, let's say that you want to make an isosceles triangle on a sheet of paper with the base parallel with the bottom of the page (as part of a triangle standard). Nokia owns a patent on lines being parallel to a side of the page. Ericsson owns a patent on figures with two sides of equal length. Qualcomm owns a patent on angles less than 90-degrees. In ord…

> Let's say that consumers need a BLT sandwich to use mobile networks.

Haha, yes! BLTDRM? The world needs more BLT sandwich requirements :)

Thanks for taking the time to write up such a great response. Not being very familiar with this topic, your simple examples made this much more approachable and were a joy to read.

Re: Apple Sues Qualcomm for $1B, Alleging Extortion

#38

For years Apple has insisted on charging royalties for app features they have nothing to do with. When I make my app better and raise the price of my app, a bigger fee goes to Apple. Now all of a sudden, Apple finds royalties oppressive? I am sick of large corporations getting better treatment than consumers. If consumers can't sue pharmacy companies for using patents to set a high price for a life saving drug, then…

That's not a royalty - it's a retail or reseller margin. And if you think 30% is expensive then go take a look at margins in other industries.
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