[TrendForce View] Can Apple Really Undo Qualcomm’s Victory in Chinese Court With iPhone Software Updates?

(source : Flickr / elektronikhobi.net)

The selling of several iPhone models has been banned in China after the Fuzhou Intermediate People’s Court ruled that Apple has infringed on Qualcomm’s patents on 10 December. This verdict is a serious blow to Apple’s operation in China, and it may negatively affect iPhone sales worldwide in the future.

The legal battle between Qualcomm and Apple over patents and related licensing fees began in January 2017 and has spread over multiple jurisdictions. In China, Qualcomm managed to score a victory this December, getting the Fuzhou court to issue a preliminary injunction against the selling of older iPhone devices. Once the ruling is enforced, Apple and its four subsidiaries in the country will be prohibited from selling devices belonging to the iPhone 6, 7, and 8 series and iPhone X. The ban, however, does not apply to this year’s models that were released in September (i.e. iPhone XS, XS Max, and XR).

According to Apple’s statement regarding the court ruling, Chinese consumers will still be able purchase the models that are covered under the injunction because the OS upgrade to iOS 12 and other software updates have supposedly removed the patents that are being disputed. Furthermore, Apple contends that one of Qualcomm’s patent claims has been invalidated already. Going forward, Apple plans to appeal the ruling and exercise other legal options.

The conflict between Qualcomm and Apple over patents has dragged on for a long time due to both sides filing competing lawsuits in courts around the world. Qualcomm maintains that Apple has used many of its patents without paying license fees. Moreover, Apple has refused to acknowledged the patent infringements and compensate for the related damages. From Apple’s perspective, Qualcomm is attempting to use its position as the world’s largest supplier of mobile SoCs to coerce smartphone makers into paying royalties under an unfair scheme.

The Fuzhou court found that Apple violated two patents held by Qualcomm. One pertains to photo editing functions, and the other is related to the management of apps via the touchscreen. Thus, those iPhone models containing the two patents are to be excluded from the domestic market. In its statement regarding the ruling, Qualcomm says that while it keeps good relations with its clients and “rarely” engages in litigation, it strongly believes in the right to protect one’s IPs.

The global research firm TrendForce points out that the legal battle has gone on long enough that Apple should have developed countermeasures. The A11 Bionic, which is the SoC for the iPhone 8 series and iPhone X, could have built-in backup solutions that would allow Apple to escape the charges of patent violation. As for the software updates that Apple claims to have made the iPhone 8 series and iPhone X immune in the Chinese market, further investigation is required for a full understanding of this issue.

TrendForce’s latest research finds that around 30% of all iPhone devices sold in China belong to the iPhone 6 and 7 series, while the remaining 70% are of the 2017 and 2018 models (i.e. iPhone 8, 8 Plus, X, XS, XS Max, and XR). TrendForce currently estimates that the total iPhone sales in China for the whole 2018 will come to around 45 million units, representing a drop of 10% from the 2017 total. The demand growth for smartphones in China has stagnated on account of market saturation. This situation, together with the ongoing legal battle with Qualcomm, may lead to a downward correction in the iPhone sales estimation, especially if the injunction against older iPhone devices comes into effect.

On the other hand, TrendForce does not expect Qualcomm’s latest court victory will have an impact on the total iPhone production volume for the whole 2018. Since Apple can only make very limited changes to its iPhone production plan for the short remainder of the year, TrendForce maintains that the total annual volume will reach around 220 million units. Looking ahead to 2019, the total iPhone production for that year is forecasted to drop by at least 10%. The decline may become larger if the US-China trade dispute worsens.