Ten Things to Know about the Apple – Qualcomm Dispute

The public dispute between Apple and Qualcomm has been heating up, with defenders and detractors on both sides.  At the forefront is the issue of patent licensing payments (“royalties”) which Apple has said they will not pay to Qualcomm until a court decides on what basis these payments should be made.  Some people are arguing that Apple should “pay up,” without fully understanding the issues involved.

Here are the essentials you need to know about the Apple-Qualcomm dispute:

1. Qualcomm has a near monopoly on the Intellectual Property (IP, i.e. patents) around the cellular modems used to connect mobile devices to cellular networks.  These patents are essential to the operation of cellular standards, such as 3G, 4G, and LTE.

2. As part of the adoption of the cellular standards, Qualcomm (among other patent holders) was required to license their IP/patents to those wishing to implement the standards.  The licensing terms are required to be “fair, reasonable, and non-discriminatory” (i.e. FRAND).  This is common practice for international standards; that is, those who helped to create the standard have to agree to license their IP to those wishing to implement the standard.

3. Apple has used Qualcomm’s cellular modems in its iPhones for many years and had a 5 year exclusive agreement with Qualcomm.

4. The U.S. Federal Trade Commission (FTC) earlier this year filed an anti-trust suit against Qualcomm, alleging that the company has sought to maintain a monopoly on cellular modems.

5. The South Korean Fair Trade Commission fined Qualcomm $865 million late last year for failing to license its IP “on fair and reasonable terms.”  Apple assisted the South Korean regulators in their investigation.

6. As part of the Apple-Qualcomm licensing agreement, Qualcomm was required to provide rebates to Apple.  Qualcomm is withholding payment of the $1 billion in rebates owed to Apple.  Apple alleges that Qualcomm is doing this in retaliation for its assistance to the South Korean authorities.

7. Apple has filed suit against Qualcomm for the $1 billion in rebates owed to it by Qualcomm.

8. Apple has also stated that it will pay no more license royalties to Qualcomm until a court decides what the royalties should be based on.  At issue is the basis on which the royalties are calculated, with Apple arguing that Qualcomm’s terms are not “fair, reasonable and non-discriminatory.”

9. Apple argues that since it outsources its production, royalties should be based on the price that Apple pays its suppliers.  Qualcomm argues that the royalties should be based on the final selling price to the consumer.  Apple’s counter-argument to that point is that the price of an iPhone is due to Apple’s innovation, not Qualcomm’s, and that therefore Qualcomm is not entitled to royalties derived from the market price which Apple can demand for its innovation.

10. In response, Qualcomm has asked the U.S. International Trade Commission to ban imports of iPhones into the U.S.

From the points listed above, it should be obvious that the Apple-Qualcomm dispute is much deeper than many are making it out to be.  It’s not an issue of “Apple isn’t paying its suppliers.”  It’s actually about IP/patent licensing terms for technology which is part of a widely adopted standard and essential to that standard.  It is also about the extent to which the IP/patent owners can go to leverage their contributions to maintain monopolies or grow revenue (Qualcomm’s licensing division earned $7.7 billion last year).

Apple Just Handed The Record For Most Valuable Company To…

As of Monday morning, Apple broke its own record for most valuable publicly traded company. Opening at $149.06, with 5.2 billion shares outstanding, Apple’s market cap is a staggering $776.60 billion.

If Apple were a country and its market value was nominal GDP, it would rank 18th in the world, above the Netherlands and just below Turkey. This record-breaking tear, which has seen Apple stock soar by 29 percent this year, is despite the company issuing what was seen by many analysts as a lackluster earnings report, about $1 billion below the consensus forecast.

In fact, Apple underperformed the S&P 500 from March 2015 through April 2017 by 2%. The markets are betting on the company’s fundamentals, and an iPhone 8 launch, to bolster its value. Plus, Apple has always been a master at reinventing itself faster than its giant competitors.

