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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you insight and analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud

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Speaker 1: and on Bloomberg dot Com, slash podcasts. Apple Head Qualcom

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Speaker 1: are facing each other in courts around the world this

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Speaker 1: week in a fight over royalties that's been going on

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Speaker 1: for almost two years. It's one of the biggest legal

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Speaker 1: battles in the technology industry. Speaking on Bloomberg Studio One

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Speaker 1: Point Oh in an interview that will air on September,

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Speaker 1: Qualcom CEO Steve Mollenkov said he was optimistic about a settlement.

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Speaker 1: We have a dispute over the price of I P.

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Speaker 1: We think that's moving now into a period of time

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Speaker 1: where our strategy is unfolding and the and the environment

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Speaker 1: is is such that I think you're you're in a

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Speaker 1: position where a deal could get done. Joining me is

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Speaker 1: Matt Larson, Bloomberg Intelligence litigation analyst. So, Matt, what's the

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Speaker 1: basic dispute over sure? So this all goes back to

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Speaker 1: a dispute over patent royalties or the price that Qualcom

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Speaker 1: is able to charge to license its technologies to UH

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Speaker 1: to handset makers in this case specifically Apple UM. Qualcom

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Speaker 1: does a lot of research and development. They contribute to

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Speaker 1: standard setting organizations that essentially establish how your phone connects

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Speaker 1: to wireless networks, and in exchange for doing that work

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Speaker 1: and contributing to standards efforts, handset makers who implement those

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Speaker 1: standards o Qualcom royalties and UH. There's no set price.

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Speaker 1: These are all subject to negotiation UM and so the

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Speaker 1: parties a couple of years ago were in the process

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Speaker 1: of attempting to renegotiate a direct deal from Qualcom to Apple.

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Speaker 1: Apple had previously paid through third parties who actually manufacture

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Speaker 1: the physical iPhone UM, and they weren't able to arrive

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Speaker 1: at a deal, so litigation ensued. There's a huge dispute,

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Speaker 1: and we are where we are today, So there were dispute.

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Speaker 1: It's in different courts in different countries, and there's a

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Speaker 1: hearing this week before the US International Trade Commission, which

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Speaker 1: is the second of two suits. So can you sort

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Speaker 1: these out? Yeah? Yeah, sure. So strategically, when you're looking

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Speaker 1: at patent litigation, you file in multiple different courts for

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Speaker 1: a couple of different reasons. They offer different forms of relief.

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Speaker 1: As the first, so the International Trade Commission threatens a

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Speaker 1: US product uh sales and import ban on products that

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Speaker 1: infringe patents. So there you put some pressure on apples

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Speaker 1: supply chain potentially if you win. Um, you know, you

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Speaker 1: compare that to a district court case where they provide money,

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Speaker 1: damages or uh. You know. Similarly, you might file a

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Speaker 1: lawsuit in China because it's a big importer or exporter. Uh,

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Speaker 1: so it's again a strategic hit at the supply chain.

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Speaker 1: You also file in Germany because it's a fast jurisdiction,

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Speaker 1: So you can see these legal disputes pile on in

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Speaker 1: their counter suits. Um, and the whole thing kind of

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Speaker 1: blows up to a large global litigation. So the hearing

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Speaker 1: this week before the US and National Trade Commission, Apple's

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Speaker 1: case is supported by the independent attorney assigned to represent

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Speaker 1: the government's interest. Does that mean that Apple might win

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Speaker 1: that It's it's a it's a pretty good leading indicator.

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Speaker 1: So the way that the i t C works as

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Speaker 1: you have uh the what's essentially the plaintiff or the

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Speaker 1: complainant qualcom who owns the patents. You have Apple as

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Speaker 1: the respondent who makes the devices that's accused of infringing

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Speaker 1: these patents. And then you have the staff attorneys that essentially,

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Speaker 1: like you said, represent the public interest. Will the US

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Speaker 1: public be harmed if qualcom gets what it wants I

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Speaker 1: eat to block the iPhone from commerce. Um. The staff

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Speaker 1: sit through all the depositions, they look through all the discovery.

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Speaker 1: A lot of that is under seal, and so it's

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Speaker 1: really the only in theory objective view we have it

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Speaker 1: where the case could come out. So the staff informs

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Speaker 1: the judge they say, hey, we've sat through the whole

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Speaker 1: legal proceeding. We think, Um, once you review the evidence

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Speaker 1: that's going to be presented at trial this week, you'll

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Speaker 1: eventually come to the conclusion that that apple doesn't infringe

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Speaker 1: these three pat the qualcom as assertain. So usually the

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Speaker 1: best way out of these kinds of situations is a settlement.

