Case 3:17-cv-00108-GPC-NLS Document 1 Filed 01/20/17 PageID.1 Page 1 of 104

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Juanita R. Brooks (SBN 75934)
brooks@fr.com
FISH & RICHARDSON P.C.
12390 El Camino RealSan Diego, CA 92130
Telephone: (619) 678-5070
Facsimile: (619) 678-5099
Ruffin B. Cordell (DC Bar No. 445801; pro hac vice pending)cordell@fr.com
Lauren A. Degnan (DC Bar No. 452421; pro hac vice pending)degnan@fr.com
FISH & RICHARDSON P.C.
1425 K Street, N.W., 11th Floor
Washington, DC 20005
Telephone: (202) 783-5070
Facsimile: (202) 783-2331

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William A. Isaacson (DC Bar No. 414788; pro hac vice pending)wisaacson@bsfllp.com
Karen L. Dunn (DC Bar No. 1002520; pro hac vice pending)kdunn@bsfllp.com
BOIES, SCHILLER & FLEXNER LLP
1401 New York Avenue, N.W.
Washington, DC 20005
Telephone: (202) 237-2727
Facsimile: (202) 237-6131

17[Additional counsel identified on signature page]18

Attorneys for Plaintiff Apple Inc.

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UNITED STATES DISTRICT COURT20

SOUTHERN DISTRICT OF CALIFORNIA

21'17CV0108 GPC NLS
Case No. ______________

22 APPLE INC.,

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REDACTED COMPLAINT FORDAMAGES, DECLARATORYJUDGMENT AND INJUNCTIVERELIEF

26 QUALCOMM INCORPORATED,DEMAND FOR JURY TRIAL

Plaintiff,

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vs.

Defendant.

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APPLE INC.’S COMPLAINT

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TABLE OF CONTENTS
NATURE OF THE ACTION ....................................................................................1
PARTIES....................................................................................................................4JURISDICTION.........................................................................................................5
VENUE ......................................................................................................................65

FACTUAL ALLEGATIONS ....................................................................................6

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Apple’s Revolutionary Products ................................................................................6

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Standards and Their Economic Effects ......................................................................7
The FRAND Bargain ...............................................................................................10ETSI and Qualcomm’s Contractual FRAND Obligations.......................................12
Qualcomm’s Dominant Market Position and Cellular Standards ...........................14
Qualcomm’s Secret Manufacturer License Agreements .........................................19
Qualcomm “Double-Dips” Royalties and Chipset Sales .........................................22

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Qualcomm Gouges Apple ........................................................................................24

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Apple and Qualcomm’s Licensing Discussions ......................................................29

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Patents-in-Suit ..........................................................................................................32

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Qualcomm’s SEP Licensing Practices Are Not FRAND and Foreclose Competition..................................................................................................................................34

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Competition Agencies Around the World Investigate and Take Action Against
Qualcomm ................................................................................................................45

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Apple Responds to Agency Requests ......................................................................48

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Qualcomm Retaliates By Withholding Nearly $1 Billion From Apple ..................49
CLAIMS AND PRAYER FOR RELIEF.................................................................56
COUNT I .................................................................................................................56
Breach of Contract ...................................................................................................56
COUNT II ...............................................................................................................57

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Breach of the Implied Covenant of Good Faith and Fair Dealing...........................57

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COUNT III ..............................................................................................................58

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Violation of Cal. Civ. Code § 1671(b).....................................................................58

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COUNT IV ..............................................................................................................59
Declaratory Relief—Cal. Code Civ. Proc. § 1060...................................................59
COUNT V ...............................................................................................................61
APPLE INC.’S COMPLAINTi

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Declaration of Noninfringement of U.S. Patent No. 7,246,242 ..............................61
COUNT VI ..............................................................................................................62
Declaration of FRAND Royalties for U.S. Patent No. 7,246,242 ...........................62
COUNT VII ............................................................................................................63
Declaration of Noninfringement of U.S. Patent No. 6,556,549 .............................63
COUNT VIII ...........................................................................................................64

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Declaration of FRAND Royalties for U.S. Patent No. 6,556,549 ..........................64

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COUNT IX ..............................................................................................................65

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Declaration of Noninfringement of U.S. Patent No. 9,137,822 ..............................65
COUNT X ...............................................................................................................66
Declaration of FRAND Royalties for U.S. Patent No. 9,137,822 ...........................66
COUNT XI ..............................................................................................................67
Declaration of Noninfringement of U.S. Patent No. 7,289,630 .............................67
COUNT XII ............................................................................................................68

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Declaration of FRAND Royalties for U.S. Patent No. 7,289,630 ...........................68

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COUNT XIII ...........................................................................................................69

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Declaration of Noninfringement of U.S. Patent No. 8,867,494 ..............................69

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COUNT XIV ...........................................................................................................70
Declaration of FRAND Royalties for U.S. Patent No. 8,867,494 ...........................70
COUNT XV ............................................................................................................71
Declaration of Noninfringement of U.S. Patent No. 7,095,725 ..............................71
COUNT XVI ...........................................................................................................73

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Declaration of FRAND Royalties for U.S. Patent No. 7,095,725 ...........................73

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COUNT XVII .........................................................................................................73

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Declaration of Noninfringement of U.S. Patent No. 6,694,469 ..............................73

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COUNT XVIII ........................................................................................................75
Declaration of FRAND Royalties for U.S. Patent No. 6,694,469 ...........................75
COUNT XIX ...........................................................................................................75
Declaration of Noninfringement of U.S. Patent No. 9,059,819 ..............................75
COUNT XX ............................................................................................................77

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Declaration of FRAND Royalties for U.S. Patent No. 9,059,819 ...........................77

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COUNT XXI ...........................................................................................................77
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Declaration of Noninfringement of U.S. Patent No. 7,096,021 ..............................77
COUNT XXII .........................................................................................................79
Declaration of FRAND Royalties for U.S. Patent No. 7,096,021 ...........................79
COUNT XXIII ........................................................................................................80
Declaration of Unenforceability Due to Exhaustion ...............................................80
COUNT XXIV ........................................................................................................81

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Monopolization ........................................................................................................81

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COUNT XXV .........................................................................................................93

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Violations of the California Unfair Competition Law .............................................93
PRAYER FOR RELIEF ..........................................................................................95

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APPLE INC.’S COMPLAINT

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Plaintiff Apple Inc. (“Apple”), through its undersigned counsel, complains
and alleges against QUALCOMM Incorporated (“Qualcomm”) as follows:
NATURE OF THE ACTION

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1.

Law-enforcement agencies around the globe are actively investigating

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Qualcomm’s illegal business practices; in the past two years alone, Qualcomm has

6been declared a monopolist by three separate governments. Qualcomm pursues its

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illegal practices through a secret web of agreements designed to obfuscate its

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conduct. In at least one such agreement, Qualcomm inserted a gag order that9

prevented an aggrieved party from seeking relief that could curb Qualcomm’s

10illegal conduct, in an effort to keep courts and regulators in the dark and its coerced

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customers quiet.

122.

Qualcomm was one among many companies that contributed to the13

development of standards related to how cellular phones connect to voice and data

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networks. As a contributor, Qualcomm is entitled to a fair royalty based on the15value of its particular contribution. Qualcomm is not entitled to collect royalties

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based on the contribution of others to the standard, or unrelated innovation by17

companies that utilize the standard—but this is precisely the business model that18

Qualcomm has established and that it protects through monopoly power and19

unlawful licenses. In order to purchase Qualcomm chips or obtain access to patents

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pledged to a cellular standard, Qualcomm demands that third parties pay Qualcomm

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a royalty much greater than the value of Qualcomm’s contribution to the standard—

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a value based on the entire price of the innovative products that only incidentally

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incorporate the standard.

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3.

What this means in the case of the iPhone® is that when Apple

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engineers create a revolutionary new security feature such as touch ID, which

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enables breakthrough technologies like Apple Pay, Qualcomm insists on royalties

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for these and other innovations it had nothing to do with and royalty payments go

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APPLE INC.’S COMPLAINT

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up. When Apple spends billions redefining the concept of a smartphone camera,

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Qualcomm’s royalty payments go up. Even when Apple sells an iPhone with added3

memory—256GB instead of 128GB—Qualcomm collects a larger royalty just4

because of that added memory. Apple products are among the most innovative in5

the world, yet because of its monopoly power, its suppression of the disclosure of

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information to government agencies investigating Qualcomm, and an abusive

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licensing model, Qualcomm believes it is entitled to collect its “tribute” on every

8such improvement.

94.

Apple, which has been overcharged billions of dollars on Qualcomm’s

10illegal scheme, brings this action to recover its damages, enjoin Qualcomm from11

further violations of the law, and request declaratory relief. Among Apple’s

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damages are nearly $1 billion that Qualcomm owes to Apple under an agreement

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between the two companies. Qualcomm claims that Apple has forfeited those14

amounts by responding to requests in the course of an investigation by the Korea

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Fair Trade Commission (“KFTC”), which recently levied the largest fine in its

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history against Qualcomm. Qualcomm has withheld the required contractual

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payments from Apple even though the agreement clearly permits Apple to respond18

to the KFTC’s lawful investigation and requests for information. If that were not19

enough, Qualcomm then attempted to extort Apple into changing its responses and20

providing false information to the KFTC in exchange for Qualcomm’s release of21

those payments to Apple. Apple refused.

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5.

Apple also seeks redress for Qualcomm’s abuse of its monopoly power

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in the technologies used to connect to cellular networks. Constant connectivity over24

cellular networks has become part of our everyday lives. The iPhone was not the25

first cellular phone or even the first smartphone, but it revolutionized the industry

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and is the gold standard by which all other smartphones are judged. To be a cellular27

phone at all, an iPhone must be able to connect to the wide variety of cellular

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APPLE INC.’S COMPLAINT

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networks in use around the world.
6.

Having a common set of standards for these cellular networks is3

beneficial to consumers because it encourages investment in infrastructure and4technology. Common standards allow cellular phones to work together and then5permit companies like Apple the opportunity to innovate in building great products.

67.

Standardization can be beneficial, but only if those holding intellectual

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property that is part of the standard make that intellectual property widely available

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on terms that fairly compensate the holder of the intellectual property while9

recognizing the monopoly power obtained through standardization. That is why, for10patents that companies have declared “essential” to cellular standards, patent law is11

reinforced by contractual obligations to license such patents on fair, reasonable, and12

non-discriminatory (“FRAND” or “RAND”) terms. FRAND commitments are the13heart of the standard setting process.

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8.

Qualcomm broke its promise and has breached its FRAND

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commitments. Qualcomm illegally double-dips by selling chipsets that allow mobile

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telephones to connect to cellular networks and then separately licensing (but never17

to competitors) the purportedly necessary intellectual property. By tying together

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the markets for chipsets and licenses to technology in cellular standards, Qualcomm

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illegally enhances and strengthens its monopoly in each market and eliminates

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competition. Then, Qualcomm leverages its market power to extract exorbitant21

royalties, later agreeing to reduce those somewhat only in exchange for additional

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anticompetitive advantages and restrictions on challenging Qualcomm’s power,

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further solidifying its stranglehold on the industry. All of this has been forced on

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Apple because the iPhone and the iPad® have required Qualcomm chips.

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9.

Qualcomm’s abusive practices have particularly harmed Apple, the26prime innovator in the mobile device industry. In recent licensing discussions with

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Apple, Qualcomm has asserted that it has a “good faith belief” that Apple’s

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products—which now use both Qualcomm and Intel chipsets to connect to cellular2

networks—infringe many Qualcomm patents simply because Qualcomm “holds a3

great many patents that are essential to cellular standards implemented by Apple

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products,” including the 3G/UMTS and/or 4G/LTE standards.

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10. Qualcomm has recently demonstrated that it will file lawsuits following

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threats to assert its patents. The asserted patents in this case include patents that are

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U.S. counterparts of Chinese patents that Qualcomm has asserted in litigation

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against Meizu Technology Co., Ltd. (“Meizu”) and that Qualcomm has declared as

9essential to the 3G/UMTS and/or 4G/LTE standard. These patents are not, in fact,

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essential to 3G/UMTS or 4G/LTE and are not infringed by Apple. Moreover, if any

11of these patents were essential, Qualcomm’s licensing demands violate patent law

12and its FRAND obligations.

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11. For years, Qualcomm has abused its business relationships with Apple14

and blocked competitors from selling chipsets. Qualcomm’s recent effort to cover15

its tracks—by punishing Apple for providing truthful testimony at the request of

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government regulators—underscores the lengths to which Qualcomm will go to

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protect its extortion scheme. Accordingly, Apple seeks this Court’s intervention,18

bringing breach of contract claims, patent claims, and antitrust claims, as the basis

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for declaratory relief, injunctive relief, and damages.
PARTIES

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12. Apple is a California corporation having its principal place of business22

at 1 Infinite Loop, Cupertino, California 95014. Apple designs, manufactures, and23

markets mobile communication and media devices, personal computers, and24

portable music players, as well as related software, accessories, and content.

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13. Qualcomm is a Delaware corporation having its principal place of26

business at 5775 Morehouse Drive, San Diego, California 92121. Qualcomm is a

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globalsemiconductor

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companythat4designsandmarkets

wireless

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telecommunications products and services.
14. Qualcomm has offices and employees in this District and regularly
conducts business in this District.

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15. Qualcomm includes Qualcomm Technology Licensing (“QTL”);

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Qualcomm Technologies Inc. (“QTI”); and Qualcomm CDMA Technologies

6(“QCT”). QTI is wholly owned by Qualcomm, and QCT is operated by QTI and its

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subsidiaries.
JURISDICTION

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16. Apple brings this action for damages, declaratory relief, costs of suit,10

and reasonable attorneys’ fees arising under, inter alia, the patent laws of the United

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States, 35 U.S.C. § 1 et seq.; Section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2;

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and the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202. Accordingly, this13

Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 (federal question),

141337 (commerce and antitrust regulation), and 1338(a) (patents).

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17. Apple has standing to bring this action under Section 4 of the Clayton
Act, 15 U.S.C. § 15.

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18. This Court has subject matter jurisdiction over Apple’s pendent state18

law claims pursuant to 28 U.S.C. § 1367. Each of Apple’s state law claims arises

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out of the same factual nucleus as its federal law claims.

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19. This Court has personal jurisdiction over Qualcomm because it has its

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principal place of business in this District, and because Qualcomm’s actions cause

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harm in this District. Further, Qualcomm’s wrongful conduct, in the form of

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unreasonable demands made during licensing discussions with Apple (e.g., in-24

person licensing meetings with Apple), has been purposefully conducted within the25

District (e.g., at Qualcomm’s offices in San Diego, California), and Apple’s injuries

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relate to such conduct in the District.

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20. The facts in this Complaint support jurisdiction in this case.

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VENUE

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21. Venue is proper within this District under 28 U.S.C. §§ 1391(b),31391(c), and 1400(b) and Sections 4 and 12 of the Clayton Act, 15 U.S.C. §§ 15,

422, and 28.

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22. The facts in this Complaint support venue in this case.

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23. Venue is also proper because the parties’ Business Cooperation and

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Patent Agreement contains a forum selection clause requiring Apple to file8

litigation regarding the agreement’s terms in state or federal court in San Diego

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County, California. [Exhibit A, BCPA attachment 2.]

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FACTUAL ALLEGATIONS

11Apple’s Revolutionary Products

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24. When Apple unveiled the iPhone in 2007, it revolutionized the13

telecommunications industry and completely redefined what users can do on their

14mobile phones. The iPhone combined three products—a revolutionary mobile

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phone, a widescreen iPod® music player, and a breakthrough computer/Internet

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communications device—into one small and lightweight handheld device with a17large, color multi-touch display; a distinctive user interface; and a sophisticated18

computing platform for mobile apps. Apple patented many of these innovations.

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25. In 2010, Apple created and defined an entirely new category of devices

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with the revolutionary iPad. The iPad connects users with their apps and content in

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a much more intimate, intuitive, and fun way. The iPad is an elegantly designed

22computer tablet with a color multi-touch screen, a user interface akin to the iPhone,23

and robust functionality that spans both mobile computing and media storage and24

playback. As a result of its innovative technology and distinctive design, the iPad

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achieved instant success and continues to hold a considerable share of the U.S.

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tablet market.

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26. Apple’s iPhone and iPad products are the result of Apple’s own creative

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achievement, technical innovation, differentiated technology, and astute business2

judgment.

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27. Among many other functions, both the iPhone and certain models of the

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iPad can send and receive, over cellular networks, telephone calls and/or other voice5

and video communications, text messages, and Internet data. Except when

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connected to a Wi-Fi network, a mobile wireless device like an iPhone or iPad7

cannot be used for communication without a baseband processor chipset, a8component that, among other functions, acts as a small wireless radio and “plugs

9in” to a standardized telecommunications network. Such networks are created and10

maintained by carrier companies, including, for example, AT&T, Verizon, Sprint,

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and T-Mobile.

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28. The baseband processor chipset is just one component out of thousands

13of components and technologies contained in the Apple iPhone and iPad. Apple,

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sometimes through third-parties, purchases components and technologies from15

third-parties, such as Qualcomm.
Standards and Their Economic Effects

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29. For a cellular network to operate—and for each component to work18

with the other components, regardless of which company made each part—carriers,

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base station manufacturers, mobile wireless device manufacturers, and baseband

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processor chipset manufacturers must agree to follow a common set of standards,

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which control how each part of a network communicates with the other parts. Thus,

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for decades, cellular service providers, baseband processor chipset manufacturers,

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and wireless device manufacturers have formed and joined standard setting

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organization (“SSOs”), which create and distribute common standards for all

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members to follow.

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30. Standards are absolutely critical in creating a common technology

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platform because they allow different network components to be delivered by

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multiple vendors, promote interoperability of products, and incentivize investments

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in infrastructure. The net effect of standards is to increase competition, innovation,

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product quality, and consumer choice.

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31. A system of uniform standards requires companies and consumers to5

make certain tradeoffs. For example, a company implementing standards in a

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product must use certain mandated technologies, even where viable, perhaps even7

superior, alternatives exist. Once a standard is adopted, participants begin to make8

investments tied to the implementation of the standard—such as engineering

9compliant parts, building compliant cellular towers, and designing handsets around10

particular capabilities. Because these participants may face substantial switching11

costs in abandoning initial designs and substituting a different technology, an entire

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industry will become “locked in” to a standard. Similarly, once a standard is13

adopted and implemented, a company cannot substitute alternative technologies in

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its products because those products will no longer work with any established15

network. For this reason, standard-setting is accompanied by safeguards to prevent16

the abuse of monopoly power, discussed further below.

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32. Where standardized technologies are covered by patents, called

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standard-essential patents (“SEPs”), companies that choose to implement a standard

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are often required to practice those patents. Without safeguards, patent holders

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could demand inflated or discriminatory royalties from product companies who

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have no choice but to use the technology, threaten to block a targeted company

22from implementing or practicing the standard, and demand and obtain royalty

23

payments based not on the market value of their patents over alternative

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technologies, but on the costs and impossibility of switching away from25

standardized technology. This abuse is called “patent hold-up” and occurs “when26

the holder of a standard-essential patent (‘SEP’) demands excessive royalties after

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companies are locked into using a standard.” Ericsson, Inc. v. D-Link Sys., Inc.,

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773 F.3d 1201, 1209 (Fed. Cir. 2014); see also U.S. Dep’t of Justice & U.S. Dep’t

2of Commerce, Patent & Trademark Office, Policy Statement on Remedies for3Standards-Essential Patents Subject to Voluntary F/RAND Commitments (Jan. 8,42013), https://www.justice.gov/sites/default/files/atr/legacy/2014/09/18/290994.pdf.

5Higher royalties eliminate choice and may be passed on in the form of higher

6

prices, harming consumers. The threat of hold-up also tends to reduce the value of7

standard setting, leading firms to rely less on the standard-setting process and8

depriving consumers of the substantial procompetitive benefits of standard setting.

9

33. Patent “hold-up” can be exacerbated by “over-declaration” of patents as

10essential to a standard. Patent owners, like Qualcomm, can claim that their patents

11

are SEPs without having to prove that they are essential. Many SSOs expressly

12declare that they do not test declarations of essentiality or validity for accuracy. For

13

example, one widely recognized SSO, the European Telecommunications Standards

14

Institute (“ETSI”), affirmatively states that it has “No involvement” in “the15assessment of the validity and essentiality of patents declared as SEPs.” [Legal

16

Considerations,17

files/ETSISeminar/ETSI%20Seminar%206-1%20IPR.pdf.]

18

company like Apple can be faced with claims of patent infringement based on

19

nothing more than the unilateral assertion by a company like Qualcomm that its

20

patents are essential.

ETSI

Seminar2014,

http://www.etsi.org/images/
Thus,

a

product

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34. The term essential need not mean the patent is essential for a required

22

implementation of a standard; it might mean the patent is essential to an optional

23

implementation. Manufacturers can choose one of the options without infringing

24

patents that are essential for implementing another option. See Microsoft Corp. v.

25

Motorola, Inc., No. C10-1823JLR, 2013 WL 2111217, at *10, *20 (W.D. Wash.

26

Apr. 25, 2013) (“[A] specific SEP may contribute greatly to an optional portion of a27

given standard, but if that portion is not used by the implementer, the specific SEP

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may have little value to the implementer.”).

2

35. The aforementioned economic problems are compounded by “royalty

3stacking,” the “payment of excessive royalties to many different holders of SEPs.”

4

Microsoft,

5

telecommunications standards described herein are complex, and many different

6

entities claim to have patents that read on some aspect of the standard.

2013

WL

2111217,

at

*11.

Like

many

technologies,

the

The FRAND Bargain

7
8

36. To address the economic effects of standardization that would

9

artificially inflate royalties for SEPs, SSOs require participants claiming to own

10

SEPs to identify and disclose those patents publicly and to promise to offer licenses

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for those patents to all implementers of the standard either royalty-free or on

12

FRAND terms. If a patent holder does not choose to make this promise, SSOs

13

generally design the standard without using the patented technology. Qualcomm’s

14

failure to stick to its end of the FRAND bargain is an essential element of its

15

scheme of relentless extortion. Qualcomm induced SSOs to adopt Qualcomm

16technology within the standard and then knowingly repudiated its obligation to17

license its SEPs on reasonable terms.