Brian Gilmartin, a portfolio manager at Trinity Asset Management, wrote this:

Jim Cramer interviewed Tim Cook last week after earnings and Jim made an interesting point worth noting: The tech giants of the late 1990s, all took 15-17 years to recreate their businesses from PC-centric models to the Cloud, social, mobile and now AR/VR and Cognitive are the new realities. Some couldn’t do it at all.

Cramer’s point – which I thought was very valid – was that Apple is using the success of the iPhone and the Hardware business to recreate the business model NOW, and by that is meant the growth in Services, which was 13% of Apple’s total revenue this past quarter as well as things like Apple Auto (if that comes to fruition) and Apple Watch.

The Apple Watch (in my opinion) was a way to attack the healthcare vertical, and Tim Cook briefly mentioned that in the interview last week, and it seems to be in its early iterations, and with more in-depth development to come. Fitbit (NYSE:FIT) and so many other wearable devices won’t be able to compete with iOS and Apple’s operating system, which will eventually tie everything together.

It is hard to believe that a $770 billion market cap company can reinvent itself on the fly but that is what Apple is doing and doing successfully thus far.

Interesting.

With a cash hoard of $256.8 billion–more than the market cap of General Electric–Apple has plenty of options as to what it wants to be when it grows up. For now, there’s no other company in its league (Alphabet/Google is under $700 billion, and don’t ask about Microsoft). Apple is playing on a field all its own.

A Galaxy Note 7 For the President, Please

Last year, when word leaked out that Apple would not be making major design changes to its iPhone 7, Samsung decided to rush to market a new phone with a serious redesign. In rushing the design, the phone forger famous for copying Apple designs failed to test the batteries. The phones caught fire.

Multiple airlines had passengers with combusting phones. It got to the point that flight attendants were telling passengers they were not allowed to have Note 7 phones onboard planes. Eventually, a factory that made the batteries for Samsung caught fire leading one writer to declare it the rare case a figurative garbage fire turned into a literal garbage fire. Samsung has still not quite recovered.

Perhaps the most prominent Samsung phone user in the world is the current leader of the free world, Donald Trump. Though he talks a great game about protectionism and American companies, he eschews the American company Apple for the Korean company Samsung in an effort to make Seoul great again. In the past few weeks I have repeatedly wished President Trump might swap out his current phone for a Samsung Galaxy Note 7.

I have no wish for the President to get burned by a phone, but at his present rate of self-immolation, it might be preferable. The real reason for my wish, however, is that if the President gets a phone that self-destructs, the free world will finally be able to breathe a sigh of relief that he no longer has access to Twitter.

The single greatest thing President Trump could do to improve his Presidency would be to stay off Twitter. There are times he has positively moved the needle on the medium. The media seems increasingly inclined to go down rabbit holes in pursuit of silver bullets to topple his administration. The President, with one tweet, can send the press corps scrambling. He can transcend media narratives, create his own, and bypass the traditional press to get his message out in 140 characters.

I have applauded the President’s use of Twitter several times since his election. In the Pixar movie Up, one of the characters is a dog named Doug, who can speak due to a device around his neck. Doug would engage in rambling conversation with humans at a very fast rate then suddenly yell “squirrel!” Squirrels constantly distracted him. President Trump’s tweets have turned the media into Doug.

Unfortunately, the President seems to be giving in to his worst instincts. Twenty-four hours after delivering a brilliant speech to Congress that could have set the conversation for the Sunday talk shows, President Trump melted down on Twitter. By that Sunday, instead of talking about his speech, the press was fixated on his tweets about Jeff Sessions and Russia.

Two weeks ago, President Trump set off a firestorm claiming President Obama had ordered him wiretapped. There is no evidence for that claim and even Republicans are dismissive of it. But it gave the media a chance to yet again portray him as petty, paranoid, and vindictive. When the House Intelligence Committee held a public hearing on the matter this past week, the media could juxtapose President Trump’s paranoid tweets with the testimony of both the head of the National Security Agency and FBI to show the President did not know what he was talking about.

