SAN FRANCISCO — For the past two years, Apple and Qualcomm have dueled on three continents over the division of billions of dollars of smartphone profits and even how much consumers pay for their phones.
On Tuesday, just as a trial had begun in a federal courtroom in San Diego over a suit Apple had filed against Qualcomm, the two companies said they had essentially made up.
The companies, one the maker of iPhones and the other one of the largest providers of mobile chips, said they had agreed to dismiss all litigation between them worldwide. They added that they had reached a six-year agreement for Apple to pay royalties on Qualcomm’s patents, which was effective as of April 1.
That deal included a two-year option to extend, plus a multiyear chip supply agreement. In addition, Apple will make an undisclosed one-time payment to Qualcomm and pay unspecified patent royalties to the chip maker.
At the heart of the disputes was a disagreement over how Qualcomm charges royalties on patents that it holds on mobile chips. The company, based in San Diego, had pioneered a type of cellular communications in the 1990s that later became a mainstay of mobile devices. It charged the royalties on nearly every smartphone sold — even if the phone did not actually use Qualcomm chips. Apple eventually objected to that arrangement.
The provisions of the deal announced on Tuesday suggest at least a partial victory for Qualcomm’s patent-driven business model, which has also attracted harsh scrutiny from regulators like the Federal Trade Commission in a separate case awaiting a federal judge’s ruling. Qualcomm’s shares, which have been hurt by the two-year dispute with Apple, jumped 23 percent on word of the settlement.
In agreeing to settle the case, Apple tacitly acknowledged it was able to live with Qualcomm’s business model — assuming the price of Qualcomm’s royalties is more to Apple’s liking. The parties disclosed no financial details, but a slide they distributed Tuesday said the deal “reflects value and strength of Qualcomm’s intellectual property.”
An Apple spokesman and a Qualcomm spokeswoman said no further details of the settlement were immediately available. Qualcomm said more information might be disclosed when it releases financial results on May 1.
The F.T.C., in its case filed in early 2017, had alleged that Qualcomm was able to charge unfairly large royalties because handset makers had no leverage to negotiate, especially because Qualcomm supplied two key types of chips and could cut off shipments if they balked at paying royalties.
Apple, which sued Qualcomm shortly after the F.T.C.’s action in early 2017, objected particularly to basing royalties on a phone’s total price. That formula, Apple argued, meant that Qualcomm earns more money as handset makers add innovations like displays, touch sensors and data storage unrelated to wireless technology.
The case dragged on with four Asia-based contract manufacturers that assemble iPhones and iPads, whose suits against Qualcomm were merged with Apple’s. They argued that they collectively overpaid Qualcomm roughly $9 billion in royalties over the years — a figure that could have been tripled under antitrust laws to $27 billion. Apple also had said Qualcomm should also repay $3.1 billion associated with patents whose rights Apple says have exhausted.
The settlement between Qualcomm and Apple caught the technology industry by surprise. In the past, Apple had refused to settle an intellectual property fight with Samsung Electronics, pursuing the case for seven years all the way to the Supreme Court before eventually calling a truce last year. The case with Qualcomm had gotten so ugly and so personal that observers thought Apple would be even less likely to settle quickly.
“I’m floored,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, a technology analysis firm. “Qualcomm got the bigger win because it had the most to lose and the most to gain. And it ended today.”
Mr. Moorhead said that both sides had incentive to wrap up the proceedings. For Apple, this deal seems to open the door for future iPhones to be able to use Qualcomm’s wireless chips with faster 5G connectivity — something that competitors are expected to start introducing this year. For Qualcomm, it no longer has the industry’s biggest brand threatening to upend how it makes money.
[This story is developing and will be updated.]
Follow Don Clark and Daisuke Wakabayashi on Twitter: @donal888 and @daiwaka.
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