18

37. FRAND royalties must start with the proper royalty base and a proper

19

royalty rate, as required by the patent laws, but also must meet additional criteria

20

designed to prevent misuse of the monopoly power conferred by adoption of a21

standard. In particular, FRAND royalties must be limited by the actual technical22

contribution of the patented technology to the standard, rather than (a) the “lock-in”

23

value that arises from standardization of technologies, i.e., the value gained simply

24

because companies are forced to use the technology mandated in the standard,

25(b) the value of all the technologies incorporated in an entire standard, or (c) the26

competing value of the many technologies, and many other standards that make up

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the actual device.

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38. A SEP holder that makes a FRAND commitment also promises to2license its SEPs to anyone willing to accept a license, i.e., a “willing licensee,” and3thus relinquishes its right to exclude a willing licensee from the standards-based

4

technologies. Such a commitment is an important check on the patent holder’s5

power to use SEPs to “hold up” implementers of the standard by refusing to license

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competitors or the customers of competitors, or by licensing competitors or their7

customers only on discriminatory terms that undermine competition among

8

implementers of the standard. Without the FRAND commitment, SEP holders

9would take an easy path to monopoly profits because the standard requires use of10

the patented technology.

11

39. The FRAND promise is a critical tool in preventing monopoly hold-up

12

and ensuring that the standard remains accessible to all who wish to implement it.

13

See Microsoft, 2013 WL 2111217, at *11 (noting that SSOs combat hold-up

14

through the use of the FRAND commitment).

15

40. FRAND obligations are more than a matter of a private contract

16

between owners of technology, on the one hand, and SSOs and their other members

17(and implementers of the standard as intended third-party beneficiaries), on the18

other. Instead, they are a core precondition for antitrust tolerance of the industry

19

collaboration on which standard-setting depends.

20

41. As the Third Circuit Court of Appeals has found:21

a standard, by definition, eliminates alternative technologies. When apatented technology is incorporated in a standard, adoption of thestandard eliminates alternatives to the patented technology. Althougha patent confers a lawful monopoly over the claimed invention, itsvalue is limited when alternative technologies exist. That value
becomes significantly enhanced, however, after the patent isincorporated in a standard. Firms may become locked in to a standard
requiring the use of a competitor’s patented technology. The patent
holder’s IPRs, if unconstrained, may permit it to demandsupracompetitive royalties. It is in such circumstances that measures
such as FRAND commitments become important safeguards againstmonopoly power.

22
23
24
25
26
27
28

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Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 314 (3d Cir. 2007) (citations

2

omitted).

3

42. Violation of the FRAND bargain can take several forms, including

4

demanding unreasonable royalties; applying royalties discriminatorily (for example,

5

charging different licensees different amounts or imposing differing conditions on

6

different licensees, or conditioning royalties on licensees’ agreement to advantage

7

the patent owner’s products); and asserting that patents are essential to the standard

8

when in fact they are not. Qualcomm is guilty of all three.

9

ETSI and Qualcomm’s Contractual FRAND Obligations

10

43. Qualcomm and Apple are both members of ETSI, an SSO based in

11

Sofia Antipolis, France, which includes more than 800 members from countries

12

across five continents. ETSI produces globally accepted standards for the13

telecommunications industry. For example, ETSI created or helped to create

14

numerous telecommunication standards, including the 2G/GSM, 3G/UMTS, and

15

4G/LTE cellular communication standards, described further below.

16

44. Like other SSOs, ETSI requires participants to commit to abide by its

17Intellectual Property Rights (“IPR”) Policy, which sets forth the rights and18

obligations of its members. Pursuant to the IPR Policy, members are required to19

disclose standard-essential and potentially standard-essential patents and patent

20

applications in a timely fashion. [ETSI Rules of Procedure, Annex 6, Clause 4,21

http://www.etsi.org/website/document/legal/etsi_ipr-policy.pdf.]

22

45. The IPR Policy further requires that SEP owners submit a written

23

commitment that they are prepared to grant irrevocable licenses on FRAND terms.

24

If no FRAND commitment is made, the IPR Policy provides for ETSI to investigate

25

alternative technology options for the standard to avoid the patent in question. [Id.

26

at Clause 6.]27

46. According to ETSI’s self-reporting portal, Qualcomm has declared over28
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1

30,000 global assets to be “ESSENTIAL IPR.” No objective party has tested the2actual essentiality or validity of these assets.

3

47. Qualcomm has submitted IPR undertakings to ETSI with regard to each4of the patents at issue in this matter. By submitting those declarations, Qualcomm

5promised that “[t]o the extent that the IPR(s) . . . are or become, and remain

6

ESSENTIAL in respect of the ETSI Work Item, STANDARD and/or TECHNICAL

7

SPECIFICATION,” Qualcomm is “prepared to grant irrevocable licenses under8

this/these IPR(s) on terms and conditions which are in accordance with Clause 6.1

9of the ETSI IPR Policy.” [Id. at App’x A.]

10

48. Qualcomm, therefore, is contractually obligated to grant licenses on

11

FRAND terms to these patents to Apple and other manufacturers of products that,12

through the baseband processor chipsets they use, conform to ETSI standards, as

13

well as to third-party suppliers of baseband processor chipsets. Qualcomm made14

similar promises to other SSOs as well.

15

49. Because Apple is a third party that wishes, through the baseband

16

processor chipsets it uses, to implement 3G/UMTS and 4G/LTE standard-compliant

17

technology in the products it sells, Apple is a third-party beneficiary of the contracts

18

between Qualcomm and ETSI.

19

50. Apple relied on Qualcomm’s promises to ETSI. Specifically, Apple and20

other wireless device manufacturers made a conscious choice to develop and sell

21

products compatible with 3G/UMTS and 4G/LTE, relying on Qualcomm’s promise

22that any third-party supplier of baseband processor chipsets or products using them23

could avoid patent litigation and obtain a license to any patents that Qualcomm has

24

declared essential to the 3G/UMTS and 4G/LTE standards.

25

51. Qualcomm’s breach of its FRAND commitments, described in

26

significant detail below, is a foundation of its scheme to acquire and abuse27

monopoly power in the cellular industry. By refusing to license its SEPs to28

13
APPLE INC.’S COMPLAINT

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1

competing chipset manufacturers, and by refusing to sell its chipsets to customers

2

unless they first license Qualcomm’s SEPs, Qualcomm forced purchasers of its

3chipsets to take a license to its SEPs at extortion-level royalties. By threatening

4“disloyal” chipset customers with even less-favorable royalties and license terms if

5they purchased chipsets from Qualcomm’s competitors, discriminating between

6potential licensees by refusing to license its SEPs to competitors, and offering only

7

“rebates” rather than a direct FRAND license, Qualcomm excluded competition in8

the chipset market. And by foreclosing competitors from dealing with Apple, a key

9purchaser of chipsets, Qualcomm facilitated the marginalization and exit of many of

10those competitors, enhancing its own monopoly power.

11

Qualcomm’s Dominant Market Position and Cellular Standards

12

52. Wireless standards have evolved in distinct generations, as consumers

13

demanded more features. The earliest cellular telephones and networks used analog

14

technology which allowed only voice transmission and very slow data transmission.

15

This first-generation technology was characterized by significant capacity

16

limitations, poor data transfer, and low security.

17

53. Second generation (“2G”) cellular technology implemented, among

18

others, the “Global System for Mobile Communications” (“GSM”) standard and the19“Code Division Multiple Access” (“CDMA”) standard. 2G technology provided

20

improved voice and data capacity, supported limited additional functions such as

21

text and multimedia messages, and offered greater privacy and security at lower

22

prices. Most cellular telephones today use (at a minimum) 2G technology and23

standards, with GSM being the most widely used 2G technology.

24

54. Third generation (“3G”) cellular technology included the “Universal

25

Mobile Telecommunications Service” (“UMTS”) standard, which used “Wideband

26

Code Division Multiple Access” (“WCDMA”) technology allowing for even further

27

increased data speed and capacity. 2G and 3G technologies continue to be

28
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simultaneously deployed in products, and devices with only 3G/UMTS/WCDMA

2technology are rare. Instead, 3G/UMTS/WCDMA products function in combination

3

with 2G technology.

455. LTE, sometimes referred to as a 4G cellular standard, is an upgrade to

5

3G/UTMS/WCDMA, providing an enhanced radio interface and all-IP networking

6

technology. The LTE standard has continually advanced, and progressive updates to

7

the LTE standard have specified higher download speeds, carrier aggregation, and8advanced power-saving features, among other functions.

910

56. 3G and 4G technology are often used in tandem through “multimode”
chipsets that are compatible with both sets of standards.

11

57. Baseband processor chipsets implement one or more of these standards.

12

58. Each of these major cellular standards has carrier networks that employ

13them. One family of standards, used by carriers in the United States such as AT&T

14

and T-Mobile, employs the GSM standard for 2G communications and the15complementary UMTS standard for 3G communications. A rival family of

16

standards, used by U.S. carriers including Verizon and Sprint, employs the CDMA17

standard and related technologies, e.g., CDMA2000. The technologies in these two

18

standards families each have advantages and disadvantages. Both families,

19

however, have adopted the LTE standard, while requiring backwards compatibility

20

to their respective 2G and 3G technologies.

21

59. Mobile devices that are configured for a particular carrier, such as

22

AT&T or Verizon, are generally locked in to that carrier’s network. Cellular

23

network standards also may vary based on region and country.

24

60. Chipsets designed for a particular wireless device must conform to the25

standards technology chosen for that network. For example, CDMA networks

26

demand chipsets that conform to the CDMA standards, and only LTE-enabled

27

chipsets can be used in devices designed for LTE networks. As a result, chipsets

28
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that comply with a given standard are not substitutes for, and have different price2

and demand characteristics from, chipsets that comply with other standards.

3

Downstream consumers purchase cell phones that include chipsets configured to4

operate using the standards chosen for a particular network, inextricably tying those5

consumers to that standard.

6

61. Qualcomm has for many years had monopoly power in the sale of7

baseband processor chipsets that implement several of these various cellular8

standards and generations.

962. First, Qualcomm has monopoly power in the supply of chipsets that10

support CDMA, on which devices sold by Verizon and Sprint continue to depend.

11

OEMs seeking to sell devices on CDMA networks must use CDMA chipsets, which

12means that these OEMs depend on access to Qualcomm’s chipsets. Qualcomm has

13

had a share of over 80 percent of the CDMA chipset market for many years, despite

14

the attempts of competitors such as Intel, VIA Telecom, Texas Instruments, and15

Eonex to enter and gain a foothold. Since 2011, when Apple introduced the first16

CDMA version of its products, Qualcomm has charged Apple a monopolistic

17

premium for access to CDMA chipsets that are in all other respects identical to18

chipsets sold to Apple without CDMA functionality enabled. Qualcomm prices its

19

CDMA chipsets without regard to competitive alternatives. Qualcomm has used its

20

monopoly power in CDMA chipsets to obtain anticompetitive license and chipset

21

supply terms from Apple.

22

63. Second, Qualcomm also has monopoly power in the market for

23

premium LTE-enabled chipsets, particularly when coupled with CDMA24

functionality. Premium LTE chipsets, typically used in flagship smartphones, are25

sold by Qualcomm at different, and higher, prices. For device manufacturers

26

seeking to sell flagship smartphones with advanced features for use on networks

27

requiring LTE chipsets, there is no reasonable substitute for these chipsets.

28
APPLE INC.’S COMPLAINT

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Qualcomm recognizes in its 2016 Annual Report, for example, market segments for2“premium-tier integrated circuit products” and “premium-tier smartphones.”

3

Qualcomm has for many years maintained a dominant share of premium LTE

4chipsets sold in the relevant market of 80 percent or more. Qualcomm has used its

5monopoly power in premium LTE chipsets to obtain anticompetitive license and6chipset supply terms from Apple.

7

64. Qualcomm’s dominance in all of the relevant product markets is

8

protected by substantial barriers to entry and expansion of new competitors. These9barriers include, but are not limited to: (a) the time and cost of product development

10

and network certification, including necessary economies of scale, scope, and11learning by doing; (b) the intellectual property rights of Qualcomm and others; (c)12establishment of product reputation and compatibility; and (d) Qualcomm’s

13exclusionary conduct.

14

65. The development of a commercially viable chipset takes years of

15

complex engineering work and an R&D investment of hundreds of millions, and16

perhaps billions, of dollars. These barriers to entry increase as a function of the17

processing power and functionality of a particular chipset, and as such are

18

especially pronounced in the premium LTE chipset market. Obtaining the19certification of network operators for the use of baseband processor chipsets sold20

for use on their network is another barrier to entry, often involving significant

21

expenditures of time and money.

22

66. Qualcomm has declared thousands of patents as essential to the CDMA,

23

UMTS, and LTE standards. Moreover, Qualcomm, while not asserting essentiality

24

to the implementation of these standards, has asserted additional patents that it says

25

cover specific implementations of these standards. Navigating this thicket of patents

26

increases the costs and risks associated with new entry into the chipset market,

27

foreclosing the field for new entrants.

28
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67. Chipset purchasers generally require that suppliers be capable of2

reliably achieving roadmap performance milestones and have a good working

3

relationship with network operators, ensuring these suppliers can obtain all of the4required certifications from operators for their chipsets. Sourcing from a credible

5

chipset supplier ensures that chipset purchasers will meet their product launch dates

6

and will have uninterrupted and reliable supply of chipsets.

7

68. Qualcomm’s unfair and exclusionary conduct maintained and8strengthened its monopoly position in the relevant product markets by depriving

9

rival chipset manufacturers of necessary economies of scale, scope, and essential

10experience.

11

69. In 2006, there were multiple vendors of baseband chipsets, including

12

Broadcom, Ericsson, Renesas, and Texas Instruments. Today, Intel is Qualcomm’s

13

only competitor in the market for premium LTE chipsets, and Qualcomm has no14

competition at all in the market for premium LTE chipsets with CDMA15

functionality. Not coincidentally, Intel has been the target of Qualcomm’s

16exclusionary efforts to force Apple to refrain from introducing Intel chipsets in

17

Apple products.

18

70. Qualcomm’s monopoly power is also shown by its ability to repeatedly

19

coerce Apple into undesirable, one-sided, and unreasonable contract terms, terms

20that are unprecedented in Apple’s experience. At various times, Qualcomm has

21

refused to guarantee Apple’s supply of chipsets, arbitrarily limited its liability for

22

failure to supply chipsets, refused to offer industry-standard indemnity and warranty

23

terms, forced Apple to refrain from challenging Qualcomm’s patents, and forced

24

Apple to refrain from asserting its own patents against Qualcomm or Qualcomm

25

licensees, as well as other terms. Qualcomm expropriates the fruits of Apple’s

26

investments in customizing Qualcomm’s chipsets for use in Apple products, and27

uses Apple’s innovations to sell Qualcomm chipsets to Apple’s competitors. With

28
APPLE INC.’S COMPLAINT

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respect to each of these contract terms, Qualcomm’s potential competitors have2

offered or would offer better contract terms to Apple, but Apple has often been3

unable to accept those terms due to Qualcomm’s monopoly power.

4

Qualcomm’s Secret Manufacturer License Agreements

5

71. Given Qualcomm’s foreclosure of competition and the resulting

6

absence of choice, Apple has been forced to maintain a commercial relationship7with Qualcomm over many generations of Apple’s iPhone and iPad product lines.

8

The foundation of this commercial relationship is Qualcomm’s supply of chipsets

9and licenses for use in Apple-designed iPhones and iPads.

10

72. Apple has been indirectly paying Qualcomm licensing fees since 2007,11

when it released the iPhone. Apple became even more reliant on Qualcomm in 201112

due to Apple’s desire to release an iPhone that could connect to CDMA networks,

13

such as Verizon’s. For many years, Qualcomm ensured that it was the only possible

14

supplier of CDMA chipsets, and it remains so today for the chipsets used in Apple’s

15

flagship iPhone product line. As a monopoly supplier of an essential input,

16

Qualcomm had the power to constrict and disrupt chipset supply, which (coupled17with Qualcomm’s refusal to enter into industry-standard supply agreements that18

would have guaranteed supply to Apple, absent unusual or unforeseen

19

circumstances) would have been disastrous to Apple’s business.

20

73. In 2007, Apple released the first iPhone using Intel (then Infineon)

21

baseband processor chipsets. Qualcomm required licensing fees for using these22chipsets. Rather than grant Apple a direct license on FRAND terms, Qualcomm has

23

instead entered into confidential licenses with specific Apple contract

24

manufacturers (“CMs”), the third-party manufacturers who make and assemble

25

Apple products. The CMs pay the exorbitant royalties Qualcomm demands and pass26

the costs along to Apple in full.

27

74. Qualcomm uses these secret licenses to conceal its anticompetitive

28
APPLE INC.’S COMPLAINT

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1

licensing practices. Here is how it works: Qualcomm knows that Apple is2shouldering the entire royalty burden, but by licensing the CMs and not Apple,

3

Qualcomm can demand higher royalties because the CMs have no incentive to4negotiate. In fact, the CMs have agreed to license Qualcomm’s SEPs on non-

5

FRAND terms, locking Apple into outrageous royalties. And the agreements are

6

confidential; Apple cannot even see or review them. The CMs have expressed

7

willingness to show Apple their Qualcomm licenses, subject to Qualcomm’s

8consent, but Qualcomm has refused to give that consent.

9

75. The following diagram illustrates the complex web of contracts, some10of them secret contracts, that underlie Qualcomm’s scheme of relentless extortion

11

and govern the two companies’ business relationship:

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

76. Because Qualcomm conceals the CM licenses from Apple, it is notclear what patents Apple is paying for its CMs to license. For years, Qualcomm
APPLE INC.’S COMPLAINT

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1

assured Apple that virtually all of the Qualcomm patent portfolio was effectively

2

licensed to Apple through these CM agreements, but Qualcomm recently has

3suggested that these licenses are more limited such that Apple’s iPhone and iPad

4

products are not fully covered. Thus, Apple has been unable to confirm the present

5

scope of its license rights to Qualcomm patents through Qualcomm’s various

6

agreements with Apple’s CMs, including the extent to which Apple’s products are7

licensed and the Qualcomm patents that are licensed.

8

77. In addition, by withholding the scope, terms, and value of the9

Qualcomm licenses with Apple’s CMs, Qualcomm has deliberately deprived Apple10of any assurance that renewing the indirect licensing framework with Apple’s CMs

11would be consistent with Qualcomm’s obligations to grant licenses to SEPs on

12

FRAND terms.

13

78. Apple and Qualcomm have periodically discussed a direct license, but

14

Qualcomm’s direct license proposals have not complied with its FRAND

15

obligations. It likely follows that Qualcomm’s concealment of its indirect licensing

16

framework is further evidence that the current terms are not consistent with

17

Qualcomm’s FRAND obligations.

18

79. Qualcomm’s exorbitant royalties are price gouging, plain and simple:. In 2016, this was an order of19

between20

magnitude greater than the royalties that Apple pays to any other patent holder, and21

indeed is more than Apple pays to all other cellular patent holders combined.

22
23

per device,

80. By way of illustration, in 2016, Apple’s four largest direct licenses forcellular-related SEPs, excluding Qualcomm, were with24

, each of which has made claims similar to Qualcomm about the25

strength and value of their respective portfolios of 3G and 4G cellular SEPs.

26

Together, these four licensors represent

27

significantly above the 23.5% self-declared by Qualcomm, and in fiscal 201628
APPLE INC.’S COMPLAINT

21

of all 4G cellular SEP declarations,

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1

also, indirectly, pays Qualcomm for a separate license for the intellectual property

2

embodied in those components.
85. Qualcomm is the only Apple supplier that both sells components and34also requires a separate license to those same components.
86. By requiring Apple’s CMs to take a separate patent license for the same

5
6

components that they purchase, Qualcomm is double-dipping.

7

87. This double-dipping of royalty fees on top of chipset sales is prohibited8

by the patent exhaustion doctrine. Under that doctrine, the “authorized sale of an

9article that substantially embodies a patent exhausts the patent holder’s rights and10

prevents the patent holder from invoking patent law to control postsale use of the

11

article.” Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 638 (2008).

12

88. The FTC recently alleged, after a two-year investigation of Qualcomm,13that Qualcomm’s “no license-no chips” policy was an aberrant departure from

14

prevailing patent licensing practices. According to the FTC, “Qualcomm is unique15

in requiring an OEM, as a condition of sales, to secure a separate patent license

16

requiring royalty payments for handsets that use a competitor’s components.”

17

Complaint for Equitable Relief (“FTC Compl.”) ¶ 68, FTC v. Qualcomm Inc., No.

18

5:17-cv-00220 (N.D. Cal. Jan. 17, 2017), ECF. No. 1.

19

89. Qualcomm has attempted to evade the patent exhaustion doctrine by20

selling baseband processor chipsets to Apple’s CMs through QTC, which is

21

operated by QTI, which is in turn a wholly owned subsidiary of Qualcomm.

22

90. Qualcomm is playing a shell game to get around the law. In its press

23

release announcing the corporate restructuring that enables this evasion, Qualcomm

24admitted that the change in corporate structure would not result in “any change to

25

the way in which it defines its operating segments for financial reporting purposes.”

26[Press Release, Qualcomm Implements New Corporate Structure, Qualcomm (Oct.

271,2012),

https://www.qualcomm.com/news/releases/2012/10/01/qualcomm-28
APPLE INC.’S COMPLAINT

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implements-new-corporate-structure.]
Qualcomm Gouges Apple2
3

91. Since 2006, Apple has looked for ways to reduce its exorbitant royalty

4burden. And after this date, Apple attempted to negotiate a lower royalty rate in the5form of a worldwide FRAND license directly from Qualcomm that would obviate

6

the need for this “pass-through” license structure, but Qualcomm has never made a7

worldwide offer on FRAND terms for a direct license to Apple.

8

92. Instead, Apple has had no choice but to settle on a model whereby

9

Qualcomm remits payments back to Apple in exchange for additional promises,

10

terms, and conditions from Apple. In this way, Qualcomm conditioned a degree of11royalty relief, offsetting the royalty burden that Qualcomm imposes on Apple’s12

CMs and that the CMs pass on to Apple, on Apple’s acceptance of exclusionary and13

anticompetitive contract terms that cement Qualcomm’s monopoly power in

14

baseband processor chipsets. In other words, Qualcomm used its anticompetitive15

leverage to gain even greater anticompetitive leverage and used unreasonable terms

16

to gain even more unreasonable terms.