The result is a President shooting himself in the foot, distracting his staff, and putting his supporters and congressional Republicans on defense. They cannot focus on their own messages about the President’s agenda because they are busy dodging questions about his Twitter rants.

This situation is not sustainable, nor is it acceptable. Republicans believe the office of the President comes with some inherent dignity. President Trump is hurting that dignity and himself. Polling suggests white voters, white men, and Republicans are souring on the constant distractions and on the President himself.

If someone gave President Trump a Samsung Galaxy Note 7, it would probably self destruct. The President would then be on a Twitter hiatus, which just might be the best thing for his Presidency.

To find out more about Erick Erickson and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2017 CREATORS.COM

Free Market Environmentalism For the Win

This is a really cool story worth highlighting.

Back in 2014, Apple bought 3600 acres in North Carolina that people assumed was going to be a distribution facility, solar power plant, or manufacturing facility, or some other building. But it is not a building at all.

It’s purpose is to create a “working forest” that supplies Apple with paper products for packaging, while at the same time protecting the state’s environmental resources.…

Jena Thompson Meredith, vice president of business partnerships at The Conservation Fund, says that through Apple’s forest purchases in North Carolina and Maine, the organization has been able to protect 36,000 acres of sustainable forest. In 2016, the group harvested more than 13,000 metric tons of wood between the two forests, she says, though she did not break that number down by state.

Meredith declined to share harvest projections for 2017.

She says the collective annual production from the forests in North Carolina and Maine was equivalent to about 30 percent of the virgin fiber used in Apple’s product packaging for 2015.

That’s a really great use of resources to steward the land. It creates 10 jobs per 1000 acres, provides jobs for loggers, millers, etc. and provides Apple paper for its products.

iTrump

Apple fans and employees will hate this comparison, but on the tenth anniversary of the iPhone it is worth noting a point of similarity between it and the man who will not use one, Donald J. Trump. Trump’s rise in 2015 looks, in retrospect, a bit like the rise of the iPhone.

Comparisons, to be sure, can be stretched, but bear with me for a minute. This year, Trump defied all sorts of odds and expectations and became President. People, myself included, who make a study of politics and pay attention to these things were convinced that he could not get the Republican nomination and that he could not get elected. But he beat the odds, defied the expectations, and he will be all of our President in a couple of weeks.

Go back ten years and consider the iPhone. In the run up to the iPhone, there were lots of rumors that Apple would release a phone, but they were just rumors until January 9, 2007. Steve Jobs unveiled the device that would fundamentally change an entire industry. On January 8, 2007, the multi-touch full screen display did not exist on phones. The day after and half the tech companies in the world were scrambling to get their copiers started.

Along the way, the technology press and experts who studied the field and were the experts and professional pundits of technology got so much wrong.

Matt Lynn, a financial journalist and former columnist for Bloomberg News, declared, “[Apple] will sell a few to its fans, but the iPhone won’t make a long-term mark on the industry.” His column was titled “Apple iPhone Will Fail in a Late, Defensive Move.”

Charles Golvin, an analyst for Forrester, said, “The iPhone will not substantially alter the fundamental structure and challenges of the mobile industry.” He said the iPhone was “late to the party” and predicted rivals like Nokia would “attack” the iPhone by offering deals to carriers. (source)

Ed Baig, the well respected tech writer for USA Today, lamented the lack of a stylus. Even David Pogue, then of The New York Times, complained that the phone couldn’t handle java or flash and there was no memory-card slot, which is a lingering complaint for some.

Much of the financial sector that covers technology and much of the technology press completely missed the iPhone. Then, after coming to terms with how wrong they were, set about explaining the cult of Apple. People were just buying into a cult. The novelty would fade. Google would do to the iPhone what Microsoft had done to the Mac.

