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Did Apple steal Qualcomm’s proprietary cellular modem technology to give it to Intel?

On Monday night (September 24, 2018), Qualcomm amended an earlier complaint it had filed against Apple back in November of 2017 with the Superior Court of California, claiming that Apple had illegally shared some of Qualcomm’s proprietary technologies and software with Intel.

While Qualcomm’s original complaint was filed to resolved alleged interference by Apple when Qualcomm, per its Master Software Agreement (MSA*) with Apple, attempted to audit Apple’s use of its proprietary Qualcomm modem technologies and software, this week’s filing alleges that Apple also deliberately and knowingly shared some of Qualcomm’s cellular modem trade secrets with Intel.

* At Apple’s “request,” Qualcomm had granted Apple unprecedented access to proprietary software and tools, including some of its source code, with specific limits and conditions on how they could be used. (A practice believed to be common when Apple works with key technology suppliers.) While the stated intent for the request focused on fine-tuning Qualcomm chips to be used in Apple products, Qualcomm now alleges that Apple used that access to better understand how Qualcomm modems work in order to help Intel develop better modems of their own.

Per Qualcomm:

“Although discovery is ongoing, it is clear that Apple’s conduct went far beyond simply breaching the contract originally sued on. Indeed, it is now apparent Apple has engaged in a years-long campaign of false promises, stealth, and subterfuge designed to steal Qualcomm’s confidential information and trade secrets for the purpose of improving the performance and accelerating time to market of lower-quality modem chipsets, including those developed by Intel Corporation, competitor of Qualcomm, to render such chipsets useable in Apple iPhones and other devices, with the ultimate goal of diverting Qualcomm’s Apple-based business to Intel.”

“Apple has wrongfully acquired, failed to protect, wrongfully used, wrongfully disclosed, and outright stolen Qualcomm’s confidential information and trade secrets, and Apple used that stolen technology to divert Qualcomm’s Apple-based business to Intel.”

You can read the full proposed amendment to the complaint here, courtesy of Axios, whose coverage of the case you might also want to read.

We will have to wait for the discovery phase of this lawsuit to find out exactly what evidence Qualcomm has in its possession to support these claims (or at least what elements of that evidence can be made public), but my guess is that if it weren’t rock-solid, Qualcomm wouldn’t have filed this amendment to the complaint, let alone phrased it so forcefully.

Disappointingly, Apple declined to respond to the allegations and, per The San Diego Union Tribune, pointed to earlier statements made about Qualcomm over a year ago:

 “Qualcomm’s illegal business practices are harming Apple and the entire industry. They supply us with a single connectivity component, but for years have been demanding a percentage of the total cost of our products – effectively taxing Apple’s innovation.”

Aside from being demonstrably untrue, what strikes me the most about that statement is that it is in no way an adequate response to allegations of theft or the precarious situation that Apple now finds itself in. That can’t be good. As we draft this article, Intel has not yet commented on the matter either.

But how did we get here? If you don’t already know, and you have a few minutes to spare, I can help you retrace Apple, Qualcomm and Intel’s steps from 2006 to now in less time than it will take you to finish your cup of coffee.

 

Part 1: Apple and Qualcomm – an abridged history

For years, Apple sourced components (like modems), software, engineering expertise, and technology licensing from Qualcomm. Much of the technology that makes an iPhone actually work the way it does – from critical features like cellular connectivity and battery management to more UI-based features like “airplane mode” – was developed and/or licensed by Qualcomm. I will forever give Apple due credit for having integrated these technologies into revolutionary devices like iPod, iPhone, and iPad with an exceptional degree of vision, design genius, and precision craftsmanship, but without Qualcomm, Apple would likely not be in the smartphone business today – or at least not in the dominant market position it has enjoyed for the last decade. Feel free to disagree with that viewpoint, but I am confident that I can back up my argument. At any rate, as far as I can tell, in 2011, all cellular modems inside iPhones were made by Qualcomm.

For reasons we may never completely understand, Apple never seemed entirely comfortable with its relationship with Qualcomm. Perhaps Apple would have preferred not to have to depend on an external partner for so much of the technical innovation it depends on to remain competitive. Perhaps Apple would have preferred to exert more control over the pricing of components like modems and chipsets it puts into its devices. Perhaps Apple would have preferred to exert more control over the pricing of licensing for technologies without which its devices could not compete in a market driven by wireless connectivity and form-factor-specific technology integration. Perhaps Apple would have preferred to exert more control over who else had access to these technologies. (Apple tends to favor a closed and proprietary technology ecosystem, or “stack,” over Google and Qualcomm’s “open-to-all” ecosystem.) Perhaps Apple execs simply didn’t hit it off with Qualcomm execs, and the two cultures just never really meshed. And perhaps Apple has a habit of treating its partners more like disposable suppliers than as true business or technology partners. No one really knows why this rift started. Jealousy? Culture? Pricing? Resentment? Maybe it was a little bit of everything. Whatever planted the seeds of that souring between Apple and Qualcomm may be irrelevant now. What matters is that the seed was allowed to grow, and sometime between 2016 and 2017, friction between the two companies erupted into an all-out legal war spanning several continents.