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Speaker 1: We heard Qualcom CEO talk about a settlement. But you

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Speaker 1: also have two companies that are sort of used to

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Speaker 1: getting their own way or going to court. So what's

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Speaker 1: the likelihood of a settlement? Yeah, they are, You know

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Speaker 1: that the settlements usually come about. The best settlement is

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Speaker 1: one where everybody is a little bit unhappy is is

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Speaker 1: how it goes. Um, When you look at the breadth

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Speaker 1: of the legal dispute, there are about you know, we've

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Speaker 1: we've added them up, and then think that about a

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Speaker 1: hundred individual legal proceedings across all these courts and administrative

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Speaker 1: bodies that are reviewing validity of different patents. Um, when

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Speaker 1: you look at the timeline, a lot of key decisions

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Speaker 1: across China. You're getting some i TC decisions, You're gonna

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Speaker 1: get some district court decisions. These are all coming out

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Speaker 1: and kind of the end of this quarter, fourth quarter,

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Speaker 1: and then there are some trials tied up in the

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Speaker 1: first quarter of next year. So generally in litigation, companies

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Speaker 1: like to settle on the eve of trial. You kind

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Speaker 1: of know what your case looks like. You you know,

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Speaker 1: with the relative degree of certainty, what the potential outcomes are.

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Speaker 1: So everybody kind of sits down and arrives at a

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Speaker 1: numbers and figures that makes sense. So what is there

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Speaker 1: a number that would make sense here? Yeah, Yeah, that

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Speaker 1: that's that's kind of the the the million or multibillion

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Speaker 1: dollar question. We've looked at this from a couple of

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Speaker 1: different angles. From a research perspective, I've worked with our

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Speaker 1: semiconductors analyst on Inshrine Bouston, who's kind of taken a

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Speaker 1: a scenario approach, looking at EPs sensitivities and where earnings

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Speaker 1: might UM tolerate a licensing deal. I've looked at it

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Speaker 1: from kind of a legal perspective, looking at comparable royalties

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Speaker 1: with other similar patent holders. Apple's done deals with similar

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Speaker 1: types of patents with Nokia, Ericsson, and Inner Digital, and

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Speaker 1: as a multiple of those royalties, and then again, based

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Speaker 1: on our semiconductors work, we think that a per unit

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Speaker 1: royalty of seven to eight dollars per iPhone is the

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Speaker 1: most likely outcome. It's probably lower, much lower than Qualcom

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Speaker 1: wants and higher than Apple wants. But right down the middle.

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Speaker 1: Now Apple has been getting its modem chips from Intel.

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Speaker 1: Has that hurt Qualcom? You know? It's it's it's a

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Speaker 1: it's a delicate balance between the two major semiconductor manufacturers

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Speaker 1: in the UM in the space. Qualcom would obviously love

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Speaker 1: to be the major provider UM, but at the same

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Speaker 1: time their monopoly concerns that the Qualcom runs into. So

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Speaker 1: I think sourcing chips from Intel isn't necessarily a huge

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Speaker 1: harm to Qualcom. Because in theory they're getting licensing dollars

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Speaker 1: for utilizing Qualcom technology, the standard essential technology when they

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Speaker 1: use an Intel chip or when they use if there

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Speaker 1: were some other chip maker that comes in UM. But

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Speaker 1: at the same time, obviously it's it's uh, it's not

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Speaker 1: good for the chip business the more that digs into

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Speaker 1: Qualcom's chips sales, so UM, you know, it's it's a

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Speaker 1: little bit of a balancing act between a focus on

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Speaker 1: the chip side of Qualcom's business and then the patent

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Speaker 1: licensing side. So about thirty seconds here, when might we

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Speaker 1: hear about a settlement? So we again, we typically think

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Speaker 1: that either on the eve of trial or right before,

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Speaker 1: So I would say end of third quarter, middle of

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Speaker 1: fourth all right, we'll hold you to it. That's Matt Larson,

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Speaker 1: Bloomberg Intelligence litigation analyst. Joining me is Jonathan Adler, professor

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Speaker 1: at Case Western Reserve University School of Law. Jonathan, you

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Speaker 1: heard the President say that the FBI has said they

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Speaker 1: don't want to do the investigation, that many Democratic senators

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Speaker 1: are calling for an FBI investigation before the hearing. That

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Speaker 1: between where you have the testimony of Kavanaugh and the

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Speaker 1: alleged sexual assault victim so would the FBI. Have you