But more and more it seems the cult was not a cult of Apple, but a cult of Apple haters. The iPhone remains the most popular phone and the most profitable phone. While Android has a larger market share because of a plethora of cheap phones, the iPhone is the single most popular phone and is the phone on which more people actually engage in smartphone tasks. There is a reason the iPhone is more often than not the most used phone shown in website analytics.

Likewise, in 2016, many of the people who missed the election, discounted Trump, and were convinced he could never succeed decided to double down against him. To them, it turns out most of the country is bigoted or racist. There was a white supremacy uprising. There had to be something beyond fundamentally misreading the election and the electorate for these analysts.

The reality is that Trump is extremely popular, if only out of frustration for the alternative. His supporters are not bigoted racists, but people disaffected by a political process that takes their money, wants their votes, but otherwise wants nothing to do with them. Many of the people who are still convinced Trump only won because of a white supremacist uprising are no different from the people who maintain the iPhone only sells so well because of a cult.

What I learned from blowing 2016 as badly as I did is what a lot of the tech press learned (or should have learned) from blowing the iPhone launch. Instead of spending my time writing about what will happen, focus on what is happening and why it is happening. And if I must focus on the future, focus on what I think should happen and why and not what I expect to happen. 2016 is a reminder that we cannot see the future, but the iPhone is a reminder that we can aspire for something new and better.

The iPhone and Donald Trump have one more thing in common. They are both game changers. After the iPhone, Ericsson, Nokia, Motorola and RIM all faded away. The physical keyboard phone is a relic. Every phone now has as few buttons as possible and a full touch screen.

Likewise, I think going forward, we are going to see more candidates like Trump — more strident opponents of the status quo. There’ll be more bombast and more tribalism. After the iPhone, nothing in tech was the same. After Trump, nothing in politics will be the same.

A Measure of How Destructive Trump’s Tariffs Would Be

The New York Times has a fascinating in depth piece on the iPhone factory in China. My guess is that this piece has a lot to do with building the case against Trump’s tariffs. If not, it should. Because it shows just how economically devastating Trump’s tariffs and the subsequent trade war would be.

China’s lure is strong. Dell, Hewlett-Packard and Samsung have all flocked to China to lower their production costs, bolster their bottom lines and tap into the world’s largest consumer market. And many rely on local manufacturing partners like Foxconn.

While Apple came later than many technology companies, it now generates nearly a quarter of its revenues from sales in China and has some of the fattest profit margins in the business. As such, the Zhengzhou operation provides an especially illustrative look at China’s importance to American technology companies — and specifically iPhone production and more recently, Apple’s consumer sales.

Dell, HP, and Apple all do extensive production in China, which keeps the costs of products low. Apple decided to build its Mac Pro in the United States and I don’t think it is a coincidence that Apple hasn’t upgraded that product in three years. It is cost prohibitive to make that computer in the United States in order to sell it at a competitive price point.

Apple, like many multinationals, depends on a vast global supply chain that includes multiple companies and countries, each with its own expertise and advantages — a complexity that is often lost in the political debate over trade. The iPhone is a collection of intricate parts that are made around the world and assembled in China, spurring employment in many countries; Apple says it supports two million jobs in the United States.

If Trump imposes his 5% or 10% tariff, that right there will escalate the costs of technology in the United States for individuals and drive up costs for businesses. But that’s just getting started. There would then be retaliation from other countries, which would drive the costs up even further.

Say hello to the Trump recession. There’s a reason no mainstream economist on the left or right supports tariffs in trade policy.

In The End, Apple Was Right And The FBI Got What They Wanted, But Not Really

No harm, no foul. The FBI got into Syed Rizwan Farook’s iPhone 5C, and Apple didn’t have to write a special version of its operating system for them.

The FBI cracked a San Bernardino terrorist’s phone with the help of professional hackers who discovered and brought to the bureau at least one previously unknown software flaw, according to people familiar with the matter.