17

93. Specifically, since 2011, Qualcomm has conditioned billions of dollars

18

in rebates on exclusivity or de facto exclusivity from Apple. The monopoly power

19

that Qualcomm enjoys today in the market for premium LTE chipsets is directly20

related to Qualcomm’s foreclosure of Apple’s business to actual and potential

21

competitors in the premium LTE chipset market.

22

94. It was only with the iPhone 7—released in September 2016—that

23Apple was able to use a competitor’s chipsets (Intel’s) as well as Qualcomm

24chipsets in its cellular-enabled devices. This choice to introduce competition cost

25

Apple

in exclusivity-based royalty relief.

26

95. For several years, Qualcomm’s actions deterred Apple from switching27

to Intel’s or other potential competitors’ chipsets, substantially diminishing

28
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competition in the interim. Even today, Qualcomm is actively engaging with2

network carriers in the United States, attempting to persuade them not to support or3

sell Apple devices with Intel chipsets.

4

96. Although Qualcomm refused to characterize its payments to Apple as5“rebates” on the license fee, and insisted on titling these payments with descriptions

6

like

7

Apple was under little to no obligation to use many of these funds for any particular8purpose. Instead, the sole purpose of these payments was to reduce Apple’s royalty

9burden in exchange for exclusivity.

andthese titles were window-dressing.

10

97. Qualcomm has refused to call these payments “rebates” on the license

11

fee because it knows that the license fee it charges the CMs does not comply with12

its promise to license its patents on FRAND terms.

13

98. These rebates are provided for by contracts between the parties.

14

Through these contracts, Qualcomm extracted additional terms and conditions from

15

Apple.

16

99. The parties’ Business Cooperation and Patent Agreement (“BCPA”),

17

for example, expressly calculates a series of quarterly payments to Apple (“BCP18

Payments”), as a cap on the royalties that Apple pays to Qualcomm, setting the19amount of the payment at a lump sum that effectively reduced Apple’s per-device

20

royalty payment to

per iPad. [Exhibit A, BCPA §§ 7–8.]

per iPhone and21100. The rebates reduced, but by no means eliminated, Apple’s overpayment

22of royalties to Qualcomm. Taken together, these rebates reduced the effective

23

royalty burden on Apple to around24

represents an amount that is still significantly larger than the royalty Apple pays for25—licenses that collectively represent a far

26

greater percentage of the patents declared as essential to the cellular standard.

27

Under every conceivable test, this royalty fails to meet the definition of FRAND. It

28
APPLE INC.’S COMPLAINT

per iPhone and iPad through 2016. This

25

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unjustifiably enriches Qualcomm at the expense of Apple and Apple's customers.

2101. In general, the BCPA, effective January 1, 2013, provided certain

3

incentives to Apple in exchange for specifically defined business cooperation, and4provided Qualcomm certain rights to Apple's patents. The BCPA expired on

5

December 31 , 2016, and is attached hereto as Exhibit A.

6

102. Under the BCPA, Apple agreed to cooperate with Qualcomm in two

7

limited ways: (1) Apple agreed to use certain technological standards (CDMA,

8

CDMA2000, WCDMA, and FYX) in the iPhone and iPad, and (2) the parties

9

agreed to meet semiannually to discuss new technologies that may be mutually

1O

beneficial. [Exhibit A, BCPA § 3.] The parties did not agree to any broader

11

definition of cooperation.

12

103. In addition, in exchange for these BCP Payments, Qualcomm severely13

restricted Apple's ability to sue or induce certain kinds of lawsuits or enforcement

14

actions against Qualcomm. Specifically, Qualcomm required Apple to agree that its

15

obligations to pay applied

16
17
18
19
20
21

22
23

[Exhibit A, BCPA § 7, second paragraph.]24

104. Qualcomm insisted on these restrictions because it knows its business25

model is vulnerable to legal challenges based on, among other claims, lack of

26

FRAND terms and patent exhaustion.

27

105. Apple objected to this term during negotiations. At the time the contract28

was entered into, Qualcomm had leverage over Apple because of Qualcomm's
26
APPLE INC. 'S COMPLAINT
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1

technology. The MIA is attached hereto as Exhibit B.

2110. The 2009 Strategic Terms Agreement (“STA”) addresses the process by3

which Qualcomm supplies chipsets and associated software to Apple. It also

4

restricts Apple’s ability to sue Qualcomm for patent infringement concerning

5

Qualcomm chipsets. While Apple generally negotiates firm supply commitments

6with its component vendors, Qualcomm refused to provide Apple such a7commitment, instead arbitrarily capping its liability for failure to supply, and8reserving for itself the ability to terminate its obligation to supply chipsets to

9Apple’s CMs. Qualcomm’s unilateral right to terminate supply of chipsets to

10

Apple’s CMs was retained in the Amended and Restated Strategic Terms

11

Agreement (“ASTA”), effective February 28, 2013. The STA and the ASTA are

12

attached hereto as Exhibits C and D, respectively.

13

111. The 2011 Transition Agreement (“TA”) provided for the extension of14

the royalty relief embodied in the MIA to CDMA-compliant iPhones, contingent

15

upon Apple’s agreement to use Qualcomm’s baseband processor chipsets

16

exclusively. This royalty relief was disguised by Qualcomm as a marketing17

payment paid pursuant to the TA. As part of that agreement, Apple could not18

initiate any action or litigation against Qualcomm for intellectual-property

19

infringement. The TA is attached hereto as Exhibit E.

20112. Under the First Amendment to Transition Agreement (“FATA”),

21effective January 1, 2013, Qualcomm was obliged to make various payments to

22

Apple in exchange for Apple’s exclusive use of Qualcomm baseband processor

23

chipsets. As with the TA, a portion of the payments made by Qualcomm pursuant to24that FATA were understood by the parties to be a form of royalty relief, conditioned25

on Apple’s agreement to deal with Qualcomm exclusively. The FATA is attached26

hereto as Exhibit F.

27

113. None of the above agreements directly addresses a license to the28
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1

parties’ patents that have been declared essential to any standard.

2

Apple and Qualcomm’s Licensing Discussions

3

114. Discussions dating back to at least November 2014 between Apple and4

Qualcomm about a direct license for certain patents were conducted with the5knowledge that certain of the agreements governing the parties’ commercial

6

relationship, such as the TA and BCPA, were set to expire at the end of 2016.

7

115. In 2015, Qualcomm made an “offer” to Apple to license Qualcomm’s

8Chinese 3G/4G declared-essential patents on terms purportedly “consistent” with

9

those that resolved an inquiry by Chinese regulators into Qualcomm’s licensing

10

practices, called the “National Development and Reform Commission resolution”

11(“NDRC resolution” or “rectification plan” for short). Apple immediately rejected

12

the proposal because it was not FRAND, was excessive as compared to other13

licenses to cellular SEPs Apple negotiated at arm’s length, and was of limited value

14

to resolving the parties’ worldwide licensing dispute.

15

116. On February 5, 2016, Apple reiterated its interest in exploring a direct

16

license to certain patents in Qualcomm’s patent portfolio. During subsequent

17

discussions, Qualcomm asserted that it had a “good-faith belief” that Apple’s

18

products infringe many Qualcomm patents because “Apple products have been

19

certified as compliant with CDMA/WCDMA (3G) and LTE (4G) networks around20

the world” and Qualcomm “holds a great many patents that are essential to cellular21

standards implemented by Apple products.” According to Qualcomm, “Apple22

products that have been certified as compliant with a standard necessarily practice23

every patent claim that is essential to any mandatory portions of that standard.”

24

Shortly after this assertion, Qualcomm demanded that Apple identify any listed25

portions of the standards that are not implemented in Apple’s 3G/4G-capable

26

products. Apple rejected Qualcomm’s attempt to shirk its burden to prove the merits

27

of its claims. Qualcomm thereafter removed from its website its public list of U.S.

28
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1

patents disclosed to ETSI and precluded archive searching of that list. Consistent2

with Qualcomm’s other hide-the-ball behavior, this action makes it harder for a3

licensee to determine which patents Qualcomm has declared to be essential to4

cellular standards.
117. During these 2016 discussions, Qualcomm sent Apple a draft Chinese

5
6

3G/4G SEP license agreement that demanded aroyalty on

7

CDMA/UMTS-capable devices and a8

calculated from a royalty base of

9

Qualcomm did not and has not provided any explanation for its chosen royalty base.

10

Qualcomm also did not and has not provided any determination as to which of its

11

Chinese patent claims are essential to a covered standard implemented as to each

12

proposed covered Apple product. As described herein and below, Qualcomm’s

13

demand violates the law governing patent royalties, as well as Qualcomm’s

14

FRAND promises to ETSI and others. Qualcomm repeated such non-FRAND terms

15

in a draft “rest of the world” 3G/4G SEP license.

royalty on LTE-only devices,of the net selling price of the device.

16

118. Despite Qualcomm’s non-FRAND terms, during this time period Apple17

attempted to negotiate in good faith with Qualcomm, including providing

18

Qualcomm with a FRAND offer, which included not only significant payments to

19

Qualcomm over the next seven years but also the methodology used to arrive at

20such offer. Qualcomm rejected Apple’s attempt to negotiate and instead reverted to21

its prior terms.

22

119. After 25 months of negotiation and numerous requests for information

23

from Apple, Qualcomm finally agreed to share with Apple patent information about

24

Qualcomm’s SEP portfolio, sharing such information right before the 201625

holiday.2 Over the course of two in-person meetings with Qualcomm engineers,

26

Qualcomm had previously conditioned patent infringement allegations on
Apple’s agreement in writing not to disclose to government agencies or use theinformation outside of the parties’ licensing negotiations, despite the parties’

27
28

2

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1

Qualcomm outside counsel, and Apple in-house and outside counsel, Qualcomm

2provided infringement allegations about 20 U.S. patents it has declared to ETSI as3

essential to 3G/UMTS and/or 4G/LTE.

4120. During this period of negotiation, Qualcomm became increasingly

5

aggressive with respect to its cellular SEP portfolio. In addition to removing the list6of potentially essential U.S. patents from its website to prevent searches and7

attempting to bar Apple from sharing patent infringement allegations, Qualcomm

8asserted patents that it had declared to ETSI as essential to 3G or 4G in a blitzkrieg

9of patent infringement litigation. For example, when Meizu, China’s eighth-biggest

10

smartphone maker in 2015, did not accept Qualcomm’s rectification plan terms,

11

Qualcomm filed 18 separate actions against Meizu including 17 patent infringement

12

cases.3

13

121. On June 23, 2016, Qualcomm filed a complaint against Meizu, seeking

14

rulings that (1) the terms of a patent license offered by Qualcomm to Meizu comply

15with China’s Anti-Monopoly Law and Qualcomm’s FRAND licensing obligations,16and (2) the offered patent license terms should form the basis for a patent license

17with Meizu for Qualcomm’s technologies patented in China for use in mobile

18

devices, including those relating to 3G and 4G wireless communications standards.4

19
20
21
22
23
24
25
26
27
28

previously agreeing, in March 2016, that any materials used during licensing
negotiations could be used outside of those negotiations. Apple refused thiscondition.
3[John Ruwitch and Brenda Goh, Qualcomm Files 17 New Complaints in China
Courts Against Smartphone Maker Meizu, Reuters (June 30, 2016),
http://www.reuters.com/article/us-qualcomm-meizu-patents-idUSKCN0ZG1I6.]
4[Press Release, Qualcomm Files Complaint Against Meizu in China, Qualcomm
(June
24,
2016),
https://www.qualcomm.com/news/releases/2016/06/23/
qualcomm-files-complaint-against-meizu-china.] Days later, on June 30, 2016,
Qualcomm filed patent infringement actions in China against Meizu, where it
asserted Chinese patents declared to ETSI as essential to 3G/UMTS and/or
4G/LTE. [Press Release, Qualcomm Files Patent Infringement Complaints Against
Meizu in China, Qualcomm (June 30, 2016), https://www.qualcomm.
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Patents-in-Suit

12122. Each of the Patents-in-Suit (a) has been declared to ETSI by Qualcomm

3

to be essential to 3G/UMTS and/or 4G/LTE and (b) is either a U.S. counterpart to a4

Chinese patent asserted by Qualcomm in litigation or a U.S. patent for which

5

Qualcomm provided infringement allegations during the parties’ licensing

6

negotiations. These facts create a substantial case or controversy between Apple and7

Qualcomm regarding (a) whether the Patents-in-Suit are actually essential to the

8

3G/UMTS and/or 4G/LTE standards and infringed by Apple’s products that support

9

those standards, and (b) if any of these patents are actually essential, how to set a

10

FRAND royalty for such patents.

11123. Qualcomm purports to be the owner of U.S. Patent No. 7,246,242 (“the12’242 patent”). On July 17, 2007, the ’242 patent, entitled “Integrity Protection

13

Method for Radio Network Signaling,” issued to Valtteri Niemi, Jaakko Rajaniemi,

14and Ahti Muhonen. Nokia Corporation is listed as the assignee on the face of the15’242 patent. The ’242 patent is the U.S. counterpart to Chinese Patent No.

16

CN1134200C, asserted against Meizu. A copy of the ’242 patent is attached to this17

Complaint as Exhibit G.

18

124. Qualcomm purports to be the owner of U.S. Patent No. 6,556,549 (“the19’549 patent”). On April 29, 2003, the ’549 patent, entitled “Method and Apparatus

20

for Signal Combining in a High Data Rate Communication System,” issued to Paul21

E. Bender, Matthew S. Grob, Gadi Karmi, and Roberto Padovani. Qualcomm is

22

listed as the assignee on the face of the ’549 patent. The ’549 patent is a U.S.

23

counterpart to Chinese Patent No. CN100367694C, asserted against Meizu. A copy

24of the ’549 patent is attached to this Complaint as Exhibit H.

25

125. Qualcomm purports to be the owner of U.S. Patent No. 9,137,822 (“the

26
27
28

com/news/releases/2016/06/30/qualcomm-files-patent-infringement-complaintsagainst-meizu-china.]
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1’822 patent”). On September 15, 2015, the ’822 patent, entitled “Efficient Signaling2

over Access Channel,” issued to Arak Sutivong, Edward Harrison Teague, and3

Alexei Gorokhov. Qualcomm is listed as the assignee on the face of the ’822 patent.

4

The ’822 patent is the U.S. counterpart to Chinese Patent No. CN1918839B. A copy

5of the ’822 patent is attached to this Complaint as Exhibit I.

6126. Qualcomm purports to be the owner of U.S. Patent No. 7,289,630 (“the7’630 patent”). On October 30, 2007, the ’630 patent, entitled “Counter Initialization,

8

Particularly for Radio Frames,” issued to Jukka Vialén and Valtteri Niemi. The ’630

9patent is a U.S. counterpart to Chinese Patent No. CN1193641C. A copy of the ’630

10patent is attached to this Complaint as Exhibit J.

11127. Qualcomm purports to be the owner of U.S. Patent No. 8,867,494 (“the12’494 patent”). On October 21, 2014, the ’494 patent, entitled “System and Method

13

for Single Frequency Dual Cell High Speed Downlink Packet Access,” issued to

14

Josef J. Blanz and Sharad Deepak Sambhwani. Qualcomm is listed as the assignee

15

on the face of the ’494 patent. Qualcomm presented infringement allegations for the16’494 patent during the parties’ December 2016 in-person meetings. A copy of the17’494 patent is attached to this Complaint as Exhibit K.

18128. Qualcomm purports to be the owner of U.S. Patent No. 7,095,725 (“the19’725 patent”). On August 22, 2006, the ’725 patent, entitled “Method and Apparatus

20

for Data Transmission on a Reverse Link in a Communication System,” issued to21

Christopher Gerard Lott and Jean Put Ling Au. Qualcomm is listed as the assignee

22on the face of the ’725 patent. Qualcomm presented infringement allegations for the23’725 patent during the parties’ December 2016 in-person meetings. A copy of the24’725 patent is attached to this Complaint as Exhibit L.

25

129. Qualcomm purports to be the owner of U.S. Patent No. 6,694,469 (“the26’469 patent”). On February 17, 2004, the ’469 patent, entitled “Method and an

27

Apparatus for a Quick Retransmission of Signals in a Communication System,”

28
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1

issued to Ahmad Jalali, Eduardo A. S. Esteves, Nagabhushana T. Sindhushayana,

2Peter J. Black, and Rashid A. Attar. Qualcomm is listed as the assignee on the face3of the ’469 patent. Qualcomm presented infringement allegations for the ’469 patent

4

during the parties’ December 2016 in-person meetings. A copy of the ’469 patent is

5

attached to this Complaint as Exhibit M.

6130. Qualcomm purports to be the owner of U.S. Patent No. 9,059,819 (“the7’819 patent”). On June 16, 2015, the ’819 patent, entitled “Flexible Uplink Control

8

Channel Configuration,” issued to Arjun Bharadwaj and Sharad Deepak

9

Sambhwani. Qualcomm is listed as the assignee on the face of the ’819 patent.

10

Qualcomm presented infringement allegations for the ’819 patent during the parties’

11

December 2016 in-person meetings. A copy of the ’819 patent is attached to this12

Complaint as Exhibit N.

13131. Qualcomm purports to be the owner of U.S. Patent No. 7,096,021 (“the14’021 patent”). On August 22, 2006, the ’021 patent, entitled “Method for Initiating

15

in a Terminal of a Cellular Network the Measurement of Power Levels of Signals

16

and a Terminal,” issued to Otto Lehtinen, Antti Toskala. Qualcomm presented

17

infringement allegations for the ’021 patent during the parties’ December 2016 in-18

person meetings. A copy of the ’021 patent is attached to this Complaint as Exhibit

19

O.

20

132. None of these patents is essential to any Apple-practiced 3G/UMTS or

21

4G/LTE standard or infringed by Apple. Moreover, for each of these patents,

22

Qualcomm has breached its FRAND commitment.
Qualcomm’s SEP Licensing Practices Are Not FRAND and ForecloseCompetition

23
24
25
26
27
28

133. For nearly ten years, Qualcomm has failed to offer Apple a license forits cellular SEPs on FRAND terms.
134. By charging Apple

per device for a license to an unspecified

portion of its portfolio of patents on top of the price of the chipset itself, in a license
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1

fee expressed as a percentage of the entire value of Apple’s iPhones and iPads, and2

only reducing that royalty in exchange for additional conditions (such as exclusivity

3

and restraints on approaching competition authorities), Qualcomm’s licensing

4

practices violate its FRAND promise in a number of distinct but overlapping ways.

5

135. Leveraging a “thicket” of patents to extort royalties. Qualcomm

6

purports to own very large numbers of patents around the world that have been

7

disclosed to ETSI as potentially essential to one or more cellular standards.

8

According to ETSI’s self-reporting portal, Qualcomm has declared over 30,000

9global assets to be “ESSENTIAL IPR.”

10136. Qualcomm’s licensing practices are premised on every licensee taking a11license to a large, but unspecified, number of patents—an entire portfolio. By

12leveraging the “thicket,” Qualcomm attempts to avoid the patent-by-patent analysis

13

that is ordinarily required for any licensing demand, instead hiding behind the sheer

14

volume of its patent portfolio to extort royalties from potential licensees.

15

137. A patent-by-patent (or patent family-by-patent family) analysis is16

necessary because Qualcomm’s unilateral declaration that its patents are standard-

17

essential does not necessarily mean that those patents are valid and infringed by

18

Apple. Rather, one or all of the following may be true: (a) those patents read only19

on an optional implementation of a standard that Apple does not practice; (b)20

Qualcomm has over-declared its patents and those patents are not in fact essential to21

any standard, something that the SSOs, including ETSI, do not police; and/or (c)22those patents are invalid, again something that the SSOs, including ETSI, do not

23

test. If the patent at issue is not valid or not infringed, it is obviously of little to no24

value to Apple. See Microsoft, 2013 WL 2111217, at *20 (“[B]ecause an ‘essential’

25

patent is one that is necessary to implement either an optional or mandatory

26

provision of a standard, a specific SEP may contribute greatly to an optional portion27

of a given standard, but if that portion is not used by the implementer, the specific28
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1

SEP may have little value to the implementer.”).

2

138. Moreover, as discussed in more detail below, even if a patent is3

declared essential to a standard, the appropriate royalty will vary on a patent-by-

4patent basis, as the strength of each patent and the value compared to commercially5available alternatives examined prior to the patent’s incorporation into a standard

6

must be taken into account. See id. at *13, 19 (“If alternatives available to the7patented technology would have provided the same or similar technical contribution

8

to the standard, the actual value provided by the patented technology is its

9incremental contribution.”).

10139. Similarly, where a patent is directed to a particular component rather

11

than the device or technology as a whole, the appropriate royalty will reflect each12

patent’s contribution to the relevant component. See LaserDynamics, Inc. v. Quanta

13

Computer, Inc., 694 F.3d 51, 67 (Fed. Cir. 2012).

14140. Further, the royalty rates that Qualcomm demands, a simple percentage

15of the final price of the finished device, have no apparent tie to the merits of16

Qualcomm’s cellular SEP portfolio. For example, Qualcomm demands royalty rates

17

that fail to account for its pro rata share as compared to other cellular SEP holders

18

so as to avoid obvious royalty stacking issues. In the context of Qualcomm’s

19

FRAND obligations, the size of Qualcomm’s cellular SEP portfolio and number of20

self-declared cellular SEPs are not acceptable substitutes for substantive analysis as21

to why each patent is essential to the standard, or any showing as to the quality of

22patents included in the portfolio, particularly as compared to other cellular SEP

23

holders. By requiring a license to the full cellular SEP portfolio, Qualcomm forces24

licensees to take and pay for a license regardless of whether the patent is valid and25

infringed.

26
27

141. Failing to offer an individual license on a patent-by-patent basis (or apatent family-by-patent family basis) violates Qualcomm’s FRAND obligation.

28
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1

142. Charging an exorbitantly high royalty that is expressed as a2

percentage of the entire market value of the finished device. The exorbitant3

royalty demanded by Qualcomm,4

net selling price of the final iPhone or iPad. Even Qualcomm’s current license

5

offer—

6

resolution—is simply a smaller percentage of the entire value of the finished iPhone

7

or iPad. This fee does not comply with patent law or Qualcomm’s FRAND

8

obligations.

9143. First,

per device, is based on theof the final selling price, “consistent” with the NDRC

thispractice

discriminates

againstpotential

licensees.

