Qualcomm is escalating its patent dispute with Apple by suing the contractors that build iPhones for the Cupertino-based company. Filed Wednesday in a federal district court in San Diego, the lawsuit accuses Compal Electronics, Foxconn, Pegatron and Wistron of breaching patent-licensing agreements with Qualcomm by halting royalty payments on Qualcomm technology used in iPhones and iPads.
Apple originally sued Qualcomm for $1 billion, saying that the mobile chip maker had been dramatically overcharging it for the use of basic patents. Qualcomm hit back with a countersuit, claiming among other things, that Apple deliberately hindering the performance of Qualcomm chips in certain iPhone 7 models to make Intel chips look better and that it encouraged regulatory attacks on Qualcomm's business.
Apple doesn't have a patent license directly with Qualcomm, relying instead on licenses held by the contract manufacturers, whom Apple reimburses. However, in an aggressive move, last month the iPhone maker reportedly instructed its manufacturing partners to stop paying royalties to Qualcomm, as it wasn’t going to reimburse them anymore until a court determines how much it actually owes. Apple agreed to indemnify them against any damages they may incur by failing to pay royalties to Qualcomm.
"We've been trying to reach a licensing agreement with Qualcomm for more than five years but they have refused to negotiate fair terms," an Apple representative told Market Watch.
Qualcomm's patent-licensing segment in fiscal 2016 contributed roughly 80% of its pretax profit.