Apple is Holding Companies and Innovation Hostage

By James Skyles
June 20, 2017

Apple buildingApple recently became the first U.S. company to have a market capitalization of over $800 billion. Not only does the company alone comprise four percent of the entire S&P 500 index, it also holds more than 90 percent of the global smartphone profits according to Strategy Analytics. Needless to say, when Apple knocks on the door, tech companies jump at the opportunity to work together. However, what more and more companies and analysts are coming to realize is that a partnership with Apple can bring as much heartache as profit.

According to the company’s website, Apple relies on over 200 companies to create its cadre of electronics. These vendors provide components and technology that are crucial to Apple products, including semiconductor chips, metal casings, chip processors and graphics technology.

Many of these companies are likely now achieving higher profits than ever imagined. The reality though is that assets on one balance sheet are viewed as liabilities on another. Due to slowing iPhone sales, Apple is seeking to increase margins by raising prices for consumers and lower costs by squeezing suppliers.

Apple recently announced it would no longer use Imagination Technology’s graphics and would instead develop similar technology in house. Soon after, Imagination’s stock plummeted by 72 percent and faced further hardship when Apple announced its plan to cut its royalty payments to Imagination by up to two-thirds in the coming months. (Apple is also reportedly considering parting ways with suppliers Dialog and Synaptics, and subsequently, their stocks plunged 36 percent and 12 percent respectively.)

Not surprisingly, Imagination issued a press release stating, “Apple’s notification has led Imagination to discuss with Apple potential alternative commercial arrangements for the current license and royalty agreement.” In other words, after suffering devastating losses, Imagination has little choice but to return to the negotiating table.

If they don’t, it seems Apple has a backup plan. Bloomberg reports that Apple has hired several employees from Imagination and Dialog. While hiring employees from suppliers is not illegal, it is plain to see that patent infringement and intellectual property violations could easily, or intentionally, occur. Imagination seems particularly concerned that this might soon be the case. The company’s press release noted, “Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination’s technology, without violating Imagination’s patents, intellectual property and confidential information. This evidence has been requested by Imagination but Apple has declined to provide it.”

Imagination, Dialog and any other companies that run afoul of Apple should be ready for a long, drawn-out process, because Apple does not back down from a fight. To be convinced, one must only look at the company’s assault on Qualcomm.

Apple’s iPhones rely heavily on Qualcomm’s patented technology and modem chips. At the beginning of this year, Apple sued Qualcomm over the royalties it charges to use Qualcomm technology, which ensures iPhones have the capabilities that customers expect. Qualcomm filed a countersuit against Apple and released a statement noting that Apple is “attempting to use its enormous market power to coerce unfair and unreasonable license terms from Qualcomm.”

Not only that, but Bloomberg reported that this suit coincides with “regulatory investigations and fines on three continents, including a lawsuit announced last week by the U.S. Federal Trade Commission.” It would be a large coincidence that these governments started independent inquiries into the same company for the same reasons. Some analysts subtly point the finger at Apple for these inquiries. “‘It feels like another coordinated attack on Qualcomm,’ said Mike Walkley, an analyst at Canaccord Genuity. The mobile phone business is ‘a mature industry, they’ve got to get their margins higher.’”

Finally, if global lawsuits and inquiries weren’t enough pressure to apply to a business partner, Apple’s next salvo was to direct its contract manufacturers to withhold all payments to Qualcomm until the suit is settled. This means, while Apple is still selling and earning profits from products enabled by Qualcomm’s technology, it is no longer paying for the right to use it.

These companies are examples of potential victims of Apple’s singular focus on profit. However, what’s at stake is much larger than Apple’s bottom line. While Apple is breaking market cap records, it is systematically devaluing innovation and technology. If these bullying tactics are not kept in check, Apple’s own partners will lack the resources needed to invest in new developments and better ideas. Further, the precedent will be established that the largest technology company in the world can take and use intellectual property owned by others, whether legally allowed or not, ultimately stifling innovation and creativity.

The Author

James Skyles

James Skyles

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 7 Comments comments.

  1. Valuationguy June 20, 2017 8:59 am

    A cash pile the size of Apple’s + sustained weakness by the CAFC and SCOTUS in upholding a strong patent system + a lack of any internal ethics = Company can do whatever the hell they want and afford to pay the price well down the road once they have killed the competition.

    This is exactly what anti-trust laws were originally designed to prevent…

    But when the anti-trust regulators are co-op’d by the largest natural targets of anti-trust (Apple/Google/Facebook/Microsoft/Verizon/etc.)…it become a weapon to prevent all others from achieving the power Apple/Google/Facebook/Microsoft/Verizon/etc currently has.

  2. Tesia Thomas June 20, 2017 1:36 pm

    Yeah! Where is the anti-trust monopoly bust?
    I could see if Apple just had the superior product and everyone buys it but jerking companies around like this is ridiculous!

    Instead of out innovating everyone they’re strong arming them.

    When they first originated they had what the market wanted and it was new. That’s how they captured the market and made tons of money.
    But now they’re holding on by bullying everyone because basically everyone is satiated and they really aren’t an innovative company anymore.

    These SV companies just have a great fear of being overtaken. It’s like they have no respect for what they once were. A startup.

  3. CW5 June 20, 2017 3:07 pm

    We are seeing what happens when the monopolists co-opt the government, as well as the markets.

    The patent system has been weakened/destroyed because patents offer a way for smaller, more innovative companies to compete with the monopolists, and the monopolists will not tolerate that.

    We need a new era of trust busting.

  4. Tesia Thomas June 20, 2017 3:57 pm

    If only these companies cared about bettering the world instead of lining their pockets.
    They already have tons of money. Why can’t they just be fair and let the best tech win?
    For the betterment of the world not the betterment of them.

  5. Eric Berend June 21, 2017 8:33 am

    @4., ‘tesia’:

    Because, it’s not just about becoming fabulously wealthy and powerful…nowadays, the wealth of Roman Emperors is apparently not enough for the gluttonous, to be content. For these especially depraved, coddled puppies, it’s also about their evil ego sickness, that says inventors like you or me must be kept buried and poor, while the U.S. public interest suffers commensurately.

    And, while they’re all screaming “open source”! and extracting as much technical expertise as possible for virtually no business expense, if they’re so sure inventors will invent “anyway” (i.e., without remuneration), then why do these IP pirates fight so hard for yet more “patent reform”?

    Anyway, so many others of you attorneys crafted the narrative that was bought hook-line-and-sinker by millions of ignoramus’ who are now convinced of their moral superiority by bullying inventors. Others, in the ‘flack’ role, made sure this destructive canard was promulgated far and wide.

    Until you attorneys, as a class, begin to police your own colleagues; at the least, call them out for favoring harmeful, “evil” works; then, there will be no surcease for inventors, from the long dark night we have been forced into.

  6. Tesia Thomas June 21, 2017 1:32 pm

    @Eric Berend, @5

    “Until you attorneys, as a class, begin to police your own colleagues; at the least, call them out for favoring harmeful, “evil” works; then, there will be no surcease for inventors, from the long dark night we have been forced into.”

    True.
    This is exactly what I feel about academics talking about the political swamp draining innovation efforts.
    They should police their academic swamp which does harm just the same as legislation.

    But, in defense of Gene Quinn, that is what he’s doing with this blog…

  7. Tesia Thomas June 22, 2017 3:24 pm

    Imagination Tech is now up for sale…

    https://techvibes.com/2017/06/22/imagination-technologies-for-sale-after-losing-apple-as-customer