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Apple CEO Tim Cook: Why we’re withholding royalties owed to Qualcomm

Daniel Howley
Technology Editor

Apple (AAPL) CEO Tim Cook didn’t mince words when asked why his company isn’t paying the makers of the modem chips found in iPhones on Tuesday.

“You can’t pay something when there is a dispute about the amount,” Cook said during Apple’s quarterly earnings call on Tuesday.

Apple has an ongoing legal dispute with Qualcomm (QCOM) that heated up last week. That’s when reports emerged that Apple had decided to withhold royalty payments to contract manufacturers that, in turn, pay money to Qualcomm. The move spurred Qualcomm to slash its profit and revenue forecasts.

In a lawsuit filed in January, Apple contends that Qualcomm won’t license its technology to competing manufacturers, which would then be able to make similar chips and sell them at lower prices. Apple says Qualcomm owes it $1 billion in rebates.

Apple CEO Tim Cook.(Photo by Stephen Lam/Getty Images)

Apple filed its lawsuit days after the FTC accused Qualcomm of similar anticompetitive behavior.

“They think we owe some amount, we think we owe a different amount, and there hasn’t been a meeting of the minds there,” Cook said. “And at this point we need to courts to decide that unless over time we settle between us on some amount.”

During Tuesday’s call, Cook said Qualcomm is essentially trying to take a piece of every iPhone sold when a lot more goes into the handset than a modem chip.

“They do some really great work around standard essential patents, but it’s one small part of what the iPhone is,” Cooks said.

“We don’t think that’s right and so we are taking a principled stand on it and we strongly believe that we are in the right, and I’m sure they believe that they are, so that’s what courts are for.”

Apple says Qualcomm also forced the company to pay an additional royalty fee on top of the money it pays for chips — essentially “double-dipping.”

Qualcomm denied the allegations during its Jan. 25 Q1 2017 earnings call, with president Derek Aberle saying Apple was driving “regulatory attacks” against his company.

In a statement released last week, Qualcomm’s general counsel Don Rosenberg said Apple is trying to change the chip manufacturing contracts it agreed to years ago.

“Apple has now unilaterally declared the contract terms unacceptable; the same terms that have applied to iPhones and cellular-enabled iPads for a decade,” Rosenberg said.

“Apple’s continued interference with Qualcomm’s agreements to which Apple is not a party is wrongful and the latest step in Apple’s global attack on Qualcomm.”

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Email Daniel at dhowley@yahoo-inc.com; follow him on Twitter at @DanielHowley.