10

Specifically, Qualcomm’s royalty base does not equally account for whether the11

licensee makes chips, chipsets, and/or handsets. Apple, as a manufacturer of a more

12complex final device, is taxed simply for its place in the supply chain, while a13

manufacturer of a chipset would pay less.

14

144. In addition, a royalty base premised on final selling prices means that15

Qualcomm charges manufacturers of high-value, feature-rich smartphones

16

substantially more for a license than it charges manufacturers of basic cellphones,

17

despite the fact that the embodied wireless communications functionality in the two

18

products is similar or identical. This is inconsistent with the FRAND promise. In re

19

Innovatio IP Ventures, LLC Patent Litig., No. 11 C 9308, 2013 WL 5593609, at

20*38 (N.D. Ill. Oct. 3, 2013) (A RAND licensor “cannot discriminate between

21

licensees on the basis of their position in the market.”).

22145. For example, Apple sells high-end products with a selling price23

between $399 for a 16GB iPhone SE and $969 for a 256GB iPhone 7 Plus, whereas

24

Walmart sells an unlocked 16GB Kyocera 4G LTE smartphone for under $100.

25[Apple, www.apple.com/iphone; Walmart, https://www.walmart.com/ip/Kyocera-

26

DuraForce-E6560-16GB-Unlocked-GSM-4G-LTE-Military-Grade-Smartphone-w-

27

8MP-Camera-Black/117746885.] The two phones have different costs, different

28
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1

consumer appeal, and different prices, for reasons almost entirely unrelated to the2wireless voice and data capability contributed by Qualcomm’s purportedly

3standard-essential patents. Yet Qualcomm insists on a far-greater royalty payment

4for the use of its SEPs in the more expensive phone, even though the contribution of5

wireless capability to both phones is similar. As a result, Apple’s royalty payment

6

for the 16GB iPhone 6 SE would be about four to nine times more than Kyocera’s

7

royalty for its smartphone. This disparity flouts the fundamental premise of, among

8

others, the “non-discriminatory” aspect of FRAND obligations—allowing

9

competitors who implement the standards access to the SEPs on a level playing

10

field, with no one competitor paying more for the same technology than others.

11146. The impropriety of Qualcomm’s proposed royalty base becomes even12

more apparent when one considers that Apple sells multiple versions of an iPhone

13

or iPad product, each having a different price but including identical, or similar,

14

baseband processor chipsets (and therefore containing the same functionality that15

allegedly infringes SEPs). For example, the Apple iPhone 7 is sold with different

16

memory configurations resulting in a difference of ~$200 in the adjusted net selling

17

price as between an iPhone 7 with 32GB of memory and one with 256GB of18

memory. Even though both devices provide exactly the same standardized cellular19functionality, Qualcomm is effectively demanding that Apple pay a cellular SEP

20

royalty on the 256GB iPhone 7 that is

21

phone with 32GB of memory. As a result, Apple would pay essentially a22

additional royalty based on the presence of additional flash memory, which has

23

nothing to do with Qualcomm’s cellular SEP patents or even Qualcomm’s products.

24

Apple’s royalty payment should not fluctuate based on purchasing decisions by

25

downstream customers, who desire features, such as more memory, that are not26

covered by Qualcomm’s SEP patents.

27

more than the royalty paid on the147. Second, Qualcomm’s offer, which sets the royalty base at

28
APPLE INC.’S COMPLAINT

38

of

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1

the average selling price of the device, ignores binding Supreme Court and Federal

2

Circuit precedent that forbids basing a royalty on an entire device unless the patent3

at issue drives consumer demand for the whole device. Instead, patent holders are4

required to base royalties, at most, on the smallest salable patent-practicing unit.

5

LaserDynamics, 694 F.3d at 67 (“Where small elements of multi-component

6

products are accused of infringement, calculating a royalty on the entire product7

carries a considerable risk that the patentee will be improperly compensated for

8

non-infringing components of that product. Thus, it is generally required that9

royalties be based not on the entire product, but instead on the ‘smallest salable

10

patent-practicing unit.’”); Golden Bridge Tech. v. Apple Inc., No. 5:12-cv-04882-

11

PSG, 2014 WL 2194501, at *6 (N.D. Cal. May 18, 2014) (“[I]n any case involving

12

multi-component products, patentees may not calculate damages based on sales of13

the entire product, as opposed to the smallest saleable patent-practicing unit

14[‘SSPPU’], without showing that the demand for the entire product is attributable to15

the patented feature.”). Furthermore, “[w]here the smallest salable unit is, in fact, a

16

multi-component product containing several non-infringing features with no17

relation to the patented feature . . . , the patentee must do more to estimate what

18

portion of the value of that product is attributable to the patented technology.”

19

VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1327 (Fed. Cir. 2014). A royalty

20

that fails to comply with these requirements violates the FRAND promise.

21

Innovatio IP Ventures, 2013 WL 5593609, at *13 (applying the smallest salable unit

22

requirement to FRAND royalties); Microsoft, 2013 WL 2111217, at *20 (A23reasonable royalty must take into account not only the contribution of the patented

24

technology to the standard, but the “contribution of those capabilities of the25

standard to the implementer and the implementer’s products.”).

26

148. Here, the smallest salable unit for a cellular SEP license should be no27

greater than the baseband processor chipset, where all or substantially all of the28
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1

inventive aspects of the patented cellular standard-essential technology is2

implemented or substantially practiced. See GPNE Corp. v. Apple, Inc., No. 12-CV-

302885-LHK, 2014 WL 1494247, at *13 (N.D. Cal. Apr. 16, 2014) (holding “as a4matter of law that in this case [where the asserted patents were claimed to be5

essential to 3G and 4G cellular standards], the baseband processor is the proper

6

smallest saleable patent-practicing unit”).

7

149. Qualcomm’s offer also ignores Federal Circuit precedent relating to

8royalties for SEPs that requires one to apportion the patented features of the9smallest salable unit from the unpatented ones as well as the value derived by the10standard’s adoption of the patented technology. Ericsson, 773 F.3d at 1232 (“When11dealing with SEPs, there are two special apportionment issues that arise. First, the12patented feature must be apportioned from all of the unpatented features reflected in13

the standard. Second, the patentee’s royalty must be premised on the value of the14

patented feature, not any value added by the standard’s adoption of the patented

15

technology.”); VirnetX, 767 F.3d at 1327 (“[T]he requirement that a patentee

16

identify damages associated with the smallest salable patent-practicing unit is17

simply a step toward meeting the requirement of apportionment. . . . [T]he patentee

18

must do more to estimate what portion of the value of that product is attributable to19

the patented technology.”); see also Commonwealth Sci. & Indus. Research Org. v.

20

Cisco Sys., Inc. (CSIRO), 809 F.3d 1295, 1305 (Fed. Cir. 2015), cert. denied, 136 S.

21

Ct. 2530 (2016) (“[R]easonable royalties for SEPs generally . . . must not include

22

any value flowing to the patent from the standard’s adoption.”).

23

150. Qualcomm has not even attempted this required apportionment, and24

thus has failed to specify the value attributable to the patented technology, separate

25

and apart from the other value attributable to, among other things, (i) non-patented

26

features, (ii) standardization itself, and (iii) unrelated technology.

27

151. Third, Qualcomm’s selected

28
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40(CDMA/UMTS-capable devices)

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and(LTE-only devices) royalty rates also do not account for the entire2

potential royalty stack. See, e.g., Microsoft, Inc., 2013 WL 2111217, at *74 (“[T]he3court must determine a reasonable royalty rate . . . based on the principles

4

underlying the RAND commitment, one of which is the concern of royalty

5stacking.”). At a minimum, Qualcomm’s offered rates do not account for its pro rata

6

share of 3G and 4G SEPs compared to the total, industry-wide pool of such SEPs.

7

Indeed, Qualcomm has refused to furnish its pro rata share of 3G and 4Gs SEPs.

8

Based on publicly available data from ETSI, Qualcomm’s self-declarations to

93G/4G standards account for about 23.5 percent of all cellular SEP declarations.

10

Extrapolating the projected royalty per device Apple would pay to Qualcomm under11

its proposed licensing structure

to the aggregate royalty yields a staggering

12

per device royalty for all declared-essential cellular patents.

13

152. Qualcomm’s high nominal royalty rates for its SEPs are well above the14

upper bounds of a reasonable royalty under FRAND, particularly for feature-rich

15

smartphones and tablets that offer a number of technologies and features other than16

those covered by its purportedly standard-essential patents. Qualcomm’s excessive

17

royalties and royalty base levy a tax on the production of complementary products

18

or features that consumers desire, allowing Qualcomm to extract for itself value

19

created by downstream innovators, value that has no relationship to the ex ante

20

value of the SEPs at issue and does not account for the royalty stack. In addition,

21

Qualcomm’s exorbitant royalty demands lay the foundation for the exclusive

22

dealing and tying arrangements that it uses to exclude chipset competitors, giving

23

Qualcomm leverage to foreclose its competitors from accessing chipset customers.

24

153. Discriminating between potential licensees by failing to license its

25competitors. The requirement that a license to a SEP be non-discriminatory helps

26“to insure that standards do not allow essential patent owners to extort their

27

competitors or prevent them from entering the marketplace.” Apple, Inc. v.

28
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Motorola Mobility, Inc., No. 11-cv-178-bbc, 2011 WL 7324582, at *1 (W.D. Wis.

2

June 7, 2011). Qualcomm breached its FRAND promise by failing to offer its

3competitor baseband processor chipset manufacturers a license, harming

4competition in the industry.

5154. Prior to 2008, Qualcomm licensed its FRAND-encumbered cellular

6

SEPs to competing chipset manufacturers, and acknowledged its obligations to do

7

so pursuant to its FRAND commitments. For example, in response to an

8

investigation by the European Commission of its anticompetitive conduct,

9

Qualcomm stated publicly in 2005 that it had “never refused to license our essential

10

patent to any company to supply chips, handsets, infrastructure or test equipment.”

11

In the same year, Qualcomm claimed that it had licensed numerous chipset

12

manufacturers, including competitors such as Nokia, Texas Instruments, and NEC,13

and that these licenses showed that Qualcomm “has lived up to its commitments to

14

SSOs to license its essential patents on fair and reasonable terms.”

15

155. In 2007, Qualcomm claimed publicly that competing manufacturers of

16

CDMA and UMTS/WCDMA chipsets “have to take out a license from Qualcomm”

17

and that Qualcomm had been “pretty consistent in that model.” Again in 2007,18

Qualcomm represented to the United States Supreme Court that it had granted

19

worldwide licenses to chipset manufacturers with a running royalty calculated as a20

percentage of the selling price of the chipset. Brief of Qualcomm Inc. as Amicus

21

Curiae Supporting Respondent at 7, Quanta Computer, Inc. v. LG Elecs., Inc., 553

22

U.S. 617 (2008) (No. 06-937). In the same filing, Qualcomm identified its practice23

of “licensing its intellectual property to entities that produce (non-Qualcomm)24

chips” as one of its three “primary sources of revenue,” thereby acknowledging the25

feasibility and efficiency of licensing at the chipset level. Id.

26

156. Around 2007, Qualcomm’s practice of licensing its FRAND-

27

encumbered cellular SEPs to competitors changed. In 2006, Qualcomm’s 10-K

28
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stated that it entered into “License Agreements” with competing chipset

2

manufacturers, and received royalties thereunder. In Qualcomm’s 2007 10-K, the3term “License Agreements” was replaced by “Agreements.” Qualcomm’s 2008 10-

4

K provided that in “every case, these agreements do not allow such integrated

5

circuit suppliers to pass through rights under Qualcomm’s patents to such suppliers’

6

customers, and such customers’ sales of CDMA-based wireless subscriber devices

7

into which such suppliers’ integrated circuits are incorporated are subject to the8payment of royalties to us in accordance with the customers’ separate licensing

9

arrangements with us.”10157. Qualcomm has been unwilling since at least 2008 to license its SEPs to

11competitors, refusing to provide such licenses when requested. Qualcomm’s 201412

10-K stated that Qualcomm’s policy was to enter into “arrangements,” but not

13

exhaustive licenses, with competing chipset manufacturers. According to the KFTC,

14

Samsung, Intel, and VIA Telecom have all requested SEP licenses from Qualcomm,15and been refused.

16158. A patent non-assert agreement or other contractual arrangement short of17

an exhaustive license is not a substitute for an exhaustive license because it gives

18

Qualcomm the ability and incentive to interfere with its competitors’ relationships

19

with their customers. By contrast, a FRAND license would give competing chipset

20

manufacturers the right to market authorized, patent-exhaustive sales of chipsets to

21

Apple and other mobile device suppliers. Qualcomm’s failure to license on FRAND

22

terms eliminates the ability of Apple and other mobile device suppliers to purchase

23

chipsets from Qualcomm’s competitors without also paying royalties to Qualcomm,24

and thus exposes Apple and other mobile device suppliers to the threat of exorbitant

25

non-FRAND royalties based on the price of their mobile devices, a threat which

26

Qualcomm has used to force Apple to deal exclusively with Qualcomm on the27purchase of chipsets.

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159. Preventing Apple from bringing its concerns to law enforcement.

2

As a condition of even partial relief from its non-FRAND royalties, Qualcomm

3

sought to gag Apple and prevent it from bringing its concerns to law enforcement or4challenging Qualcomm’s compliance with FRAND commitments.

5160. As described above, through the second paragraph of Section 7 of the6

BCPA, Qualcomm conditioned royalty relief on a provision that restricted Apple

7

from initiating or inducing certain legal actions in three particular identified areas:

8(a) assertion of patents against Qualcomm; (b) claims that Qualcomm failed to offer

9a license to its SEPs on FRAND terms; and (c) claims that Qualcomm’s patent

10

rights were exhausted. [Exhibit A, BCPA § 7, paragraph 2.] The BCPA carved out,11

as it must, an acknowledgment that Apple has a responsibility to respond to12

enforcement agencies’ requests for information. But in restraining Apple from13

initiating action or bringing concerns to law enforcement, Qualcomm conditioned

14

billions of dollars on Apple’s silence before courts and regulators about

15

Qualcomm’s business practices. And Qualcomm is now interpreting that agreement16

to retaliate against Apple for responding to requests for information about

17

Qualcomm’s practices from competition agencies, inhibiting law-enforcement

18

review of Qualcomm’s anticompetitive practices.

19161. The FTC recently alleged that Qualcomm’s ongoing anticompetitive

20

scheme is premised on avoiding governmental scrutiny of its non-FRAND licensing

21

scheme, including by deterring device manufacturers from seeking FRAND

22

determinations by withholding supply of Qualcomm’s monopoly chipsets.

23

According to the FTC, Qualcomm’s “no license-no chip” policy effectively denies

24

OEMs the opportunity to challenge Qualcomm’s royalty demands” by

25“dramatically increasing OEMs’ costs of going to court.” FTC Compl. ¶ 78,

26

Qualcomm, No. 5:17-cv-00220. The BCPA’s gag clause is just another such27

contract term, one that has the purpose and effect of keeping Qualcomm’s

28
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monopoly power safe from the rule of law.

23Competition Agencies Around the World Investigate and Take Action Against
Qualcomm

4162. Despite Qualcomm’s efforts to conceal its illegal business practices

5from regulators, the past few years have seen government investigations into

6

Qualcomm by competition authorities in China, South Korea, Taiwan, Japan,

7

Europe, and the United States.

8163. Competition law enforcement agencies in China, Japan, South Korea,

9and the European Commission have already found Qualcomm to be in violation of10

the competition laws of their respective jurisdictions.

11164. The U.S. FTC, just this week, filed a lawsuit against Qualcomm,12charging it with monopolizing the market for baseband processor chipsets. The FTC

13notified Qualcomm of an investigation in September 2014. On January 17, 2017,14

the FTC sued Qualcomm, charging it with monopolizing the market for CDMA and15

premium LTE baseband processor chipsets. The FTC’s complaint alleged the same16

integrated cycle of anticompetitive conduct which Apple alleges here, including

17

Qualcomm’s refusal to license its competitors, its refusal to sell chipsets without a18

license, and its imposition of exclusivity on Apple in exchange for a degree of19royalty relief, all of which has had, according to the FTC, the effect of20

marginalizing Qualcomm’s competitors and elevating prices above competitive

21

levels. FTC Compl., Qualcomm, No. 5:17-cv-00220. [See also Press Releases, FTC

22Charges Qualcomm With Monopolizing Key Semiconductor Device Used in Cell

23

Phones,24

releases/2017/01/ftc-charges-qualcomm-monopolizing-key-semiconductor-device-25

used.]

FTC

(Jan.

17,

2017),

https://www.ftc.gov/news-events/press-

26165. Even before the U.S. FTC began investigating Qualcomm, in November

27

2013, China’s National Development and Reform Commission (“NDRC”) launched

28

an investigation into Qualcomm’s anticompetitive practices. On February 10, 2015,
45
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the NDRC found that Qualcomm violated the abuse of dominance provisions of the2

China Anti-Monopoly Law and, inter alia, imposed a fine of eight percent of3

Qualcomm’s annual revenue within the territory of China for 2013—a $975 million

4fine. The NDRC found Qualcomm was dominant in a number of SEP licensing and5baseband processor chipset markets, including CDMA and LTE chipsets, and that6

this dominant position was protected by barriers to entry. The NDRC also found

7

that Qualcomm acted anticompetitively by, among other things, forcing device

8

manufacturers to take a license to Qualcomm’s SEPs on unreasonable terms and as

9

a condition of purchasing Qualcomm’s chipsets.

10

166. Soon after the NDRC issued its decision, Qualcomm implemented a11

rectification plan that purportedly modifies certain of its business practices in

12

China. That plan has never been adopted or endorsed by any agency or court;

13

however, Qualcomm purports to have executed numerous license agreements with

14

Chinese manufacturers on terms consistent with the rectification plan. Notably,

15

under the rectification plan Qualcomm unilaterally set the 5 percent and 3.5 percent

16

royalty rates as well as selected the base of 65 percent of the net selling price of the17

device. [See Press Release, Qualcomm and China’s National Development and18

Reform19

https://www.qualcomm.

20

national-development-and-reform-commission-reach.]Commission

Reach

Resolution,

Qualcomm

(Feb.

9,

2015),

com/news/releases/2015/02/09/qualcomm-and-chinas-

21

No declaration or

22

statement by any administrative body has found these terms to be consistent with

23

Qualcomm’s obligations to grant licenses to SEPs on FRAND terms.

24167. The Japan Fair Trade Commission (“JFTC”) has been investigating

25

Qualcomm since 2006. In September 2009, the JFTC concluded that Qualcomm

26

violated the Japanese Antimonopoly Act by forcing licensees to cross-license their27

patents on a royalty-free basis and agree to a non-assert provision, and ordered the28
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company to cease these practices.

2

168. The KFTC has been investigating Qualcomm’s anticompetitive

3

practices for close to a decade. In July 2009, the KFTC levied the largest fine it had

4ever imposed on a company—$207 million—on Qualcomm for abusing its

5

dominant share of the CDMA chipset market. Undeterred, Qualcomm doubled

6

down on its unlawful conduct. After initiating a new investigation into Qualcomm’s

7monopolization of additional chipset markets, and holding numerous hearings at

8which both Apple and Qualcomm presented evidence, the KFTC announced a9decision in December 2016 to impose an even larger fine—1.03 trillion South

10

Korean Won, or more than $850 million—for Qualcomm’s monopolistic conduct,11

and to mandate changes to Qualcomm’s business model. Specifically, the KFTC

12

found that Qualcomm was dominant in the markets for CDMA chipsets and LTE

13chipsets, and that Qualcomm acted anticompetitively by, inter alia, refusing to

14

license its cellular SEPs to competitors, in violation of its FRAND commitments,

15

and by forcing device manufacturers to enter into unfair license agreements by

16

using its chipset supply as leverage. [Press Release, KFTC Imposes Sanctions

17

Against Qualcomm’s Abuse of SEPs of Mobile Communications, KFTC (Dec. 28,

182016), http://www.ftc.go.kr/eng/solution/solution.jsp?file_name1=/files/bbs/2017/&

19

file_name2=KFTC%20imposes%20sanctions%20against%20Qualcomm%A1%AF20

s%20abuse%20of%20SEPs%20of%20mobile%20communications.pdf.]

21169. In October 2014, the European Commission (“EC”) notified Qualcomm

22of its investigation. The EC issued two Statements of Objections against Qualcomm

23

in December 2015, one of which alleged that Qualcomm’s exclusivity arrangements

24with “a major smartphone and tablet manufacturer” harmed chipset competition.

25[Press Release, Antitrust: Commission Sends Two Statements of Objections on

26

Exclusivity Payments and Predatory Pricing to Qualcomm, European Commission

27(Dec. 8, 2015), http://europa.eu/rapid/press-release_IP-15-6271_en.htm.] That

28
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manufacturer is Apple; the contract that the EC has preliminarily found to be2

unlawful is among the agreements at issue in this case.
170. Today, investigations and/or hearings of Qualcomm are ongoing before

3
4

the JFTC and the Taiwan Fair Trade Commission (“TFTC”).

5

Apple Responds to Agency Requests

6171. Government agencies investigating Qualcomm have sought information

7

from third parties who do business with Qualcomm, including Apple. Apple has

8responded to requests for information from the FTC, the EC, the KFTC, and the9

TFTC about its contractual relationship with Qualcomm.

10172. Specifically, Apple has produced documents to the FTC under11

subpoena and a civil investigative demand,5 and two Apple executives have testified

12

under subpoena at FTC depositions. At the KFTC’s request, on August 17, 2016,

13

Apple testified in an open session about Qualcomm’s business model and licensing

14

practices. Apple also provided detailed narrative answers to factual questionnaires

15

from the EC and the TFTC, and has responded to other requests for information

16

from the agencies.

17173. Qualcomm has had the opportunity to advocate on its own behalf in18

these investigations, by making submissions of its own and cross-examining

19

witnesses. For example, Qualcomm representatives were present when Apple made20

its presentation to the KFTC, and those representatives (including Qualcomm’s

21

President) were given the opportunity to comment on Apple’s testimony.