Here are three articles you may also want to read to better understand the war raging between Apple and Qualcomm:

• Qualcomm Fights Back: Defending The Future of Innovation and IP Laws
• Asleep At The Wheel: Lazy Journalism and The Apple vs Qualcomm Dispute
• A turning of the tide: How Apple v. Qualcomm became Qualcomm v. Apple

 

Part 2: Apple and Intel – an abridged timeline

2005 – 2013

Meanwhile, Apple had begun to develop an opportune relationship with another market-leading chipmaker – Intel. As you may recall, during its June of 2005 Worldwide Developer Conference, Apple announced that it would transition from Power PC CPUs to Intel CPUs. (Remember Intel’s Xeon 5100 CPU?)

2016 –

In 2016, Apple expanded that partnership by giving Intel a shot at the iPhone 7. Some models shipped with Qualcomm modems while others shipped with Intel modems.

2017 –

Though not obvious at the time, iPhones equipped with Intel modems underperformed iPhones equipped with Qualcomm modems, which should come to no surprise to anyone who keeps an eye on the wireless industry. Intel’s rock-solid processor and process-node technology achievements notwithstanding, Qualcomm is ahead of Intel in certain areas, and cellular connectivity, Bluetooth, and low-power computing sit squarely at the top of that list. (Different strengths for different companies. Nothing wrong with that.)

Rumors started circulating that Apple was throttling (artificially putting speed limits) on Qualcomm modems used in iPhones to make the Intel modems seem on par with Qualcomm’s. Once Apple declared war on Qualcomm at the start of 2017, the gloves came off, and Qualcomm made the rumors official: the San Diego-based chipmaker accused Apple of secretly throttling Qualcomm modems in its iPhones, and of trying to keep Qualcomm from talking about it. Evidence does seem to point to Apple having done exactly that.

Translation: By betting on Intel for its phone modems, Apple took a risk. And given how important its iPhone business is, it was a very. Big. Risk. As Apple’s war with Qualcomm escalated over the course of the last two years, it is possible that Apple’s reliance on Intel to provide iPhone modems may have shifted from being entirely a matter of choice to becoming, at least in part, a matter of perceived necessity.

2018 –

Whether Apple aimed to use Intel as leverage against Qualcomm in its “negotiations” or really intended to replace Qualcomm with Intel altogether from the beginning is still unclear. What is clear now, however, is that in early summer of 2018, Apple very publicly announced that it would no longer use Qualcomm modems in its new iPhones (although that transition may come with a few hiccups that neither Apple nor Intel must be happy with). As if Apple didn’t have enough problems to deal with already.

2020 –

As I mentioned earlier, Apple doesn’t have a great track record when it comes to forging long-lasting relationship with its industry partners (or rather “suppliers”). Even Intel, which has gone out of its way to please Apple for years, may soon discover just how disposable technology “suppliers” are in Apple’s universe: Useful one day, gone the next.

 

Part 3: Motive, opportunity, and the desperate measures that may have brought us here

The pressure was on for Apple – and consequently Intel – to start delivering cellular modems to iPhone users that would legitimately be on par with Qualcomm’s. Problem: This would require Intel to make tremendous forward leaps in cellular modem technology in a very short amount of time. Many of us in the analyst community were skeptical about Intel’s ability to catch up to Qualcomm in this specific area in such a short timeframe. Could they do it eventually? Perhaps. But inside of a year? Doubtful. And yet, Apple had no choice than to find a way to make that happen somehow.

In my view, such an impossible expectation combined with do-or-die pressure to deliver is usually a recipe for disaster. Let me put it this way: if we were talking about Olympic track sprinters instead of tech companies, and one of these sprinters was just faster, stronger, and more skilled at the 100 and the 200 than the other, and suddenly, in a matter of months, the slower of the two, under pressure to win in order to keep his sponsorship deals going, started to run just as fast as his stronger rival, the IOC would be looking very closely into his blood test results – and into his team doctor’s .

And so, we now come to the boil that just began to burst this week, and whose bursting may help answer two questions often asked among analysts in the last few months: 1) Did Intel deliver on their cellular modem gambit for Apple? 2) If yes, did they do it alone, or did they have help? (Rumors had been circulating about the latter for the better part of a year.)

With regard to the first question, my view is that Intel’s cellular modems haven’t caught up to Qualcomm’s. Not even close. But it does appear that the feature gap (and perhaps the performance gap – it’s too soon to tell) between Intel’s brand new cellular modems and Qualcomm’s flagship cellular modems isn’t nearly as pronounced as it may have been in recent years. And while Qualcomm probably has no reason to worry about Intel just yet, that sudden improvement may nonetheless raise a few eyebrows. Given the circumstances, I am not all that surprised to hear some wireless industry observers wonder aloud how Intel managed to improve their cellular modems so suddenly and so fast.

And so here we are, with Qualcomm now asserting not only that it has caught Apple red-handed, but that it has evidence that Apple has been sharing Qualcomm’s proprietary technology and software with rival chipmaker Intel.

So, where do we go from here? Apple has reportedly filed a motion with the Court to compel Qualcomm to show evidence of its allegations… which seems useless given that the Court already has an appropriate discovery process in place, and Qualcomm is, as I understand it, bound by a gag order issued by the Court. A hearing focusing on allowing the new materials to be added to the complaint has been scheduled for late November – although Qualcomm seems to be trying to get it moved to an earlier date. The trial is set to begin in April of 2019.

It behooves me to point out that it is possible that Apple and Intel did nothing wrong, and this is all just a big misunderstanding. Furthermore, the extent of Intel’s involvement in what Qualcomm alleges is also still unknown. But if Apple is found by the Court to have indeed stolen technology from Qualcomm and shared it with a third party, I expect that it will be made to pay a very heavy price for it.

To be continued.