I. Introduction
The ubiquitous presence of mobility devices, including most notably smartphones, highlights how mobility has come to be integral to everyday life at workplace, college and home. The major focus on mobility is, given current coverage, is on applications and cloud platforms. Less reported still but is, probably, of much more significance, as shown later, is wireless licenses and applications which enable much of current mobility operational efficiency, if not operability at all. As is always common in ICT innovations, user interface applications and platforms more often than not draw ICT community's attention, a community focused more new product and service offerings which highlight technical prowess. Alternatively, business implications of core, and much less reported, innovations go often under radar. More specifically, mobile devices, and for that matter smartphones and phablets, are usually recognized for device's "feel" and "durability" as well as for embedded apps, if any, as opposed to core technologies including, most notably, wireless ones which are, if anything, a mobile device's "kernel" (i.e. core) technology by which almost all major mobility devices are run. The case for wireless technologies in mobile device has, for current purposes, far-reaching business implications which cut across different geographies, industries and, not least, regulations. Wireless Technology Patent Licensing (WTPL) is, for current purposes, paper's central focus. More specifically, commercial and legal battles between major WTPL owners and mobile manufacturers are at center of a far-reaching international business challenge of revenue sharing of / royalties on patented / licensed technologies. To better understand how WTPL is of broader international business implications, a closer look is required at a recent case, namely Apple- Qualcomm dragging legal battle over WTPL royalties (Hardy, 2017). As discussed in further detail in subsequent sections, Apple- Qualcomm WTPL royalty battle is discussed as an example of how WTPL business model is disrupting conventional revenue-sharing models by which concerned business partners share revenue based on a fixed, pre-agreed-on conditions. Technology change is inevitable. This results, more so increasingly in recent years, in dynamic and differentiated revenue-sharing agreements which can no longer be fixed for long but are subject to continuous change, particularly given current supply chain management practices which enable more opportunities (and, for that matter, risks) for increased revenue unaccounted for in initial licensing agreements. To better understand current Apple- Qualcomm WTPL royalty battle in a broader international business context, a closer analysis is required of case specifics and broader intellectual property and patent issues. This paper aims, hence, to explore Apple- Qualcomm WTPL royalty battle in an international business context in order to reflect on broader implications for mobility manufacturing companies.
This paper is made up of five sections in addition to Introduction: (1) Apple- Qualcomm WTPL: Case Background, (2) Technology Licensing, (3) Wireless Technology Patent Licensing, (4) Wireless Technology Patent Licensing: The Smartphone Industry and (5) Conclusion. The "Apple- Qualcomm WTPL: Case Background" section offers a broad overview of Apple- Qualcomm WTPL case which continues to evolve. The "Technology Licensing" section discusses how Technology Licensing Model has come to be an increasingly adopted business model by companies, big and small, for clear profit and strategy benefits. The "Wireless Technology Patent Licensing" section places WTPL in a broader usability and business context in which mobility is becoming an increasingly promising area for business growth. The "Wireless Technology Patent Licensing: The Smartphone Industry" section focuses on smartphone industry which is largely enabled by WTPL offerings from major licensing players. The "Conclusion" section wraps up argument and offers further insights into WTPL practices and future.
II. Apple- Qualcomm WTPL: Case Background
In a recent Apple- Qualcomm WTPL episode, Apple filed a lawsuit against Qualcomm in Federal District Court for the Southern District of California, in San Diego, on grounds of unpaid rebates, to Apple, in return for having exclusive chips supply from Qualcomm (Hardy). This recent episode, which is projected to drag on for years, uncovers long-standing (and unresolved) intellectual property issues in mobility industry. More specifically, as mobility giants such as Apple and Samsung procure critical wireless innovations from Qualcomm, innovations which enable mobile users to consume broadband video and radio content, Qualcomm remains in a monopolistic position as licensing agreements, as argued for from both sides, stipulate that Qualcomm remains an exclusive supplier and hence generating, according to Apple, substantial royalty revenues. In 2016 alone, Qualcomm amassed revenue of $23.6 billion and a profit of $5.7 billion (Hardy). Apple's lawsuit comes in heels of a lawsuit by Federal Trade Commission against Qualcomm over anticompetitive practices to generate high licensing royalties for adopted wireless technologies by Apple.
As discussed in further detail in later sections, Apple- Qualcomm WTPL ongoing case only scratches a surface of an international business case which is not limited to revenue-sharing and profitability issues but extends to how WTPL, and for that matter intellectual property rights, has come to be a complex challenge cutting across business, legal, regulatory and social areas.