22174. As described above, the BCPA permits Apple to respond to requests

23

from governmental agencies on any topic and in any way it sees fit. [Exhibit A,

24
25
26
27
28

Civil investigative demands, or CIDs, are authorized by the Antitrust Civil
Process Act, 15 U.S.C. § 1311 et seq., and are considered by Congress to be “thebasic investigative tools necessary for expeditious investigations into possible civil
violations of the federal antitrust laws.” H.R. Rep. No. 94–1343, 1976 U.S. CodeCong. & Admin. News 2572, 2596.
5

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BCPA § 7, paragraph 3.] Apple has provided information and presentations only at2

the requests of the agencies. Apple has not “induced” any agency or any other third

3

party to take action against Qualcomm on grounds that Qualcomm’s licensing

4

practices violated the FRAND promise or that Qualcomm’s patents were exhausted.

5175. Apple has complied with all of the other conditions and requirements of

6
7

the BCPA.
Qualcomm Retaliates By Withholding Nearly $1 Billion From Apple8

176. From 2013 through mid-2016, Apple received quarterly rebates from

9

Qualcomm, including the rebates required under the BCPA, called BCP Payments.

10177. Qualcomm abruptly changed course for the second quarter 2016 BCP

11Payment.

12178. In September 2016, Qualcomm stopped making BCP Payments without

13

warning. The BCP Payment for the second quarter of 2016, in the amount of

14

approximately

15

September 13, 2016. [Exhibit A, BCPA §§ 7, 8.] Apple submitted all the required

16

documentation, and all other conditions in the normal reporting and payment

17

periods were fulfilled. However, Apple did not receive the payment as scheduled.

, fully accrued on June 30, 2016 and was due on

18

179. Notably, Qualcomm and Apple executives had met in mid-September

19

2016, the week that the second quarter BCP Payment was due, and Qualcomm did

20

not notify Apple that it intended to withhold payment, nor did Qualcomm raise any

21other issue.

22180. The date of Qualcomm’s first refusal to pay the rebate it owed is not23

coincidental. Apple made a presentation to the KFTC, at the KFTC’s request, on

24

August 17, 2016, just a few weeks before Qualcomm refused to pay this BCP

25

Payment. In other words, not even one month later, Qualcomm retaliated against

26

Apple for its testimony.

27

181. In an effort to discern why Qualcomm was withholding

28
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2, Apple reached out to Qualcomm shortly after Qualcomm
refused to make the BCP Payment for the second quarter of 2016.

3

182. In response to Apple’s inquiry, Qualcomm indicated it would withhold4

all future payments due to “legal issues” regarding Apple’s interactions with the5

KFTC and other competition agencies. Qualcomm confirmed that it “will not make6

any further BCP Payments to Apple” after the first quarter of 2016.

7183. Apple explained that it was providing information only at the agencies’

8

request, as allowed by the BCPA, and that Qualcomm’s series of pretextual excuses

9

for withholding BCP Payments found no support in the BCPA or in fact.

10184. For example, Qualcomm has claimed Apple triggered the second

11paragraph of Section 7 of the BCPA, relieving Qualcomm of its obligation to make

12

BCP Payments, by “making untrue and misleading statements about Qualcomm to13

government agencies.” This argument is both false and irrelevant.

14

185. All of Apple’s statements to government agencies investigating

15

Qualcomm’s anticompetitive and extortionist licensing practices were true, to the16best of Apple’s knowledge and understanding at the time the statements were made.

17

Qualcomm has identified only a handful of statements that it contends were18

inaccurate, none of which was inaccurate.

19

186. Apple’s interactions with government agencies regarding Qualcomm in20

the last three years, including the KFTC, have all been at the request of those

21

agencies. The KFTC independently reached out to Apple for information about

22

Qualcomm’s business and licensing practices, well after the KFTC had initiated its

23

investigation of Qualcomm.

24

187. Because Apple’s actions fall squarely within the unconditional

25

exception in the third paragraph of Section 7 of the BCPA for responses to26

government requests, Qualcomm has no basis to challenge those statements further.

27

188. It would be irrational and harmful to public policy to permit Qualcomm

28
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to censor Apple’s statements, or punish Apple for cooperating with government

2

investigations, based on Qualcomm’s naked assertion that Apple’s statements were3

wrong—particularly when it was granted no such right in the BCPA.

4

189. As another example of a meritless and pretextual excuse, Qualcomm

5claimed that Apple induced Samsung, a third party (and, coincidentally, Apple’s

6fiercest competitor and bitter rival), to advocate to the KFTC that it pursue an7

investigation of Qualcomm’s licensing practices. Qualcomm claimed that an

8

unnamed “senior Apple executive” took such actions.

9190. Despite Apple’s requests, Qualcomm has never identified the10“executive” it claims induced Samsung to take agency action. Instead, Qualcomm

11

has repeatedly shifted the burden to Apple to prove the negative, and claimed that

12Apple should provide Qualcomm with extensive information about Apple’s

13

communications with Samsung. No provision of the BCPA requires this.
191. Qualcomm gave other excuses for withholding payment under the14

second paragraph of Section 7 of the BCPA, none of which is based in law or fact.

15
16

192. After Apple rebutted Qualcomm’s arguments and explained that they17

have no basis in fact or law, on December 2, 2016, Qualcomm stated that it believed

18that “the parties’ dispute could be resolved,” if Apple retracted and corrected its

19statements to government agencies. Qualcomm offered to “work with Apple on

20such corrective statements.”
193. Specifically, Qualcomm offered to pay Apple the nearly $1 billion it

21
22

owed if Apple would, in Qualcomm’s words:(i) publicly and specifically retract and correct each of Apple’s
misstatements about Qualcomm to regulatory agencies, including
those detailed above; (ii) inform the relevant agencies that suchstatements were and are untrue; (iii) disclose Apple’s correspondencewith any agencies relating to any investigation of Qualcomm;6 (iv)

23
24
25
26
27
28

Notably, Qualcomm may be demanding this discovery in an attempt to make an
end-run around a court order. On January 7, 2016, Qualcomm filed an ex parte
6

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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

provide any and all additional facts to regulators and Qualcomm
relating to Apple’s dealings with Intel concerning any possible oractual consideration from Intel to Apple relating to Apple’s
implementation of WiMax or the use of Intel chips; and (v) provide
Qualcomm with the requested information about any communications
between Apple’s senior executives and Samsung.
194. Thus, in an extraordinary and transparent effort to manipulate
regulatory investigations into its anticompetitive behavior, Qualcomm offered to
repay Apple nearly $1 billion in withheld BCP Payments if Apple recanted its true
and, in many cases, sworn testimony before government agencies and instead gave
false testimony favorable to Qualcomm.
195. Qualcomm’s actions—interpreting BCPA Section 7, paragraph 2 togive it the power to restrict Apple’s responses to government investigations,withholding payments that it owes Apple in retaliation for providing information tocompetition agencies, and offering to pay Apple the money Qualcomm owes only if
Apple recants—violate the express terms of the BCPA, and also violate public
policy in favor of full and fair disclosure to governmental investigators without fearof retaliation. Apple is under no obligation to deceive regulators or recant its
truthful testimony in order to receive the money it is owed.
196. Apple had a legal duty to comply with all subpoenas and civil
investigative demands from the FTC. E.g., 15 U.S.C. §§ 49, 57b-1; 16 C.F.R. §§2.7, 2.10, 2.11, 2.12. And FTC Rule of Practice 2.4 expressly encourages
cooperation and full disclosure in any competition investigation, both compulsory
and voluntary:
The Commission encourages cooperation in its investigations. In all
matters, whether involving compulsory process or voluntary requests
application in the Northern District of California for third-party discovery fromApple and other companies that the KFTC had contacted in its investigation of
Qualcomm. The KFTC opposed Qualcomm’s request, arguing that this discovery
would “discourage third parties from cooperating with the KFTC.” The Court
denied Qualcomm’s request. In re Ex Parte Application of Qualcomm Inc., 162 F.
Supp. 3d 1029 (N.D. Cal. 2016).
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for documents and information, the Commission expects all parties toengage in meaningful discussions with staff to prevent confusion or
misunderstandings regarding the nature and scope of the informationand material being sought, in light of the inherent value of genuinely
cooperative discovery.

4

16 C.F.R. § 2.4. The FTC’s public comments on this rule stated that it “affirmed

5

the Commission’s endorsement of voluntary cooperation in all investigations.”

6

FTC Rules of Practice, 77 Fed. Reg. 188 (Sep. 27, 2012) (to be codified at 16

7

C.F.R. pts. 2 & 4).

1
2

8

197. Similarly, the International Competition Network, of which the FTC,

9

the EC, and the TFTC are members, states in its Guidance on Investigative Process:10

Cooperation and engagement from parties and third parties are key
contributing factors to an agency’s ability to pursue fair and effective
investigations. The credibility of a competition agency and, more
broadly, of the overall mission of competition enforcement are closely
tied to the integrity of the agency’s investigative process and public
understanding of such process. . . . Engagement with third parties(e.g., competitors, customers, sector regulators, or other non-parties
that agencies may contact during an investigation) also promotes more
informed and robust enforcement. Agencies should provide interested
third parties with the opportunity to submit views to the agency during
an investigation, and where appropriate, the opportunity to meet or
discuss their views with the agency.

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

[International Competition Network, Guidance on Investigative Process at 1, 5,
http://www.internationalcompetitionnetwork.org/uploads/library/doc1028.pdf.]
198. Retaliation against cooperating third parties violates established public
policy. For example, responses to civil investigative demands, such as Apple’s
responses to the FTC’s requests, are generally required to remain confidential “tosafeguard the rights of individuals under investigation and to protect witnesses from
retaliation.” In re Air Passenger Computer Reservation Sys. Antitrust Litig., 116
F.R.D. 390, 392 (C.D. Cal. 1986) (quoting Illinois v. Abbott, 460 U.S. 557 (1983))(emphasis added); see also A. Michael’s Piano, Inc. v. FTC, 18 F.3d 138, 144–46(2d Cir. 1994) (voluntary disclosures within the FTC’s subpoena power also treatedas confidential under 15 U.S.C. § 57b-2). Qualcomm’s demand that Apple disclose
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its communications with agencies, on pain of a nearly-billion-dollar penalty,

2

violates this established public policy in favor of confidentiality and protecting

3

against retaliation.

4

199. The same is true outside the United States. The KFTC has stated that it

5“relies heavily on third parties to gain information relevant to ongoing

6

investigations and to detect anticompetitive activity in Korea,” and like “many of its

7

international counterparts, the KFTC often depends on the cooperation of third

8

parties when investigating alleged antitrust violations.” Ex Parte Application of

9

Qualcomm, 162 F. Supp. 3d 1 at 1032.

10200. Retaliation against cooperating third parties is forbidden in Korea. The

11

Korean Monopoly Regulation and Fair Trade Act expressly states that an entity

12

cannot retaliate against a third party for “[c]ooperating in investigations conducted13

by the Fair Trade Commission under Article 50.” Korean Monopoly Regulation and

14

Fair Trade Act art. 23-2. And Article 23-3 of that Act prohibits entrepreneurs from15

discontinuing transactions, reducing quantities, or giving “any disadvantage” to16another entrepreneur who has cooperated in investigations by the KFTC. Id. art. 23-

17

3. Indeed, the KFTC is currently investigating Qualcomm’s behavior in retaliating

18

against Apple for its interactions with the agency, and may impose sanctions as a19

result.

20201. Courts routinely invalidate contracts that restrain witnesses from21

engaging in government investigation. E.g., Cariveau v. Halferty, 99 Cal. Rptr. 2d

22417, 423–24 (Ct. App. 2000) (invalidating clause that prohibited customer from23

disclosing securities broker’s misconduct); D’Arrigo Bros. of Cal. v. United

24

Farmworkers of Am., 169 Cal. Rptr. 3d 171, 181 (Ct. App. 2014) (refusing to

25

interpret settlement-agreement clause to prohibit union from cooperating with

26

Agricultural Labor Relations Board investigation); EEOC v. Astra U.S.A., Inc., 94

27

F.3d 738, 745 (1st Cir. 1996) (holding that settlement agreements could not prohibit

28
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employees from assisting an EEOC investigation); SEC v. Lipson, No. 97 C 2661,

21997 WL 801712, at *2 (N.D. Ill. Oct. 28, 1997) (holding that an “effort to preclude

3

voluntary cooperation by potential witnesses with the SEC is unenforceable as

4against public policy”); see also Lachman v. Sperry-Sun Well Surveying Co., 457

5F.2d 850, 853–54 (10th Cir. 1972) (“It is public policy in Oklahoma and6everywhere to encourage the disclosure of criminal activity.”).

7202. Despite these and other established public policies encouraging free8

exchange of information and prohibiting retaliation, Qualcomm has not paid Apple9

what it owes. As of the date of filing this Complaint, Qualcomm has failed to pay

10either the11

in September 2016 or the12which fully accrued on September 30, 2016, and was due on December 14, 2016.

that it owed for the second quarter of 2016, which was due
BCP Payment for the third quarter of 2016,13

203. Based on Qualcomm’s statement that it would not make “any further

14

payments” to Apple, Apple expects Qualcomm to fail to make the final BCP

15

Payment, for the fourth quarter of 2016; that BCP Payment fully accrued on

16

December 31, 2016, and will become due on March 16, 2017. Apple estimates that17

payment to be worth.

18

204. Thus, Qualcomm is withholding a substantial amount, nearly $1 billion,

19

that it owes Apple under the BCPA, in breach of its obligations and in retaliation for

20

Apple’s cooperation with competition authorities.

21

205. This behavior is an egregious overreach and violation of the law, even22

against the backdrop of Qualcomm’s extensive illegal business practice. It confirms

23that Qualcomm will go to great lengths to ensure that these practices are concealed

24

from government regulators with the power to mandate changes and impose

25

substantial fines.

26
27
28
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CLAIMS AND PRAYER FOR RELIEF

2

COUNT I

3

Breach of Contract

4
5
6
7
8
9

206. Apple restates and incorporates by reference each of the allegations set
forth above.
207. As alleged herein, Qualcomm entered into express or implied
contractual commitments with Apple, including the BCPA [Exhibit A].
208. The BCPA between Apple and Qualcomm was supported by adequate
consideration for all parties.

10

209. Apple has complied with its obligations under the BCPA.

11

210. Under the BCPA, Qualcomm was contractually obligated, among other

12
13
14

things, to make quarterly BCP Payments to Apple as specified in the agreements.
211. For the second and third quarters of 2016, Qualcomm breached the
BCPA by refusing to tender payment after it had accrued and become payable.

15

212. The payment for the fourth quarter of 2016 will be due in March 2017.

16

213. Qualcomm has indicated a clear intent to withhold its payment for the

17
18
19
20
21

fourth quarter of 2016.
214. By reason of the foregoing, Qualcomm materially breached the BCPA.
Qualcomm’s breach of the BCPA is total.
215. Qualcomm has no excuse for its breach, and all conditions precedent for
Qualcomm’s performance have been fulfilled.

22216. As a result of Qualcomm’s contractual breach, Apple has been injured

23

in its business or property, and is threatened by imminent loss of profits, loss of24

customers and potential customers, and loss of goodwill and product image.

25

217. Among other things, Apple is entitled to (a) a declaration that26

Qualcomm has breached its commitments, and (b) its economic damages, including

27

payment of the BCP Payments in full, plus interest.

28
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218. In compliance with the dispute resolution procedures set forth in the2

BCPA, Apple and Qualcomm engaged in two 30-day periods of executive

3

negotiations. The parties were unable to resolve these issues.

4219. As a result of Qualcomm’s withholding of BCPA Payments to Apple,

5

Apple has no choice but to withhold the same amount from its CMs, which are

6

Qualcomm licensees.

7

220.

8
9
10
11
12

221. Apple is bringing this Complaint now, in light of the FTC filing a

13

lawsuit against Qualcomm on January 17, 2017, because Apple is identified as a

14

key purchaser of Qualcomm chipsets in the FTC complaint, and Qualcomm has

15

demonstrated its willingness to retaliate swiftly against Apple when it believes

16

agency or other actions are contrary to its interests.

17

COUNT II

18

Breach of the Implied Covenant of Good Faith and Fair Dealing

19

222. Apple restates and incorporates by reference each of the allegations set

20
21
22

forth above.
223. At all relevant times, Qualcomm agreed and was required by law to act
fairly and in good faith with respect to its obligations under the BCPA.

23

224. Qualcomm breached this implied covenant of good faith and fair24

dealing by, among other actions, withholding BCP Payments in retaliation for

25

Apple’s interactions with government regulators, and improperly advancing

26

pretextual and meritless excuses for its breach that find no support in the BCPA.

27

225. Qualcomm’s actions have unfairly frustrated the essential purpose of

28
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the BCPA, and Apple has not obtained the reasonably and justifiably intended and2

expected benefit of its bargain with Qualcomm.

34226. By reason of the foregoing, Qualcomm has breached the impliedcovenant of good faith and fair dealing.

5

227. As a result of Qualcomm’s breach of the implied covenant of good faith6and fair dealing, Apple has been injured in its business or property, and is7

threatened by imminent loss of profits, loss of actual and potential customers, and8loss of goodwill and product image.

910228. Among other things, Apple is entitled to (a) a declaration that
Qualcomm has breached its commitments, and (b) Apple’s economic damages.

11

COUNT III

12

Violation of Cal. Civ. Code § 1671(b)1314229. Apple restates and incorporates by reference each of the allegations set
forth above.

15

230. Under California Civil Code § 1671(b), a provision in a contract

16

liquidating damages is void where the provision was “unreasonable under the17

circumstances existing at the time the contract was made.”18

231. Apple’s actions have not contravened any provision of the BCPA, and19Apple owes no damages to Qualcomm. Qualcomm’s actions interpreting and acting

20

on second paragraph of Section 7 of the BCPA impose an unlawful penalty on

21

Apple under § 1671(b).

22232. Qualcomm interprets the second paragraph of Section 7 of the BCPA to23permit Qualcomm to withhold BCP Payments in retaliation for Apple’s interaction

24

with competition agencies, and to give Qualcomm the ability to censor the contents

25of those statements. If Qualcomm’s interpretation were adopted, this would be an

26

unlawful liquidated damages provision under § 1671(b) because it contemplates a27

single, definite performance—Apple’s forbearance from making negative

28
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statements to agencies about Qualcomm—and imposes a penalty contingent on2

breach of that performance.

3233. As interpreted by Qualcomm, the liquidated damages set out in the4second paragraph of Section 7 of the BCPA arise from a breach and contemplate a5

fixed and certain sum that has no proportional relation to the damages which may

6actually flow from a failure to perform under the contract.

7234. As interpreted by Qualcomm, the liquidated damages provision in

8

Section 7 of the BCPA is unreasonable because the withholding of BCP Payments

9bears no reasonable relationship to the range of actual damages that Qualcomm or

10Apple could have anticipated would flow from a breach of performance at the time11

the contract was made.

12
13

235. Because Qualcomm’s interpretation of the second paragraph of Section
7 of the BCPA is void, Qualcomm has no excuse for its nonperformance.

14

236. In light of the illegality and unreasonableness of Qualcomm’s

15interpretation of the second paragraph of Section 7 of the BCPA, Apple is entitled16

to the monetary, restitutionary, declaratory, and other relief requested herein,

17

including but not limited to the payment of all BCP Payments wrongfully withheld

18by Qualcomm, with interest and other consideration in light of the wrongful delay

19

in payment.

20

COUNT IV

21

Declaratory Relief—Cal. Code Civ. Proc. § 1060

22
23
24
25
26
27
28

237. Apple restates and incorporates by reference each of the allegations set
forth above.
238. California Code of Civil Procedure § 1060 provides that:Any person interested under a written instrument, excluding a will ora trust, or under a contract . . . may, in cases of actual controversy
relating to the legal rights and duties of the respective parties, bring an
original action or cross-complaint in the superior court for adeclaration of his or her rights and duties in the premises, including adetermination of any question of construction or validity arising under
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the instrument or contract. He or she may ask for a declaration ofrights or duties, either alone or with other relief; and the court may
make a binding declaration of these rights or duties, whether or not
further relief is or could be claimed at the time. The declaration may
be either affirmative or negative in form and effect, and thedeclaration shall have the force of a final judgment. The declaration
may be had before there has been any breach of the obligation in
respect to which said declaration is sought.

6239. Declaratory relief is appropriate because the rights and obligations

1
2
3
4

7

under the BCPA between Apple and Qualcomm are at issue.

8240. An actual controversy has arisen and now exists between Apple and

9

Qualcomm concerning their respective rights and obligations under the BCPA

10

because (a) Qualcomm has announced that it will refuse to pay, and is refusing to

11pay, currently accrued and due BCP Payments totaling nearly $1 billion; and (b) the12pretextual reasons for its breach that Qualcomm is advancing are wrong as a matter13

of contract interpretation and law, and in any event, run afoul of public policy and14

law of this and other jurisdictions.

15
16

241. Apple desires a judicial determination as to the parties’ rights andobligations under the BCPA, and a declaration of the following:17That Qualcomm has breached its obligations under the BCPA;

18



That Apple’s actions did not trigger the second paragraph of Section 7of the BCPA;

19
20



That Qualcomm must pay the remaining BCP Payments, plus interest;21

That the second paragraph of Section 7 of the BCPA does not survive
termination or expiration of the BCPA;

22
23



BCPA; and/or

24
25
26

That Apple did not breach its express or implied obligations under theThat Apple did not breach the implied covenant of good faith and fairdealing or any other implied covenant of the BCPA.

27

242. A judicial determination is necessary and appropriate at this time in28

order for Apple to ascertain its rights and obligations under the BCPA. The parties’
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relationship is ongoing, and a judicial determination would inform the parties’2

future conduct. In addition, a judicial determination is necessary and appropriate at3

this time in order to eliminate uncertainties in Apple’s future conduct, including its

4petitions to the Courts.

5

COUNT V

6

Declaration of Noninfringement of U.S. Patent No. 7,246,242

7
8243. Apple restates and incorporates by reference each of the allegations set
forth above.

9

244. Representative claim 1 of the ’242 patent reads as follows (claim

10

element enumeration added for convenience):
Claim 1[a] A method for checking integrity of messages transmitted during aconnection between a first party and a second party, comprising:[b] specifying a first value at the first party, a second value at least partly at thefirst party and a count value at least partly at the second party to calculate anauthentication value of a message, the first value being valid for one
connection between the first party and the second party only;[c] transmitting the message and calculated authentication value from the firstparty to the second party;[d] calculating a second authentication value at the second party based on thereceived message;[e] comparing the calculated authentication value with the second
authentication value to determine whether the authentication values match;[f] accepting the message if the authentication values match;[g] wherein the authentication values are calculated based on the message, thefirst value specified by the first party and the counter value at least partly
specified by the second party.