The new information was then used to create a piece of hardware that helped the FBI to crack the iPhone’s four-digit personal identification number without triggering a security feature that would have erased all the data, the individuals said.

The researchers, who typically keep a low profile, specialize in hunting for vulnerabilities in software and then in some cases selling them to the U.S. government. They were paid a one-time flat fee for the solution.

This means two things.

  1. The Apple phones aren’t as secure as you think they are, since a shadowy group of gray-hat hackers knew how to break it.
  2. The FBI absolutely blindsided Apple by making all this public bluster about a court-ordered solution when they knew there were groups specializing in security vulnerabilities all along.

As for the hackers, there are lots of research firms out there that specialize in finding vulnerabilities in, well, everything. Some of them work for corporate firms, some of them work for criminals, some of them work for the government, and some work for all three.

There’s entire conventions for hackers, where nobody wears their hat color on their sleeve, very few hand out accurate business cards, and ever fewer are naive enough to bring unsecured wireless devices. Advice you’d get if you plan to attend Defcon in Las Vegas.

Do not, under any circumstances, use the free conference wifi. Don’t access anything on your phone that has a password that you don’t want other people to find out. And, to be extra safe, bring a burner laptop.

There’s also a conference called Black Hat. And those folks are hard core. You’ll find Russian hackers mixing with their government counterparts, dancing in a sort-of neutral holy ground (although they leave their devices behind, because, you know).

FBI Director James B. Comey has said that the solution works only on iPhone 5Cs running the iOS 9 operating system — what he calls a “narrow slice” of phones.

Apple said last week that it would not sue the government to gain access to the solution.

If the flaw is only with the iPhone 5C and that specific version of iOS 9, Apple has already likely fixed it or at least made it marginally harder to exploit. In fact, there are exploits, vulnerabilities and fixes in the world of personal Internet devices every day, and, being so closely knit to our hands, the iPhones are first in line for getting updates.

The FBI should never have resorted to its Hail Mary play to force Apple to code around its own security. Tim Cook was justified in his anger with the government–even if his company stood on shaky legal ground. Nobody knows better than the FBI that the war between hackers and their targets is never-ending.

When I was an Air Force IT contractor, we were told the only sure way to achieve perfect network security: Unplug it. And the Iranians learned even that doesn’t always work.

I’m willing to bet that the government knew before they pounced on Apple, that there was a way to potentially exploit this flaw, but once they went public, they had to weigh the value of disclosing the flaw’s existence versus the value of the data they needed from the terrorist phone. They went with the play to get Apple to voluntarily unlock its secrets, establishing a precedent they could use to bully every device manufacturer forever.

Now they’ve got what they need from the phone, but not from Apple. The InfoSec wars continue, and we should be more worried about the Internet of Things (IoT) than our phones. When was the last time you updated the software on your home WiFi router? Or your smart TV? Or your Blu-Ray player? Or your refrigerator? Or your car (DARPA showed it can hack GM OnStar telematics and take over a Chevy Impala using a laptop).

The government wanted a skeleton key in the form of a legal precedent, and they didn’t get it. Good for everyone.

DR Radio Feb. 19, 2016: Hocus SCOTUS, Apple vs. FBI & the Donald vs. the Pope

Welcome to the February 19, 2016 episode of Dead Reckoning Radio! Join host Jay Friesen in the studio as usual with the barefoot and pregnant Hadley Heath and Dr. Brian Mattson. DR Radio is a weekly podcast helping you intelligently engage with critical cultural moments from a distinctly Christian perspective.

On today’s agenda: The gaping hole left by Justice Scalia and the impact, Apple’s rejection of the FBI’s request for a backdoor and how Christians should frame the issue and the fuss over the Pope saying Donald Trump believes some “not Christian” things.

For the show notes and to subscribe to the podcast go here —->http://deadreckoning.tv/drrfeb192016