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Speaker 1: heard anything about the FBI saying that they don't want

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Speaker 1: to do it. Well, the FBI has said they simply

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Speaker 1: put it in the file. I think there's there's some

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Speaker 1: misunderstanding about the role of the FBI typically plays in

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Speaker 1: judicial confirmations. Typically, the FBI's role is one of collecting information, uh,

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Speaker 1: not verifying things, UH, not evaluating competing claims, but rather

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Speaker 1: collecting information, providing that information to the Senate Judiciary Committee,

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Speaker 1: and then historically the committee has worked on a bipartisan

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Speaker 1: basis to fill in gaps and pursue leads or questions

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Speaker 1: that the FBI background check raises. So that would have

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Speaker 1: been the traditional way to handle this. In the Clarence

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Speaker 1: Thomas Hill controversy, the extent of the FBI's investigation, UH,

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Speaker 1: there was simply to interview both Clarence Thomas and Anita Hill.

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Speaker 1: I think what's what's what what's going on here, unfortunately,

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Speaker 1: is that we have two partisan camps that are both

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Speaker 1: intent upon their particular approach. The Republicans intent on getting

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Speaker 1: a vote very quickly. The Democrats intent on trying to

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Speaker 1: push this confirmation beyond the mid terms, and every development

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Speaker 1: that comes along, including this one gets pushed into that framework.

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Speaker 1: How much is this beginning to resemble the Clarence Thomas

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Speaker 1: Anita Hill hearings. Well, it is a little bit, in

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Speaker 1: that there is a scheduled hearing where we are supposed

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Speaker 1: to hear from the woman who claims to have been

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Speaker 1: sexually assaulted by Brett Kavanaugh, and to also hear from

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Speaker 1: Brett Kavanaugh, although from what was reported this morning, it's

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Speaker 1: not clear that that they both agreed testified. But in

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Speaker 1: that respect, it seems quite similar. And I think it's

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Speaker 1: also similar in that I don't I don't think the

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Speaker 1: hearings are going to fully put to rest concerns that

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Speaker 1: people may have about these accusations and their implications for

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Speaker 1: whether or not Judge Kavanaugh should be concerned or should

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Speaker 1: be confirmed or not as far as optics are concerned.

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Speaker 1: If Kavanaugh does get confirmed to the Supreme Court, you'll

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Speaker 1: have two men on Supreme Court who have been the

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Speaker 1: subject of sexual assault allegations. Is that a problem, Well,

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Speaker 1: it's just there. Thomas was accused of sexual harassment, not

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Speaker 1: not sexual assault. But yeah, I mean it is Uh.

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Speaker 1: We like to think of our our judges and our

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Speaker 1: justices as people being beyond reproach. We know as a

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Speaker 1: historical matter that's certainly not true. Justice Hugo. Black had

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Speaker 1: been a member of the ku Klux Klan uh and

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Speaker 1: yet had a very fine and distinguished record as a justice.

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Speaker 1: I think ideally we would evaluate judicial nominees based on

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Speaker 1: their prior judicial experience, based on their professional experience. UM.

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Speaker 1: But in the current political environment, I don't. I don't

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Speaker 1: think that's realistic, and I think there are reasons to

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Speaker 1: suspect that the nastiness and divisiveness of the current confirmation

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Speaker 1: is merely a sign of more to come. In about

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Speaker 1: a minute here, what would you suggest to make these

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Speaker 1: hearings more civilized? Let's say, well, I think ideally the

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Speaker 1: Senate Judiciary Committee would be doing what it could to

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Speaker 1: investigate these allegations privately before having a hearing, doing the

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Speaker 1: sort of bipartisan uh investigation and follow up calls and

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Speaker 1: the like that is that has traditionally been done with

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Speaker 1: questions that are raised by background checks. Unfortunately, it appears

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Speaker 1: the two parties have not been able to agree upon that,

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Speaker 1: and so instead we have the majority insisting on having

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Speaker 1: this hearing and the minority insisting on putting things off,

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Speaker 1: uh for several weeks, if not until after the election.

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Speaker 1: All right, thanks so much. Jonathan. That's Jonathan Adler is

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Speaker 1: a professor at Case Western Reserve University School of Law.

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Speaker 1: Thanks for listening to the Bloomberg Law Podcast. You can

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Speaker 1: subscribe and listen to the show on Apple Podcasts, SoundCloud,

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Speaker 1: and on bloomberg dot com slash podcast. I'm June Brosso.

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Speaker 1: This is Bloomberg. Yeah,