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

245. The ’242 patent is not essential to the 3G/UMTS standard, including,but not limited to, the standard described in 3GPP Technical Specification (“TS”)
33.102, at least because, by way of non-limiting example, the 3G/UMTS standard
does not require the following claim limitation: 1.[b].
246. No claim of the ’242 patent has been or is infringed, either directly,
contributorily, or by inducement, literally or under the doctrine of equivalents, by
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Apple or the purchasers of Apple’s products through the manufacture, use,2

importation, sale, and/or offer for sale of Apple’s products, at least because, by way

3of non-limiting example, Apple’s products do not satisfy the following claim

4

limitation: 1.[b].

5247. As a result of the acts described in the foregoing paragraphs, there

6

exists a definite and concrete, real and substantial, justiciable controversy between

7

Apple and Qualcomm regarding the noninfringement of the ’242 patent with respect

8

to Apple’s products. This controversy is of sufficient immediacy and reality to

9warrant the issuance of a Declaratory Judgment.

10248. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et

11seq., Apple requests the declaration of the Court that Apple does not infringe and12

has not infringed any claim of the ’242 patent.

13

COUNT VI

14

Declaration of FRAND Royalties for U.S. Patent No. 7,246,242

15249. Apple restates and incorporates by reference each of the allegations set

16
17
18

forth above.
250. Qualcomm has contractually obligated to license the ’242 patent on
FRAND terms and conditions.

19251. As a result of the acts described in the foregoing paragraphs, there

20

exists a definite and concrete, real and substantial, justiciable controversy between

21

Apple and Qualcomm regarding the FRAND royalty for the ’242 patent with22

respect to Apple’s products. This controversy is of sufficient immediacy and reality

23

to warrant the issuance of a Declaratory Judgment.

24

252. To the extent that the ’242 patent is actually essential to a standard and25

infringed by Apple, then Qualcomm must (a) select as a royalty base, at most, the26

smallest salable unit substantially embodying the ’242 patent, and (b) apply to that27

royalty base a reasonable royalty rate that reflects the actual technical contribution

28
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to the standard that is attributable to the patent. See CSIRO, 809 F.3d at 1305;

2

Ericsson, 773 F.3d 1209; Innovatio IP Ventures, 2013 WL 5593609, at *13;

3

Microsoft, 2013 WL 2111217, at *74. As discussed above, Qualcomm has not4complied with these requirements, and has not offered FRAND terms, even if Apple5

has been benefitting from a license between Qualcomm and Apple’s CMs. As an

6alternative to its request for a declaration of noninfringement, Apple is entitled to a7

judicial declaration that sets a FRAND royalty for the ’242 patent in this manner.

8

COUNT VII

9

Declaration of Noninfringement of
U.S. Patent No. 6,556,549

10
11
12

253. Apple restates and incorporates by reference each of the allegations set
forth above.

13

254. Representative claim 1 of the ’549 patent reads as follows (claim

14element enumeration added for convenience):
Claim 1[a] In a communication system in which each base station in communication
with a remote station transmits a reverse link busy bit indicating whether its
reverse link capacity has been exhausted, a method of determining thereverse link transmission rate of said remote station comprising:[b] determining a reverse link transmission rate in accordance with a combined
reverse link busy signal generated in accordance with reverse link busy bits
transmitted by each of said base stations; and[c] transmitting reverse link data in accordance with said reverse linktransmission rate.

15
16
17
18
19
20
21
22
23
24
25
26
27
28

255. The ’549 patent is not essential to the 3G/UMTS standard, including,but not limited to, the standard described in 3GPP TS 25.211, 25.212, 25.214, atleast because, by way of non-limiting example, the 3G/UMTS standard does not
require the following claim limitation: 1.[b].
256. No claim of the ’549 patent has been or is infringed, either directly,
contributorily, or by inducement, literally or under the doctrine of equivalents, byApple or the purchasers of Apple’s products through the manufacture, use,
APPLE INC.’S COMPLAINT

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importation, sale, and/or offer for sale of Apple’s products, at least because, by way

2of non-limiting example, Apple’s products do not satisfy the following claim

3

limitation: 1.[b].

4257. As a result of the acts described in the foregoing paragraphs, there

5exists a definite and concrete, real and substantial, justiciable controversy between

6

Apple and Qualcomm regarding the noninfringement of the ’549 patent with respect

7

to Apple’s products. This controversy is of sufficient immediacy and reality to

8warrant the issuance of a Declaratory Judgment.

9258. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et

10seq., Apple requests the declaration of the Court that Apple does not infringe and11

has not infringed any claim of the ’549 patent.

12

COUNT VIII

13

Declaration of FRAND Royalties for
U.S. Patent No. 6,556,549

14
15
16
17
18

259. Apple restates and incorporates by reference each of the allegations set
forth above.
260. Qualcomm has contractually obligated to license the ’549 patent on
FRAND terms and conditions.

19

261. As a result of the acts described in the foregoing paragraphs, there

20

exists a definite and concrete, real and substantial, justiciable controversy between

21

Apple and Qualcomm regarding the FRAND royalty for the ’549 patent with22

respect to Apple’s products. This controversy is of sufficient immediacy and reality

23

to warrant the issuance of a Declaratory Judgment.

24

262. To the extent that the ’549 patent is actually essential to a standard and25

infringed by Apple, then Qualcomm must (a) select as a royalty base, at most, the26

smallest salable unit substantially embodying the ’549 patent, and (b) apply to that27

royalty base a reasonable royalty rate that reflects the actual technical contribution

28

to the standard that is attributable to the patent. See CSIRO, 809 F.3d at 1305;
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Ericsson, 773 F.3d 1209; Innovatio IP Ventures, 2013 WL 5593609, at *13;

2

Microsoft, 2013 WL 2111217, at *74. As discussed above, Qualcomm has not3complied with these requirements, and has not offered FRAND terms, even if Apple4

has been benefitting from a license between Qualcomm and Apple’s CMs. As an

5alternative to its request for a declaration of noninfringement, Apple is entitled to a

6

judicial declaration that sets a FRAND royalty for the ’549 patent in this manner.

7

COUNT IX

8

Declaration of Noninfringement of U.S. Patent No. 9,137,822

9
10263. Apple restates and incorporates by reference each of the allegations set
forth above.

11

264. Representative claim 12 of the ’822 patent reads as follows (claim

1225

element enumeration added for convenience):
Claim 12[a] In a wireless communication system, an apparatus to determine an indicatorof channel quality, the apparatus comprising:[b] a processor configured to determine a metric of forward link geometry as afunction of an observed transmission, wherein said observed transmission is
selected from a group consisting of pilot signals, noise, and traffic on datachannels, or any combination thereof, and to determine an estimate ofchannel quality as a function of at least the metric of the observed
transmission;[c] a memory element configured to store a plurality of groups of accesssequences, wherein the plurality of groups of access sequences correspond todifferent ranges of channel quality values,[d] and a plurality of access sequences in the plurality of groups of accesssequences are distributed non-uniformly, such that the plurality of access ofsequences are distributed in proportion to a number of access terminals
requiring a given amount of power needed to send an indicator of
acknowledgment to an access terminal; and[e] a selector configured to select an access sequence, randomly, from the groupof the plurality of groups corresponding to a determined channel quality
value.

26

265. The ’822 patent is not essential to the 4G/LTE standard, including, but

27

not limited to, the standard described in 3GPP TS 36.300, 36.321, at least because,

13
14
15
16
17
18
19
20
21
22
23
24

28
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by way of non-limiting example, the 4G/LTE standard does not require the2following claim limitation: 12.[d].

3266. No claim of the ’822 patent has been or is infringed, either directly,

4

contributorily, or by inducement, literally or under the doctrine of equivalents, by

5Apple or the purchasers of Apple’s products through the manufacture, use,

6

importation, sale, and/or offer for sale of Apple’s products, at least because, by way

7of non-limiting example, Apple’s products do not satisfy the following claim

8

limitation: 12.[d].

9267. As a result of the acts described in the foregoing paragraphs, there

10

exists a definite and concrete, real and substantial, justiciable controversy between

11Apple and Qualcomm regarding the noninfringement of the ’822 patent with respect

12

to Apple’s products. This controversy is of sufficient immediacy and reality to

13warrant the issuance of a Declaratory Judgment.

14268. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et

15

seq., Apple requests the declaration of the Court that Apple does not infringe and16

has not infringed any claim of the ’822 patent.

17

COUNT X

18

Declaration of FRAND Royalties for U.S. Patent No. 9,137,822

19269. Apple restates and incorporates by reference each of the allegations set

20
21
22

forth above.
270. Qualcomm has contractually obligated to license the ’822 patent on
FRAND terms and conditions.

23271. As a result of the acts described in the foregoing paragraphs, there

24

exists a definite and concrete, real and substantial, justiciable controversy between

25

Apple and Qualcomm regarding the FRAND royalty for the ’822 patent with26

respect to Apple’s products. This controversy is of sufficient immediacy and reality

27

to warrant the issuance of a Declaratory Judgment.

28
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272. To the extent that the ’822 patent is actually essential to a standard and2

infringed by Apple, then Qualcomm must (a) select as a royalty base, at most, the3smallest salable unit substantially embodying the ’822 patent, and (b) apply to that4

royalty base a reasonable royalty rate that reflects the actual technical contribution

5

to the standard that is attributable to the patent. See CSIRO, 809 F.3d at 1305;

6

Ericsson, 773 F.3d 1209; Innovatio IP Ventures, 2013 WL 5593609, at *13;

7

Microsoft, 2013 WL 2111217, at *74. As discussed above, Qualcomm has not

8complied with these requirements, and has not offered FRAND terms, even if Apple9

has been benefitting from a license between Qualcomm and Apple’s CMs. As an

10alternative to its request for a declaration of noninfringement, Apple is entitled to a

11

judicial declaration that sets a FRAND royalty for the ’822 patent in this manner.

12

COUNT XI

13

Declaration of Noninfringement of
U.S. Patent No. 7,289,630

14
15
16

273. Apple restates and incorporates by reference each of the allegations set
forth above.

17

274. Representative claim 1 of the ’630 patent reads as follows (claim

18

element enumeration added for convenience):
Claim 1[a] A method for protecting traffic in a radio access network supporting multiple
radio bearers to/from a mobile station, the radio access network being
connected to at least two core networks;[b] the method comprising:maintaining a core network-specific authentication protocol;[c]maintaining a radio bearer-specific ciphering process;[d]generating, for each ciphering process, a count parameter comprising[e]a cyclical sequence number and a hyperframe number which is incremented
each time the cyclical sequence number completes one cycle; andfor each core network or authentication protocol:[f]initializing a first radio bearer of a session with a hyperframe number[g]exceeding the highest hyperframe number used during the previous session;
and

19
20
21
22
23
24
25
26
27
28

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2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

[h]

at the end of a session, storing at least part of the highest hyperframe
number used during the session.
275. The ’630 patent is not essential to the 3G/UMTS standard, including,but not limited to, the standards described in 3GPP TS 23.236, 25.331, 33.102, atleast because, by way of non-limiting example, the 3G/UMTS standard does not
require the following claim limitation: 1.[h].
276. No claim of the ’630 patent has been or is infringed, either directly,
contributorily, or by inducement, literally or under the doctrine of equivalents, byApple or the purchasers of Apple’s products through the manufacture, use,
importation, sale, and/or offer for sale of Apple’s products, at least because, by way
of non-limiting example, Apple’s products so not satisfy the following claim
limitation: 1.[h].
277. As a result of the acts described in the foregoing paragraphs, there
exists a definite and concrete, real and substantial, justiciable controversy between
Apple and Qualcomm regarding the noninfringement of the ’630 patent, withrespect to Apple’s products. This controversy is of sufficient immediacy and reality
to warrant the issuance of a Declaratory Judgment.
278. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 etseq., Apple requests the declaration of the Court that Apple does not infringe andhas not infringed any claim of the ’630 patent.
COUNT XII

21

Declaration of FRAND Royalties for
U.S. Patent No. 7,289,630

22
23
24
25
26
27

279. Apple restates and incorporates by reference each of the allegations set
forth above.
280. Qualcomm has contractually obligated to license the ’630 patent on
FRAND terms and conditions.
281. As a result of the acts described in the foregoing paragraphs, there

28

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exists a definite and concrete, real and substantial, justiciable controversy between

2

Apple and Qualcomm regarding the FRAND royalty for the ’630 patent with3

respect to Apple’s products. This controversy is of sufficient immediacy and reality

4

to warrant the issuance of a Declaratory Judgment.

5282. To the extent that the ’630 patent is actually essential to a standard and6

infringed by Apple, then Qualcomm must (a) select as a royalty base, at most, the7smallest salable unit substantially embodying the ’630 patent, and (b) apply to that8

royalty base a reasonable royalty rate that reflects the actual technical contribution

9

to the standard that is attributable to the patent. See CSIRO, 809 F.3d at 1305;

10Ericsson, 773 F.3d 1209; Innovatio IP Ventures, 2013 WL 5593609, at *13;

11

Microsoft, 2013 WL 2111217, at *74. As discussed above, Qualcomm has not

12complied with these requirements, and has not offered FRAND terms, even if Apple13

has been benefitting from a license between Qualcomm and Apple’s CMs. As an

14

alternative to its request for a declaration of noninfringement, Apple is entitled to a15

judicial declaration that sets a FRAND royalty for the ’630 patent in this manner.

16

COUNT XIII

17

Declaration of Noninfringement of U.S. Patent No. 8,867,494

18
19283. Apple restates and incorporates by reference each of the allegations set
forth above.

20

284. Representative claim 17 of the ’494 patent reads as follows (claim

21

element enumeration added for convenience):
Claim 17[a] A method for communication in a wireless network, comprising:[b] receiving first information on a first downlink channel from a first sector,
and second information on a second downlink channel from a second sector,
on a first downlink carrier frequency;[c] receiving first information on a first downlink channel from a first sector,
and second information on a second downlink channel from a second sector,
on a first downlink carrier frequency;[d] transmitting the jointly encoded first and second feedback information on an
uplink channel over a first uplink carrier frequency.

22
23
24
25
26
27
28

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1285. The ’494 patent is not essential to any Apple-practiced 3G/UMTS

2

standard, including, but not limited to, the standard described in 3GPP TS 25.212,

3

25.214, 25.308, at least because, by way of non-limiting example, the 3G/UMTS

4standard does not require the following claim limitation: 17.[b].

5286. No claim of the ’494 patent has been or is infringed, either directly,

6

contributorily, or by inducement, literally or under the doctrine of equivalents, by

7Apple or the purchasers of Apple’s products through the manufacture, use,

8

importation, sale, and/or offer for sale of Apple’s products, at least because, by way

9of non-limiting example, Apple’s products do not satisfy the following claim

10

limitation: 17.[b].

11287. As a result of the acts described in the foregoing paragraphs, there

12

exists a definite and concrete, real and substantial, justiciable controversy between

13

Apple and Qualcomm regarding the noninfringement of the ’494 patent with respect

14

to Apple’s products. This controversy is of sufficient immediacy and reality to

15

warrant the issuance of a Declaratory Judgment.

16288. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et

17seq., Apple requests the declaration of the Court that Apple does not infringe and18

has not infringed any claim of the ’494 patent.

19

COUNT XIV

20

Declaration of FRAND Royalties for U.S. Patent No. 8,867,494

21

289. Apple restates and incorporates by reference each of the allegations set

22
23
24

forth above.
290. Qualcomm has contractually obligated to license the ’494 patent on
FRAND terms and conditions.

25

291. As a result of the acts described in the foregoing paragraphs, there

26

exists a definite and concrete, real and substantial, justiciable controversy between

27

Apple and Qualcomm regarding the FRAND royalty for the ’494 patent with28
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respect to Apple’s products. This controversy is of sufficient immediacy and reality

2

to warrant the issuance of a Declaratory Judgment.

3292. To the extent that the ’494 patent is actually essential to a standard and4

infringed by Apple, then Qualcomm must (a) select as a royalty base, at most, the5smallest salable unit substantially embodying the ’494 patent, and (b) apply to that6

royalty base a reasonable royalty rate that reflects the actual technical contribution

7

to the standard that is attributable to the patent. See CSIRO, 809 F.3d at 1305;

8

Ericsson, 773 F.3d 1209; Innovatio IP Ventures, 2013 WL 5593609, at *13;

9Microsoft, 2013 WL 2111217, at *74. As discussed above, Qualcomm has not

10complied with these requirements, and has not offered FRAND terms, even if Apple11

has been benefitting from a license between Qualcomm and Apple’s CMs. As an

12alternative to its request for a declaration of noninfringement, Apple is entitled to a

13

judicial declaration that sets a FRAND royalty for the ’494 patent in this manner.

14

COUNT XV

15

Declaration of Noninfringement of U.S. Patent No. 7,095,725

16
17293. Apple restates and incorporates by reference each of the allegations set
forth above.

18

294. Representative claims 9 and 26 of the ’725 patent reads as follows

19(claim element enumeration added for convenience):
Claim 9[a] An apparatus comprising:[b] a transmit subsystem;[c] a processor coupled to the transmit subsystem and configured to control adata transmission rate of the transmit subsystem;[d] wherein the processor is configured to determine a new data transmission
rate which is constrained to decrease by a limited amount from a current
data transmission rate,[e] wherein the processor is configured to determine the new data transmission
rate by determining a plurality of limiting rates and selecting a minimum of
the limiting rates as the new data transmission rate; and

20
21
22
23
24
25
26
27
28

APPLE INC.’S COMPLAINT

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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

[f] a transmit queue, wherein the limiting rates comprise at least a data-justified
rate corresponding to an amount of data in the transmit queue.
Claim 26
An
apparatus
comprising:[a][b] a transmit subsystem; and[c] a processor coupled to the transmit subsystem and configured to determine a
new data transmission rate of the transmit subsystem by selecting the newrate from a plurality of limiting rates when the wireless communication
system is in a not-busy state,[d] wherein the limiting rates include a ramp-up-limited rate which is set equal
to the greater of a current data transmission rate and a sticky rate.
295. The ’725 patent is not essential to the 3G/UMTS standard, including,but not limited to, the standard described in 3GPP TS 25.309, 25.321, at least
because, by way of non-limiting example, the 3G/UMTS standard does not require
the following claim limitations: 9.[d], 26.[d].
296. No claim of the ’725 patent has been or is infringed, either directly,
contributorily, or by inducement, literally or under the doctrine of equivalents, byApple or the purchasers of Apple’s products through the manufacture, use,
importation, sale, and/or offer for sale of Apple’s products, at least because, by way
of non-limiting example, Apple’s products do not satisfy the following claim
limitations: 9.[d], 26.[d].
297. As a result of the acts described in the foregoing paragraphs, there
exists a definite and concrete, real and substantial, justiciable controversy between
Apple and Qualcomm regarding the noninfringement of the ’725 patent with respect
to Apple’s products. This controversy is of sufficient immediacy and reality to
warrant the issuance of a Declaratory Judgment.
298. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 etseq., Apple requests the declaration of the Court that Apple does not infringe andhas not infringed any claim of the ’725 patent.

27
28
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COUNT XVI

2

Declaration of FRAND Royalties for U.S. Patent No. 7,095,725

3299. Apple restates and incorporates by reference each of the allegations set

4
5
6

forth above.
300. Qualcomm has contractually obligated to license the ’725 patent on
FRAND terms and conditions.

7301. As a result of the acts described in the foregoing paragraphs, there

8

exists a definite and concrete, real and substantial, justiciable controversy between

9Apple and Qualcomm regarding the FRAND royalty for the ’725 patent with

10

respect to Apple’s products. This controversy is of sufficient immediacy and reality

11

to warrant the issuance of a Declaratory Judgment.

12

302. To the extent that the ’725 patent is actually essential to a standard and13

infringed by Apple, then Qualcomm must (a) select as a royalty base, at most, the14smallest salable unit substantially embodying the ’725 patent, and (b) apply to that15

royalty base a reasonable royalty rate that reflects the actual technical contribution

16

to the standard that is attributable to the patent. See CSIRO, 809 F.3d at 1305;

17

Ericsson, 773 F.3d 1209; Innovatio IP Ventures, 2013 WL 5593609, at *13;18

Microsoft, 2013 WL 2111217, at *74. As discussed above, Qualcomm has not19complied with these requirements, and has not offered FRAND terms, even if Apple20

has been benefitting from a license between Qualcomm and Apple’s CMs. As an

21

alternative to its request for a declaration of noninfringement, Apple is entitled to a22

judicial declaration that sets a FRAND royalty for the ’725 patent in this manner.

23

COUNT XVII

24

Declaration of Noninfringement of U.S. Patent No. 6,694,469

25
26
27

303. Apple restates and incorporates by reference each of the allegations set
forth above.
304. Representative claim 11 of the ’469 patent reads as follows (claim

28
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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

element enumeration added for convenience):
Claim 11[a] An apparatus configured to retransmit signals in a communication system,comprising:[b] a decoder configured to decode contents of a unit of received signal;[c] a first feedback signal generator configured to generate a first feedback
signal;[d] a first processor configured to determine a quality metric of said unit ofsignal; and instruct said feedback signal generator to generate a feedback
signal in accordance with said quality metric; and[e] a preamble detector configured to detect and decode a preamble of said unitof signal; and wherein said first processor is further configured to prevent
decoding of said unit of signal if said preamble indicates that said unit ofsignal is not to be decoded.
305. The ’469 patent is not essential to the 3G/UMTS or the 4G/LTE
standard, including, but not limited to, the standard described in 3GPP TS 25.211,
25.221, 25.321, 25.322, 36.213, 36.300, 36.321, 36.322, at least because, by way of
non-limiting example, the 3G/UMTS or the 4G/LTE standard does not require thefollowing claim limitation: 11.[e].
306. No claim of the ’469 patent has been or is infringed, either directly,
contributorily, or by inducement, literally or under the doctrine of equivalents, byApple or the purchasers of Apple’s products through the manufacture, use,
importation, sale, and/or offer for sale of Apple’s products, at least because, by way
of non-limiting example, Apple’s products do not satisfy the following claim
limitation: 11.[e].
307. As a result of the acts described in the foregoing paragraphs, there
exists a definite and concrete, real and substantial, justiciable controversy between
Apple and Qualcomm regarding the noninfringement of the ’469 patent with respect
to Apple’s products. This controversy is of sufficient immediacy and reality to
warrant the issuance of a Declaratory Judgment.
308. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 etseq., Apple requests the declaration of the Court that Apple does not infringe and
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has not infringed any claim of the ’469 patent.