III. Technology Licensing
Technology industry is one which is most subject to change. This is not limited to game-changing innovations, or as are widely known disruptive technologies, but extends to adopted business models. In a line similar to one now becoming more established in numerous industries, developed economies, particularly U.S., have come to adopt a business model which is based on licensing / patenting as opposed to conventional manufacturing-based one. Put differently, in lieu of a conventional model by which companies, including ICT ones, invest in downstream assets to manufacture and commercialize goods, companies are increasingly shifting to a licensing-based business model by which a company rolls out a licensed concept to different business customers who sell to end customers / consumers (Arora, Fosfuri & Gambardella, 2001). This shift has shown to have strategy implications for companies. If anything, by shifting business model from one based on licensing to a licensing-based one, companies, particularly startups, shift corporate strategy to focus more on intellectual property management practices, joint ventures and acquisitions. Moreover, such strategy shift is shown to lower market entry barriers, particularly for smaller companies, at an industry level (Arora, Fosfuri & Gambardella). The licensing-based model shift is, if anything, most evident in case of Qualcomm.
The Apple- Qualcomm WTPL ongoing royalty battle can be interpreted, if anything, in light of Qualcomm's business model. Notably, Qualcomm is now a far-flung multinational operating in numerous countries based on licensing patented innovations used in mobile phones. One organizational entity, i.e. Qualcomm Ventures, is of particular interest in current context. According to stated mission, Qualcomm Ventures is an "investment arm" by which Qualcomm helps startups grow ("How We Help," n.d.). Interpreted into a business rationale, Qualcomm Ventures is, in fact, a patent / license revenue generator for Qualcomm, albeit via a venture-capitalist investment method. That is, instead of licensing / patenting innovations by Qualcomm directly to business partners and customers, Qualcomm Ventures represents a bigger investment entity by which Qualcomm Inc. expands her royalties by investing in smaller companies rolling out more innovative wireless technologies. This business strategy is not a novelty and has been adopted by numerous ICT giants which started as startups and grew into global conglomerates investing in smaller startups. In so doing, a number of strategic benefits are achieved. Given current case, benefits connected to revenue-sharing remains of central focus.
Notably, by investing in smaller entities, Qualcomm frees up company's R&D resources for new mobility frontiers. If anything, smaller startups are conventionally more agile to churn out more ideas and disruptive technologies compared to bigger, more established companies. Thus, as demand for wireless technologies of individual and corporate customers increases, pace for more innovative technologies picks up and hence investment in smaller startups. The main strategic focus of Qualcomm shifts, accordingly, from conventional profit-making practices by expanding market segments using corporate resources into acquisition and merger efforts aimed to "manage" innovation performance, so to speak, of funded companies to cater for what can be said to be ever-expanding needs of end and business customers. This situation results in complex revenue-sharing issues, as in current case. As Qualcomm Inc. expands corporate clout at a global scale, lines between profit-making and corporate social responsibility blur.
In an interesting piece by Donald J. Rosenberg, Executive Vice President & General Counsel for Qualcomm, Rosenberg promotes role of Qualcomm as an enabler of local communities, changing people's lives (Rosenberg, 2011). More interestingly, Rosenberg's piece is published on World Intellectual Property Organization's portal in what could be said to be a PR or sponsor piece in light of ongoing royalty battle between Apple and Qualcomm. Indeed, Qualcomm's technologies appear to be community enablers in India by helping local fishermen grow businesses, El Salvador (by boosting public safety, South Africa by assisting nurses, and Nepal and Viet Nam by transforming workforce (Rosenberg), when, in fact, Qualcomm drives profits via licensing agreements to mobile manufacturers.
Technology licensing is, as discussed above, a new business model by which an increasing number of ICT companies, particularly wireless mobility ones, drive royalty profits based on revenue-sharing agreements. This new business model has shown, moreover, to result in not only a corporate shift in strategy but also, on downside, in legal complications at both ends of supply chain. The next section discusses in further detail how WTPL in particular has come to be industry's leading business and growth driver.
IV. Wireless Technology Patent Licensing
Given current business situation, Qualcomm enjoys a high bargaining power over mobile manufacturers. Based on Porter's Five Forces Analysis, Qualcomm cab be said to have an upper hand as a supplier compared to giant mobile manufactures. This is, in fact, a unique business situation. If anything, Apple and Samsung are established global players and hence are assumed to have considerable power over suppliers and business partners. In current practice, both Apple and Samsung are subject to Qualcomm's supplier power which can be attributed to Qualcomm's breakthrough technologies and general usability patterns which make location-based services an up and coming business driver. In breakthrough technologies area, Qualcomm has a long-standing reputation for innovative products and services invented, developed and promoted by established industry experts. In general usability patterns area, Qualcomm's technologies are well aligned to an increasing number of mobility patents ("Location-Based Services Using Wireless Hotspot Technology," n.d.) catering for location-based service needs of a growing body of individual and business customers including, most notably, frequent travelers, hospitality companies and airlines. Still, Qualcomm's high bargaining power status can be attributed to company's exclusive licensing agreements.