2

COUNT XVIII

3

Declaration of FRAND Royalties for U.S. Patent No. 6,694,469

4309. Apple restates and incorporates by reference each of the allegations set

567

forth above.
310. Qualcomm has contractually obligated to license the ’469 patent on
FRAND terms and conditions.

8311. As a result of the acts described in the foregoing paragraphs, there

9exists a definite and concrete, real and substantial, justiciable controversy between

10Apple and Qualcomm regarding the FRAND royalty for the ’469 patent with

11

respect to Apple’s products. This controversy is of sufficient immediacy and reality

12

to warrant the issuance of a Declaratory Judgment.

13

312. To the extent that the ’469 patent is actually essential to a standard and14

infringed by Apple, then Qualcomm must (a) select as a royalty base, at most, the15smallest salable unit substantially embodying the ’469 patent, and (b) apply to that16

royalty base a reasonable royalty rate that reflects the actual technical contribution

17

to the standard that is attributable to the patent. See CSIRO, 809 F.3d at 1305;

18

Ericsson, 773 F.3d 1209; Innovatio IP Ventures, 2013 WL 5593609, at *13;

19

Microsoft, 2013 WL 2111217, at *74. As discussed above, Qualcomm has not20complied with these requirements, and has not offered FRAND terms, even if Apple21

has been benefitting from a license between Qualcomm and Apple’s CMs. As an

22alternative to its request for a declaration of noninfringement, Apple is entitled to a23

judicial declaration that sets a FRAND royalty for the ’469 patent in this manner.

24

COUNT XIX

25

Declaration of Noninfringement of U.S. Patent No. 9,059,819

26
27

313. Apple restates and incorporates by reference each of the allegations set
forth above.

28
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314. Representative claim 1 of the ’819 patent reads as follows (claim

2element enumeration added for convenience):
Claim 1[a] A method for wireless communications, comprising:[b] estimating channel quality information for a plurality of downlink carriers;[c] identifying a number of activated carriers in the plurality of downlink
carriers; and[d] configuring an uplink control channel based at least in part on a number ofactivated carriers in the plurality, of downlink carriers,[e] wherein the uplink control channel is configured using an encoding scheme
selected based at least in part on the number of activated carriers while
maintaining a constant feedback cycle independent of the number ofactivated carriers.

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

315. The ’819 patent is not essential to any Apple-practiced 3G/UMTS
standard, including, but not limited to, the standard described in 3GPP TS 25.212, atleast because, by way of non-limiting example, the 3G/UMTS standard does not
require the following claim limitation: 1.[b].
316. No claim of the ’819 patent has been or is infringed, either directly,
contributorily, or by inducement, literally or under the doctrine of equivalents, byApple or the purchasers of Apple’s products through the manufacture, use,
importation, sale, and/or offer for sale of Apple’s products, at least because, by way
of non-limiting example, Apple’s products do not satisfy the following claim
limitation: 1.[b].
317. As a result of the acts described in the foregoing paragraphs, there
exists a definite and concrete, real and substantial, justiciable controversy between
Apple and Qualcomm regarding the noninfringement of the ’819 patent with respect
to Apple’s products. This controversy is of sufficient immediacy and reality to
warrant the issuance of a Declaratory Judgment.
318. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 etseq., Apple requests the declaration of the Court that Apple does not infringe andhas not infringed any claim of the ’819 patent.
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COUNT XX

2

Declaration of FRAND Royalties for U.S. Patent No. 9,059,819

3319. Apple restates and incorporates by reference each of the allegations set

4
5
6

forth above.
320. Qualcomm has contractually obligated to license the ’819 patent on
FRAND terms and conditions.

7

321. As a result of the acts described in the foregoing paragraphs, there

8

exists a definite and concrete, real and substantial, justiciable controversy between

9Apple and Qualcomm regarding the FRAND royalty for the ’819 patent with

10

respect to Apple’s products. This controversy is of sufficient immediacy and reality

11

to warrant the issuance of a Declaratory Judgment.

12322. To the extent that the ’819 patent is actually essential to a standard and13

infringed by Apple, then Qualcomm must (a) select as a royalty base, at most, the14smallest salable unit substantially embodying the ’819 patent, and (b) apply to that15

royalty base a reasonable royalty rate that reflects the actual technical contribution

16

to the standard that is attributable to the patent. See CSIRO, 809 F.3d at 1305;

17

Ericsson, 773 F.3d 1209; Innovatio IP Ventures, 2013 WL 5593609, at *13;18

Microsoft, 2013 WL 2111217, at *74. As discussed above, Qualcomm has not19complied with these requirements, and has not offered FRAND terms, even if Apple20

has been benefitting from a license between Qualcomm and Apple’s CMs. As an

21

alternative to its request for a declaration of noninfringement, Apple is entitled to a22

judicial declaration that sets a FRAND royalty for the ’819 patent in this manner.

23

COUNT XXI

24

Declaration of Noninfringement of U.S. Patent No. 7,096,021

25
26
27

323. Apple restates and incorporates by reference each of the allegations set
forth above.
324. Representative claim 12 of the ’021 patent reads as follows (claim

28
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element enumeration added for convenience):
Claim 12[a] A terminal of a cellular radio system configures to initiate, while using afirst cellular radio system, measurement of the power levels of signals
transmitted by at least one second cellular radio system for a decision tochange over to said second cellular radio system, comprising:[b] means for receiving at least one threshold value transmitted to the terminalby the first cellular radio system,[c] means for measuring a power level of a signal transmitted by at least one
base station of the first cellular radio system,[d] means for comparing the measured power level with said at least one
threshold value,[e] means for transmitting to the first cellular radio system a request for a freetime period in which to perform the measurement, said means being
arranged to transmit the request for the free time period in which to performthe measurement only after said measured power level remains below said atleast one threshold value, and[f] means for initiating the measurement of the power level of the signal of atleast one base station of said at least one second cellular radio system during
at least one said free time period in which to perform the measurement,[g] wherein the terminal maintains radio connection with the first cellular radio
system while measuring the second cellular radio system.

16

325. The ’021 patent is not essential to the 3G/UMTS or the 4G/LTE

17

standard, including, but not limited to, the standard described in 3GPP TS 36.214,18

36.300, 36.331, at least because, by way of non-limiting example, the 4G/LTE

19

standard does not require the following claim limitation: 12.[e].

1
2
3
4
5
6
7
8
9
10
11
12
13
14

20

326. No claim of the ’021 patent has been or is infringed, either directly,

21

contributorily, or by inducement, literally or under the doctrine of equivalents, by

22Apple or the purchasers of Apple’s products through the manufacture, use,

23

importation, sale, and/or offer for sale of Apple’s products, at least because, by way

24

of non-limiting example, Apple’s products do not satisfy the following claim

25

limitation: 12.[e].

26327. As a result of the acts described in the foregoing paragraphs, there

27

exists a definite and concrete, real and substantial, justiciable controversy between

28

Apple and Qualcomm regarding the noninfringement of the ’021 patent with respect
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to Apple’s products. This controversy is of sufficient immediacy and reality to2warrant the issuance of a Declaratory Judgment.

3328. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et4seq., Apple requests the declaration of the Court that Apple does not infringe and5

has not infringed any claim of the ’021 patent.

6

COUNT XXII

7

Declaration of FRAND Royalties for U.S. Patent No. 7,096,021

8329. Apple restates and incorporates by reference each of the allegations set

9
10
11

forth above.
330. Qualcomm has contractually obligated to license the ’021 patent on
FRAND terms and conditions.

12

331. As a result of the acts described in the foregoing paragraphs, there

13

exists a definite and concrete, real and substantial, justiciable controversy between

14Apple and Qualcomm regarding the FRAND royalty for the ’021 patent with15

respect to Apple’s products. This controversy is of sufficient immediacy and reality

16

to warrant the issuance of a Declaratory Judgment.

17332. To the extent that the ’021 patent is actually essential to a standard and18

infringed by Apple, then Qualcomm must (a) select as a royalty base, at most, the19smallest salable unit substantially embodying the ’021 patent, and (b) apply to that20

royalty base a reasonable royalty rate that reflects the actual technical contribution

21

to the standard that is attributable to the patent. See CSIRO, 809 F.3d at 1305;

22

Ericsson, 773 F.3d 1209; Innovatio IP Ventures, 2013 WL 5593609, at *13;

23

Microsoft, 2013 WL 2111217, at *74. As discussed above, Qualcomm has not24complied with these requirements, and has not offered FRAND terms, even if Apple25

has been benefitting from a license between Qualcomm and Apple’s CMs. As an

26

alternative to its request for a declaration of noninfringement, Apple is entitled to a27

judicial declaration that sets a FRAND royalty for the ’021 patent in this manner.

28
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COUNT XXIII

2

Declaration of Unenforceability Due to Exhaustion

3
4
5
6
7
8

333. Apple restates and incorporates by reference each of the allegations set
forth above.
334. Qualcomm sells baseband processor chipsets to Apple’s CMs throughits sales subsidiary or branch, QCT.
335. The sale of Qualcomm chipsets to Apple’s CMs is authorized by
Qualcomm.

9336. Under the patent exhaustion doctrine, this authorized sale of chipsets by

10

Qualcomm to Apple’s CMs exhausts Qualcomm’s patent rights with respect to all

11

patents embodied in those chipsets. Quanta Computer, 553 U.S. at 638.

12337. As described above, Qualcomm has sought, and continues to seek,

13

separate patent license fees from Apple’s CMs for patents embodied in the chipsets

14

Qualcomm sells to Apple’s CMs, a practice that is prohibited under the patent

15

exhaustion doctrine. Apple’s CMs pass on these license fees to Apple in full.

16

338. Apple pays the entirety of both the license fee and the cost of the17

chipset itself through the web of agreements described herein. Apple pays the fees

18

that Qualcomm demands through Qualcomm’s agreements with Apple’s CMs.

19

Despite requests, Qualcomm has refused to give Apple access to the CMs’

20

agreements with Qualcomm.

21339. Qualcomm has attempted to evade the patent exhaustion doctrine by22

reorganizing its corporate structure to create an artificial division between

23(a) Qualcomm Inc., which holds Qualcomm’s patents, (b) Qualcomm’s wholly

24

owned subsidiary QTI, and (c) Qualcomm’s sales segment QTC, which is operated

25

by QTI and its subsidiaries.

26

340. Qualcomm, QTI, and QCT should be treated as a single entity for27

purposes of the patent exhaustion doctrine. Qualcomm’s parent and subsidiary

28
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entities share such a unity of interest that the separate personalities of the2

corporations no longer exist. The purported division between Qualcomm’s parent

3

and subsidiary entities is illusory and an attempt to evade the patent laws.

4

Qualcomm, QTI, and QCT collude in refusing to sell chipsets to manufacturers

5

unless they enter into separate patent license agreements, demonstrating a unity of

6interest of extracting excess royalties for Qualcomm for patents that would

7

otherwise be exhausted through sale. Respecting Qualcomm’s corporate

8

separateness will lead to an inequitable result, allowing Qualcomm to continue to9“double-dip” and collect excess royalties for patents exhausted through the10authorized sale of Qualcomm chipsets.

11341. As a result of the acts described in the foregoing paragraphs, there

12

exists a definite and concrete, real and substantial, justiciable controversy between

13

Apple and Qualcomm regarding the exhaustion of Qualcomm’s patent rights with

14

respect to patents embodied in baseband processor chipsets sold by Qualcomm to

15Apple’s CMs. This controversy is of sufficient immediacy and reality to warrant the16

issuance of a Declaratory Judgment.

17342. Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et

18

seq., Apple requests a judicial declaration that the sale of Qualcomm’s baseband

19

processor chipsets to Apple’s CMs exhausts Qualcomm’s patent rights for patents

20

embodied in those chipsets.

21

COUNT XXIV

22

Monopolization

23

343. Qualcomm’s

conduct,

asallegedherein,constitutes

unlawful

24

monopolization of the market for CDMA and premium LTE chipsets in violation of25

Section 2 of the Sherman Act, 15 U.S.C. § 2.

26344. The relevant technology markets for Apple’s monopolization claims are27

the markets for the technology embodied in its cellular SEPs. ETSI and other SSOs

28
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have promulgated standards for a number of wireless communication standards,

2

including LTE. By declaring its patents to be essential to those standards, and3

inducing reliance on its FRAND commitments, Qualcomm acquired monopoly

4

power in the market for the technologies on which each relevant SEP reads, and any

5

ex ante alternatives to those technologies.

6345. Before a standard is adopted, all of the alternative technologies to7

perform each particular function within the standard compete in a relevant product8

market consisting of all technologies capable of performing that function. Once a

9

SSO selects a particular patented technology to perform a particular function,

10competition within that technology market is eliminated, as competing technologies

11

are no longer available as alternative means of implementing the standard. As a12

result, standardization confers monopoly power on patented technologies embodied

13

in the standard, including the relevant standards on which Qualcomm’s declared-

14

essential patents read.

15

346. Alternatives to Qualcomm’s declared-essential patents were available in16

the LTE standard setting process. Qualcomm’s FRAND commitments induced

17

ETSI and other SSOs to incorporate the technologies covered by Qualcomm’s

18declared-essential patents in the LTE standard, thereby eliminating competition

19

within the relevant technology markets and conferring monopoly power within

20

those markets on Qualcomm.

21347. One

relevant

product

marketforthepurposesofApple’s

22

monopolization claim is the sale of premium LTE baseband processor chipsets. No

23other product, including 3G UMTS, CDMA, or low-end or mid-range LTE chipsets,

24

are a substitute for premium LTE chipsets for use in flagship devices such as

25

Apple’s iPhone intended for use on carrier networks that require LTE compatibility,

26

and no other product constrains the price of premium LTE chipsets at levels below

27

the monopoly price.

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1348. Another relevant product market for the purposes of Apple’s2monopolization claim is the sale of CDMA baseband processor chipsets. No other3

product, including 3G UMTS or LTE chipsets, are a substitute for CDMA chipsets

4for use in devices intended for use on carrier networks that require CDMA

5

compatibility, and no other product constrains the price of CDMA chipsets at levels

6

below the monopoly price.

7349. The relevant geographic market is worldwide.

8

350. As alleged above, Qualcomm’s monopoly power in the relevant product9

markets is shown by its high and durable market shares, substantial barriers to10

entry, and Qualcomm’s demonstrated ability to repeatedly force Apple to accept

11

one-sided, non-standard, and unreasonable supply terms.

12351. Since at least 2007, Qualcomm has engaged in systematic, continuous

13

conduct to exclude competition in the relevant chipset markets. Qualcomm’s

14

anticompetitive and exclusionary conduct is a multi-faceted but synergistic whole,15with each of the parts making possible and reinforcing the effects of the others.

16

Qualcomm’s anticompetitive conduct is based on the breach of its FRAND

17

commitments for its SEPs, which in turn gives Qualcomm the power to force

18

purchasers of its chipsets to first take a license to its SEPs, threaten disloyal chipset

19

customers with exorbitant SEP royalties, and to tie access to lower (but still far

20

above FRAND) royalties to exclusivity or near-exclusivity in the purchase of21

Qualcomm chipsets. This conduct has foreclosed Qualcomm’s competitors from22

dealing with Apple, a key purchaser of chipsets, leading to the marginalization and23

exit of many of those competitors, and to the acquisition and maintenance by24

Qualcomm of monopoly power. But-for Qualcomm’s conduct as alleged herein,

25

rival chipset manufacturers would have become stronger competitors to Qualcomm.

26

352. Qualcomm’s exclusionary conduct includes (i) refusing to deal with

27

competitors, in contravention of its FRAND commitments, (ii) gagging Apple’s

28
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ability to challenge Qualcomm’s non-FRAND licensing scheme, through paragraph22 of Section 7 of the BCPA; (iii) tying the purchase of its chipsets to the licensing

3of its SEPs; and (iv) requiring exclusivity from Apple as a condition of partial relief

4from Qualcomm’s exorbitant and non-FRAND royalties.

5353. First, Qualcomm’s refusal to offer SEP licenses on FRAND terms to its

6competitors, as alleged above, is an unlawful refusal to deal with competitors and7

an act of monopolization under Section 2 of the Sherman Act. A FRAND license

8

would give competing chipset manufacturers the right to market authorized, patent-

9exhaustive sales of chipsets to Apple and other mobile device suppliers.

10

Qualcomm’s failure to license on FRAND terms eliminates the ability of Apple and11other mobile device suppliers to purchase chipsets from Qualcomm’s competitors

12

without also paying royalties to Qualcomm, and thus exposes Apple and other13

mobile device suppliers to the threat of exorbitant non-FRAND royalties based on

14

the price of their mobile devices, a threat which Qualcomm uses to force Apple and15

others to deal exclusively or near-exclusively with Qualcomm on the purchase of

16

chipsets. In this way, Qualcomm’s refusal to offer a FRAND license to competitors

17

has a close causal connection with the acquisition and maintenance of monopoly

18

power in the LTE chipset market. But-for Qualcomm’s FRAND evasion,19

Qualcomm would have been forced to offer exhaustive patent licenses to its cellular

20

SEPs on FRAND terms to Intel, Broadcom, and others. An exhaustive patent

21

license to Qualcomm’s cellular SEPs would have made these chipset suppliers more

22

effective competitors to Qualcomm in the chipset market, leading to lower prices

23

and enhanced innovation in the chipset market, to the benefit of Apple and24

ultimately of consumers.

25

354. There is no legitimate business justification for Qualcomm’s strategic

26

refusal to license other chipset manufacturers. Qualcomm for many years licensed

27

such manufacturers. Qualcomm itself insists that device manufacturers do precisely

28
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what Qualcomm refuses to do: grant licenses to their SEPs to Qualcomm’s chipset

2unit. Given the relative paucity of chipset competitors and the fact that Qualcomm’s

3cellular SEPs are generally embodied in the chipset (or components thereof), it

4

would be considerably more efficient for licensing to occur first and foremost at the5chipset level.

6355. Second, paragraph 2 of Section 7 of the BCPA violates Section 2 of the7

Sherman Act by shielding Qualcomm’s non-FRAND licensing scheme from8

scrutiny by the judiciary and by government enforcement agencies. The BCPA’s

9gag clause prevented Qualcomm’s illegal and extortionate scheme from coming to

10light for years, and thereby enhanced and extended Qualcomm’s monopoly power

11

in the relevant chipset markets.

12356. Qualcomm’s recent conduct confirms the exclusionary purpose and13

effect of the BCPA’s gag clause. Qualcomm’s interpretation and enforcement of the14

gag clause, penalizing Apple for engaging with competition enforcement agencies,

15

reveals the fundamentally anticompetitive nature of that provision, and its integral

16role in Qualcomm’s multi-faceted scheme to evade FRAND and exclude chipset

17competitors.

18357. Practices that eliminate or make less likely the prospect that invalid or19

abusive patent licensing schemes will be challenged fall within the scope of the20

antitrust laws. As the Supreme Court made clear in FTC v. Actavis, Inc., the21

antitrust and patent laws alike seek to “eliminate unwarranted patent grants so the22

public will not ‘continually be required to pay tribute to would-be monopolists

23

without need or justification.’” 133 S. Ct. 2223, 2233 (2013) (quoting Lear, Inc. v.

24Adkins, 395 U.S. 653, 670 (1969)).

25

358. As alleged above, Qualcomm’s FRAND commitment is—or at least

26

should have been—an essential bulwark against the exercise of the power conferred27

on Qualcomm through the standardization process. By evading its FRAND

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commitments, Qualcomm gained the power to exclude competition in the chipset

2market, thereby harming Apple, and by penalizing Apple’s ability to challenge

3

Qualcomm’s FRAND evasion, Qualcomm maintained that power. Qualcomm’s

4

FRAND evasion, and paragraph 2 of Section 7 of the BCPA which protected that5evasion against legal challenge, contributed to the maintenance of monopoly power6

by allowing Qualcomm to continue the anticompetitive and exclusionary conduct

7

made possible by its FRAND evasion. But-for paragraph 2 of Section 7 of the8

BCPA, Qualcomm’s FRAND evasion, and its grasp on monopoly power in the9CDMA chipset market and the premium LTE chipset market, would have been

10

eliminated sooner, saving Apple and consumers at least hundreds of millions of11dollars.

12359. The exclusionary tendency of paragraph 2 of Section 7 of the BCPA is

13

magnified by the fact that Apple was one of the device manufacturers best

14

positioned, and most highly motivated, to challenge Qualcomm’s compliance with

15

FRAND. By muzzling Apple, Qualcomm eliminated a key constraint on its ability

16

to evade FRAND and exclude chipset competition, thereby meaningfully

17

contributing to the acquisition and maintenance of monopoly power in the relevant

18

chipset markets.

19

360. FRAND challenges by implementers of a standard such as Apple are20

vital to the enforcement of the FRAND commitment. Just as implementers are21

normally in the best position to determine whether or not an intellectual property

22

right is invalid, implementers are often well positioned to know whether a licensor’s

23

terms are compliant with FRAND. Apple’s prolific track record as a willing24

licensee of cellular SEPs from other patentees gives it insight into what FRAND is

25

and how far Qualcomm’s terms depart from FRAND, and positioned it well to26

challenge Qualcomm’s FRAND evasion.

27

361. Similarly, implementers such as Apple generally have the greatest

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economic incentive to challenge the terms of Qualcomm’s SEP licensing. A

2successful FRAND challenge by Apple would result directly in a more competitive

3

chipset market, and lower SEP royalties and chipset prices, to the benefit of Apple4and consumers. As a large and strategic purchaser of chipsets, Apple had

5particularly strong incentives in this regard. No other device manufacturer likely

6

would have benefitted as much as Apple from the introduction of additional

7

competition in the chipset market, and for these reasons muzzling Apple through8

Section 7, paragraph 2 of the BCPA contributed significantly to the maintenance of

9

Qualcomm’s non-FRAND licensing and the monopoly power it made possible.

10362. By exposing Apple to billions of dollars in additional royalty payments

11

during the term of a FRAND challenge, Section 7, paragraph 2 of the BCPA

12

reduced Apple’s ability and incentive to enforce Qualcomm’s FRAND

13

commitments.

14363. By limiting Apple’s ability and incentive to challenge Qualcomm’s

15compliance with FRAND, Section 7, paragraph 2 of the BCPA harmed competition16

and consumers. Specifically, Section 7, paragraph 2 allowed Qualcomm to continue

17

to charge non-FRAND royalties at the expense of consumers, and to extend its

18

exclusionary and non-FRAND licensing scheme.

19364. Section 7, paragraph 2 is outside the scope of Qualcomm’s patent

20

rights. The restriction of Apple’s freedom to challenge Qualcomm’s compliance21

with FRAND is not an incident of Qualcomm’s patent rights. See Bendix Corp. v.

22

Balax, Inc., 421 F.2d 809, 821 (7th Cir. 1970) (“From all this we can only conclude

23

that the right to estop licensees from challenging a patent is not part of the ‘limited

24

protection’ afforded by the patent monopoly.”).
365. Competition agencies around the world have found similar restraints to

25
26

be

anticompetitive.

For

27

anticompetitive that a SEP owner insisted, under the threat of the enforcement of an

28
APPLE INC.’S COMPLAINT

example,the87

EuropeanCommission

found

it

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injunction, that Apple give up its rights to challenge the validity or infringement by

2

Apple’s mobile devices of those SEPs. Similarly, the NDRC in 2015 fined3

Qualcomm nearly $1 billion for anticompetitive conduct that included the4

imposition of contract terms on device manufacturers that penalized, but did not

5expressly prevent, them from challenging Qualcomm’s SEP licensing. The FTC

6recently alleged that Qualcomm’s anticompetitive business model was premised on

7just such a practice of coercing customers into abandoning FRAND determinations

8

by the courts or neutral third parties, and filed suit to permanently enjoin the9scheme.

10366. Third, for many years, Qualcomm has tied together the sale of its

11baseband processor chipsets and licenses to its SEPs. Qualcomm will sell baseband

12

processor chipsets only to “Authorized Purchasers,” who in turn must license a

13

broad portfolio of patent rights, including Qualcomm’s SEPs. Under this14

arrangement, Apple’s CMs were required to enter into contracts with Qualcomm

15

conditioning sales of baseband processor chipsets on the license of Qualcomm’s

16patent portfolio, passing licensing fees along to Apple. Due to Qualcomm’s refusal

17

to license rival chipset manufacturers, device manufacturers purchasing baseband

18

processor chipsets from Qualcomm’s competitors must also become Authorized

19

Purchasers of Qualcomm, despite the fact that they may purchase few or no chipsets

20

from Qualcomm, and similarly take a license to Qualcomm’s patent rights,

21

including its SEPs. In essence, Qualcomm makes licenses to its SEPs available to22

only those who purchase its chipsets, and chipsets available to only those who

23

license its SEPs. In this manner, Qualcomm ensures that all chipset purchasers,

24

whether they buy chipsets from Qualcomm or a competitor, must negotiate with

25

Qualcomm for a license.

26

367. By ensuring that all chipset purchasers must negotiate a license to27

Qualcomm’s SEPs, regardless of where those chipsets are purchased, Qualcomm

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gains the ability to levy a tax—in the form of non-FRAND royalties—on the2chipsets sold by Qualcomm’s competitors. By giving Qualcomm the ability to levy

3

a tax on the chipsets sold by its competitors, the Authorized Purchaser requirement

4

gives Qualcomm the ability to raise its rivals’ costs and make them less effective

5

competitors. In this way, the Authorized Purchaser requirement is exclusionary,

6

giving Qualcomm the power to exclude competition and harm device

7

manufacturers, including Apple, through the imposition of non-FRAND royalties

8

and monopoly overcharges on chipsets.

9368. Qualcomm’s high nominal royalty rates for its SEPs give handset

10

manufacturers powerful incentives to seek discounts off those rates, particularly

11

manufacturers of feature-rich smartphones and tablets such as Apple, who are

12

disproportionately burdened by Qualcomm’s royalty structure. Qualcomm uses the13

threat of its high nominal royalty rates for its SEPs to force Apple and other device

14

manufacturers to purchase substantial quantities of its baseband processor chipsets,

15

offering in exchange to reduce the royalty for its SEPs to levels closer to, although

16

still far above, the range required by FRAND.

17369. Through threatening to impose non-FRAND royalties for its SEPs, and18

then conditioning discounts off of those confiscatory royalty rates on chipset

19

loyalty, Qualcomm exercises substantial market power. In particular, Qualcomm

20

exercises this power directly, by charging SEP royalties far in excess of FRAND

21

rates, and indirectly, by forcing the purchase of substantial quantities of a second

22

product—baseband processor chipsets—that Apple and other customers would

23

prefer to purchase from Qualcomm’s rivals, and by seeking to impose other24

burdensome terms, including cross-licenses to non-SEPs. Qualcomm’s ability to25

impose a burdensome tie of a license to its SEPs and its baseband processor chipsets

26

is direct evidence of the exercise of monopoly power.

27

370. Qualcomm ties licenses to its SEPs to purchases of baseband processor

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chipsets despite the requests of device manufacturers for the provision of these2

products on an unbundled basis. Given the opportunity, many device manufacturers,

3

including Apple, would prefer to license Qualcomm’s SEPs at FRAND rates, and to

4purchase baseband processor chipsets from Qualcomm’s competitors, rather than be5forced to purchase from Qualcomm a bundle comprising a license to Qualcomm’s

6

SEPs and substantial quantities of baseband processor chipsets.

7371. Qualcomm’s tie of licenses to its SEPs and baseband processor chipsets

8

forecloses substantial portions of the baseband processor chipset market to

9

Qualcomm’s competitors, particularly the sale of premium LTE chipsets for use in10

the feature-rich smartphones and tablets disproportionately burdened by

11

Qualcomm’s royalty structure. Due to the importance of scale economies in the

12

manufacture and sale of baseband processor chipsets, and the significant

13commercial validation and learning-by-doing that would be available to rivals but-

14for Qualcomm’s foreclosure of sales to Apple, the foreclosure attributable to15

Qualcomm’s tie of baseband processor chipsets and licenses to its SEPs is

16

substantial and significantly contributes to the creation and maintenance of17

Qualcomm’s monopoly power.

18372. There is no procompetitive justification for the Authorized Purchaser

19

requirement. Other suppliers convey intellectual property rights in the sale of the20

products embodying that intellectual property, as does Qualcomm in markets where21

it lacks monopoly power.

22373. Fourth, since 2011, Qualcomm has conditioned billions of dollars in

23

lump sum payments, discounts, rebates, and royalty rebates and caps on the express

24

agreement by Apple to purchase chipsets for smartphones and tablet computers25

exclusively from Qualcomm, through the TA and the FATA. It has done so in a26

variety of ways, including (a) specific forward-looking loyalty rebates on chipset

27

prices that are expressly conditioned on exclusivity; (b) clawback of previously paid

28
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rebates if Apple uses any non-Qualcomm chipsets; and (c) a royalty cap implicitly

2

conditioned on chipset exclusivity. [Exhibit E, TA § 1.5; Exhibit F, FATA

3§§ 1.3A(c), 1.3B(b), 1.5, 1.5A.]

4

374. Until recently, these payments have precluded Apple from cost-5effectively shifting even a portion of its chipset purchases from Qualcomm to6

Qualcomm’s competitors, because shifting even a small portion of Apple’s

7purchases to a competitor would result in lost price and royalty concessions on all

8purchases from Qualcomm (including in many cases price concessions on past

9

purchases), including on many products and product lines that Qualcomm’s

10competitors could not supply at all (i.e., CDMA chipsets) or in sufficient quantities

11

to meet all of Apple’s needs (e.g., premium LTE chipsets). Although Apple has for12

many years been ready and able to switch a smaller portion of its baseband

13

processor chipset purchases (e.g., for non-CDMA iPads) to Qualcomm’s rivals,

14

Qualcomm’s imposition of exclusivity has prevented Apple from switching15

suppliers on a less than full-line basis, even with non-Qualcomm chipsets priced

16

substantially lower than comparable Qualcomm chipsets.

17375. But-for these exclusivity conditions, to which Apple was forced to18

agree to avoid paying royalty rates on all purchases of chipsets practicing

19

Qualcomm’s SEPs that were well above FRAND levels, Apple would have shifted

20

at least a portion of its chipset purchases to Qualcomm’s rivals, thereby making

21

those rivals more effective competitors to Qualcomm in the future, and providing to

22Apple the benefit of a more competitive baseband processor chipset market.

23376. However, until recently, these penalties have made it economically24

infeasible for Apple to purchase any baseband processor chipsets from Qualcomm’s

25competitors. It is not feasible to switch a substantial portion of Apple’s

26

requirements to a new supplier all at once, or even over a short period of time, and27

therefore Qualcomm’s rivals could not compete on the all-or-nothing terms imposed

28
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by Qualcomm.

2377. As a result, from Fall 2011 through Spring 2016, all of Apple’s new

3cellular devices used Qualcomm chipsets exclusively. Apple used only Qualcomm

4baseband processor chipsets in the iPhone 4s, iPhone 5, iPhone 5s, iPhone 5c,

5iPhone 6, iPhone 6 Plus, iPhone 6s, iPhone 6s Plus, and iPhone SE and in cellular-

6enabled models of the iPad third generation, iPad fourth generation, iPad Air, iPad7

Air 2, iPad Minis, and iPad Pros.

8378. The anticompetitive effects of Qualcomm’s conduct include the9elevation of CDMA and premium LTE chipset prices above competitive levels, the10

imposition on Apple of onerous, unreasonable, and costly supply terms, the11

suppression of innovation in the chipset market, and the elimination of Apple’s

12ability to choose its supplier of chipsets in a competitive market.

13379. Foreclosure of Apple was competitively significant due to Apple’s

14

status as a high-volume purchaser of CDMA and premium LTE chipsets, as well as

15

the significant benefits that come from being a component supplier to Apple. Those16

benefits include the opportunity to learn about consumer demand from Apple, to17learn about Apple’s demanding technical requirements, to sell large volumes of18

chipsets to a single buyer for a single model sold world-wide, and the commercial

19

validation that comes from supplying components to Apple. By foreclosing

20

competitors from dealing with Apple, Qualcomm deprived those competitors of

21

these benefits, cementing its grasp on monopoly power in the CDMA and premium

22

LTE chipset markets.

23

380. There is no procompetitive justification for the exclusivity terms or

24royalty rebates. Qualcomm’s imposition of exclusivity was not reasonably

25

necessary to protect any investments that Qualcomm made in customizing its

26

products for Apple, for which Qualcomm separately charges Apple, or to encourage

27

Qualcomm to make available sufficient supply for Apple’s products.

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COUNT XXV

2

Violations of the California Unfair Competition Law

3
4381. Apple restates and incorporates by reference each of the allegations set
forth above.

5

382. By the acts alleged, Qualcomm has engaged in unfair competition

6

within the meaning of California Business & Professional Code § 17200, et seq.,

7(the “Unfair Competition Law” or “UCL”), which prohibits “unlawful, unfair or8

fraudulent” business acts and practices.

9383. For example, it is unlawful under the Unfair Competition Law for10

Qualcomm to withhold nearly a billion dollars in BCP Payments in retaliation for

11Apple’s engagement with competition and other regulatory bodies. The

12interpretation that Qualcomm is advancing—importing a term into the BCPA that

13

would allow Qualcomm to withhold payments based on its view of the truth or

14

falsity of a statement and to retaliate against Apple for responding to agency

15

requests, for example—violates public policy by discouraging Apple’s cooperation

16

with agency investigations. In addition, by discouraging Apple from cooperating

17

with antitrust agency investigations, which by definition protect consumers from18

anticompetitive conduct, Qualcomm is violating the antitrust laws. Columbia Metal

19

Culvert Co. v. Kaiser Aluminum & Chem. Corp., 579 F.2d 20, 30–32 (3d Cir.

201978) (holding that retaliation against customer for placing orders to competitor

21

could constitute monopolization or attempted monopolization in violation of

22

Section 2 of the Sherman Act).

23

384. Moreover, Qualcomm’s withholding of nearly a billion dollars in BCP

24

Payments is unlawful because Qualcomm’s interpretation of that provision and25

actions in withholding payment constitute an unreasonable penalty within the26meaning of California Civil Code § 1671(b). As Qualcomm is interpreting it, the27

second paragraph of Section 7 of the BCPA is an unreasonable liquidated damages

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provision because the BCP Payments that Qualcomm withheld bear no reasonable2

relationship to the range of actual damages that Qualcomm or Apple could have3

anticipated would flow from a breach at the time the contract was made. Thus,

4

Qualcomm’s interpretation creates an unlawful penalty against Apple, and Apple5

has suffered harm as a result.

6385. In addition, as alleged above, Qualcomm has unlawfully monopolized7

the markets for CDMA chipsets and premium LTE chipsets, in violation of Section

8

2 of the Sherman Act, 15 U.S.C. § 2. This action “threatens an incipient violation of

9an antitrust law, or violates the policy or spirit of one of those laws because its

10

effects are comparable to or the same as a violation of the law, or otherwise

11

significantly threatens or harms competition.” Cel-Tech Comm’ns, Inc. v. L.A.

12

Cellular Tel. Co., 973 P.2d 527, 544 (Cal. 1999).

13

386. As another example, Qualcomm engaged in unlawful conduct by

14

refusing to offer licenses consistent with its FRAND commitments with respect to

15

the Patents-in-Suit, despite its commitments to, among other SSOs, ETSI, and16

despite the market’s reliance on Qualcomm’s FRAND commitments. Believing

17

Qualcomm was acting in good faith, these SSOs agreed to incorporate Qualcomm’s

18patents into various mobile wireless standards, including standards for LTE. Now,

19

having obtained the dominant position that comes with having its patents declared

20

essential, Qualcomm seeks and has sought to use its dominant position to exact the21very unfair royalties it promised to eschew. Qualcomm seeks and has sought to use

22

its dominant position in the supply of CDMA and premium LTE chipsets to exact

23

unfair, unreasonable, and discriminatory royalties.

24

387. Qualcomm’s unlawful business acts and practices significantly threaten25

and harm competition in the market for mobile wireless handsets, tablets, and other26

CDMA- and LTE-compliant products, in California and elsewhere, thereby causing

27

injury to consumers. These threatened injuries include the inevitable passing on to28
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consumers of improper royalties demanded by Qualcomm.

2388. Qualcomm’s unlawful and deceptive business acts and practices are a3

direct and proximate cause of injury to Apple. Apple has suffered harm in

4

California and elsewhere as a supplier of handsets, tablets, and other CDMA- and5LTE-compatible products. Further, Apple has suffered or faces the threat of loss of6

profits, loss of customers and potential customers, and loss of goodwill and product7

image in the market for CDMA- and LTE-compatible products.

8389. Apple thus seeks an injunction pursuant to Section 17203 of the9

California Business and Professions Code prohibiting Qualcomm from engaging in

10

these unlawful and deceptive business practices in the future, including an

11injunction preventing Qualcomm from retaliating against Apple for its lawful

12

engagement with regulatory authorities, and other remedies available at law and13

equity for the harm caused by Qualcomm’s conduct.
JURY DEMAND

14
15

Apple demands a trial by jury on all issues so triable.

16

PRAYER FOR RELIEF

17

WHEREFORE, Apple prays for relief, as follows:

18

A.

Adjudge and decree that Qualcomm is liable for breach of contract;

19

B.

Adjudge and decree that Qualcomm breached the implied covenant ofgood faith and fair dealing;

20
21

C.

Adjudge and decree that Qualcomm must pay the remaining BCP

22

Payments, or damages in the amount of the accrued but unpaid

23

payments, plus interest;24

D.

the BCPA;

25
26
27

Adjudge and decree that Apple did not breach its obligations underE.

Adjudge and decree that each of the Patents-in-Suit is not essential to
any Apple-practiced 3G/UMTS and/or 4G/LTE standard and is not

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infringed by Apple, or the purchasers of Apple’s products, through the2making, using, offering to sell, sale, or import of Apple’s products

3that support 3G/UMTS and 4G/LTE;

4

F.

As an alternative, for any of the Patents-in-Suit found to be actually

5essential to any Apple-practiced 3G/UMTS and/or 4G/LTE standard

6

and infringed by Apple, adjudge and decree that Qualcomm has not7

offered Apple a non-discriminatory license, with reasonable rates and8with reasonable terms and conditions;

9G.

As an alternative, for any of the Patents-in-Suit found to be actually

10

essential to any Apple-practiced 3G/UMTS and/or 4G/LTE standard

11

and infringed by Apple, adjudge, set, and decree a FRAND royalty

12that (a) uses a royalty base of (at most) the smallest salable unit

13

substantially embodying the claimed invention and (b) sets a

14

reasonable rate applied to that royalty base that reflects the actual

15

technical contribution to the standard that is attributable to the patent;

16

H.

As an alternative, if any of the Patents-in-Suit found to be actually

17

essential to any Apple-practiced 3G/UMTS and/or 4G/LTE standard

18

and infringed by Apple, declare that the Patents-in-Suit are19

unenforceable as against Apple for patent exhaustion, where those20

patents are embodied in Qualcomm chipsets used in Apple products;

21

I.

Apple that are not consistent with Qualcomm’s obligations;22
23

Enjoin Qualcomm from further demanding excessive royalties from

J.

Order Qualcomm to disgorge non-FRAND royalties that Qualcomm

24previously extracted from Apple, including royalties paid through25

Apple’s CMs, and pay such unjust gain to Apple;

26
27

K.

Adjudge and decree that Qualcomm cannot seek injunctive relief or
exclusion orders against Apple based on the Patents-in-Suit, but rather

28
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96

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is limited to (at most) FRAND royalties as described above;

1
2

L.

Adjudge and decree that Qualcomm has violated Section 2 of the3

Sherman Act and enjoin Qualcomm from further violations of that4

statute;5

M.

Adjudge and decree that Qualcomm violated the California Unfair

6Competition Law and enjoin Qualcomm from further violations of

7

that Law;

8N.

relating to Apple’s iPhones and iPads;

9
10

O.

Enjoin Qualcomm from taking any adverse or legal action against
Apple’s CMs related to the allegations in the Complaint;

11
12

Adjudge and decree that Qualcomm may not interrupt chipset supplies

P.

Enjoin Qualcomm from imposing or enforcing any unlawful and/or

13

non-FRAND terms and conditions relating to Apple’s iPhones and

14

iPads;

15

Q.

Enjoin Qualcomm from further unlawful actions;

16

R.

Enter judgment awarding Apple its expenses, costs, and attorneys’

17

fees in accordance with Rule 54(d) of the Federal Rules of Civil

18

Procedure;

19

S.

Award reasonable attorneys’ fees;

20

T.

Award costs of suit; and21

U.

Award such other and further relief as the Court deems just and

22
23
24

proper.
Dated: January 20, 2017

Respectfully submitted,
By: s/ Juanita R. Brooks
Juanita R. Brooks (SBN 75934)
brooks@fr.com
FISH & RICHARDSON P.C.
12390 El Camino RealSan Diego, CA 92130

25
26
27
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Telephone: (619) 678-5070
Facsimile: (619) 678-5099

1
2

Ruffin B. Cordell (DC Bar No. 445801;
pro hac vice pending)cordell@fr.com
Lauren A. Degnan (DC Bar No. 452421;
pro hac vice pending)degnan@fr.com
Leah A. Edelman (DC Bar No. 1026830;
pro hac vice pending)edelman@fr.com
FISH & RICHARDSON P.C.
1425 K Street, N.W., 11th Floor
Washington, DC 20005
Telephone: (202) 783-5070
Facsimile: (202) 783-2331

3
4
5
6
7
8
9
10
11

Benjamin C. Elacqua (TX SBN 24055443;
pro hac vice pending)elacqua@fr.com
FISH & RICHARDSON P.C.
One Houston Center, 28th Floor
1221 McKinney
Houston, TX 77010
Telephone: (713) 654-5300
Facsimile: (713) 652-0109

12
13
14
15
16

Betty H. Chen (SBN 290588)
FISH & RICHARDSON P.C.
500 Arguello Street, Suite 500
Redwood City, CA 94063
Telephone: (650) 839-5070
Facsimile: (650) 839-5071

17
18
19
20
21

Aamir Kazi (GA SBN 104235;
pro hac vice pending)kazi@fr.com
1180 Peachtree St. NE, 21st Floor
Atlanta, GA 30309
Telephone: (404) 892-5005
Facsimile: (404) 892-5002

22
23
24
25

William A. Isaacson (DC Bar No. 414788;
pro hac vice pending)wisaacson@bsfllp.com
Karen L. Dunn (DC Bar No. 1002520; pro

26
27
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APPLE INC.’S COMPLAINT

98

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hac vice pending)kdunn@bsfllp.com
Amy J. Mauser (DC Bar No. 424065; pro
hac vice pending)amauser@bsfllp.com
Christopher G. Renner (DC Bar No.
1025699; pro hac vice pending)crenner@bsfllp.com
BOIES, SCHILLER & FLEXNER LLP
1401 New York Avenue, N.W.
Washington, DC 20005
Telephone: (202) 237-2727
Facsimile: (202) 237-6131

1
2
3
4
5
6
7
8

Steven C. Holtzman (SBN 144177)
sholtzman@bsfllp.com
Gabriel R. Schlabach (SBN 304859)
gschlabach@bsfllp.com
BOIES, SCHILLER & FLEXNER LLP
1999 Harrison Street, Suite 900
Oakland, CA 94612
Telephone: (510) 874-1000
Facsimile: (510) 874-1460

9
10
11
12
13
14

Meredith R. Dearborn (SBN 268312)
mdearborn@bsfllp.com
BOIES, SCHILLER & FLEXNER LLP
425 Tasso Street, Suite 205
Palo Alto, CA 94307
Telephone: (650) 445-6400
Facsimile: (650) 329-8507

15
16
17
18
19

Attorneys for Plaintiff Apple Inc.

20
21
22
23
24
25
26
27
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APPLE INC.’S COMPLAINT

99

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TABLE OF EXHIBITS

1
2

Exhibit No.

Pages

3

A

1-17

B

18-29

C

30-46

D

47-66

E

67-71

F

72-79

G

80-88

H

89-106

I

107-133

J

134-140K

141-156

L

157-174M

175-188N

189-219

O

220-229

4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

APPLE INC.’S COMPLAINT

100

CASE NO. _____