As is stated consistently in Apple's complaints, Qualcomm's exclusive licensing agreement has constrained Apple's ability to expand on supplier network (Hardy). This has resulted in a monopolistic status by which Qualcomm controls not only supply streams but also generated royalties. This is most pronounced, as shown in next section, in a similar case against Apple filed by Core Wireless Licensing over licensing infringements, a case which highlights WTPL complications in smartphone industry.
V. Wireless Technology Patent Licensing: The Smartphone Industry
In a 2015 court ruling, a federal jury in Texas ruled that Apple did not infringe WTPL owned by Core Wireless Licensing (Reisinger, 2015). In a similar course as in Qualcomm's case, Core Wireless Licensing had sued Apple over patent and licensing infringements in Apple's iPhone and iPad products. The ruling highlights how WTPL is far from a straightforward agreement, let alone issue, by which companies share royalty revenues based on clear terms and conditions. The "exclusivity" condition in most, if not all licensing agreements, as reported by complaining parties and in media, appears to lead to much controversy over how much royalty should be shared between licensors and licensees.
In current case, Apple's lawsuit against Qualcomm, citing unreasonable requirement from manufacturers to agree to license company's patents get Qualcomm chips, a stipulation which, according to Apple, forces unfair royalty-sharing agreements manufactures would not normally accept (Mickle, 2017). Apple is not alone. Samsung is also subject to Qualcomm's conditions. This business situation raises legitimate questions over how viable current licensing / patenting agreements between Qualcomm and mobile manufacturers.
One most important question is: If mobile manufactures are subject to antitrust laws in a more obvious manner, compared to suppliers, in different geographies, how Qualcomm's royalty-sharing agreements can be justified when no clear antitrust penalties against company are available unless a business partner (e.g. Apple or Samsung) formally files an antitrust lawsuit? Put differently, what legal frameworks WTPL licensors operate within in order to guarantee business practices are fair and nor monopolistic? So far, no clear answer exists as to how WTPL licensors are accountable to fair business practices.
A second important question is: In an age in which geographical boundaries are blurring, particularly for cross-border organizations, which legal jurisdiction should WTPL licensors and licensees be answerable for? This question is particularly pressing given a plethora of lawsuits on both sides of WTPL. Moreover, Qualcomm's organizational structure, pointed to above, allows for greater circumvention as responsibility of licensing agreements are shifted further away from company's immediate accountability. Indeed, Qualcomm's ever expanding entity poses a major challenge as to how WTPL can be addressed.
Thirdly, if one is to accept current market dominance of Qualcomm, how emerging startups, an inevitable phenomenon in ICT industry, are likely to dethrone Qualcomm, if not to make Qualcomm a history? Needles to say, ICT industry, mobility industry is a highly volatile one marked by highly dynamic market forces. This volatility is, if anything, a liability which risks both licensors and licensees. There might be a need, in fact, for a more agile business model which, in contrast to current exclusivity-based one, embraces chain value benefits which enhances chain value across all chain's connections, not only for one or another connection.
VI. Conclusion
References
Arora, A., Fosfuri, A., & Gambardella, A. (2001). Markets for Technology and their Implications for Corporate Strategy. Industrial and Corporate Change, 10(2), 419-451. Oxford Academic. https://doi.org/10.1093/icc/10.2.419
Hardy, Q. (2017, January 20). Apple Adds to Qualcomm’s Troubles, Filing Lawsuit Over Rebates. The New York Times. Retrieved from https://www.nytimes.com/2017/01/20/technology/apple-qualcomm-lawsuits.html?ref=business&_r=0
How We Help. (n.d.). Qualcomm Ventures. Retrieved from https://www.qualcommventures.com/how-we-help
Mickle, T. (2017, January 20). Apple Sues Qualcomm Over Licensing Practices. The Wall Street Journal. Retrieved from http://www.wsj.com/articles/apple-sues-qualcomm-over-licensing-practices-1484944919
Reisinger, D. (2015, March 17). Apple didn't violate wireless tech patents, jury finds. CNET. Retrieved from https://www.cnet.com/news/apple-not-violating-wireless-technology-patents-jury-says/
Rosenberg, D. J. (2011, June). Wireless Technologies: Making a Difference. World Intellectual Property Organization. Retrieved from http://www.wipo.int/wipo_magazine/en/2011/03/article_0004.html
