1 00:00:00,120 --> 00:00:04,000 Speaker 1: Investors were caught off guard when the iPhone supplier, Imagination 2 00:00:04,040 --> 00:00:08,520 Speaker 1: Technology Group announced in April that Apple would no longer 3 00:00:08,560 --> 00:00:11,680 Speaker 1: be using its graphics technology. The stock of the small 4 00:00:11,840 --> 00:00:16,360 Speaker 1: UK company collapsed more than six but Apple said Imagination 5 00:00:16,400 --> 00:00:19,000 Speaker 1: had known for nearly two years that it was winding 6 00:00:19,040 --> 00:00:22,880 Speaker 1: down the relationship. Joining us as Matt Larson Bloomberg News 7 00:00:22,920 --> 00:00:25,880 Speaker 1: litigation analyst, and he joins us from the Bloomberg nine 8 00:00:25,960 --> 00:00:30,240 Speaker 1: sixty newsroom in San Francisco, Matt tell us about the 9 00:00:30,320 --> 00:00:35,519 Speaker 1: difference in the timelines that Apple has given and Imagination 10 00:00:35,560 --> 00:00:41,159 Speaker 1: has given about the information. Sure, so, Imagination Technologies has 11 00:00:41,200 --> 00:00:45,720 Speaker 1: been providing UH tech to Apple that's used in its 12 00:00:45,720 --> 00:00:50,080 Speaker 1: graphics processing units and in general graphics technologies for about 13 00:00:50,159 --> 00:00:54,200 Speaker 1: ten years now. UM. Apple claims that it gave Imagination 14 00:00:54,680 --> 00:00:57,400 Speaker 1: notice in that it was going to stop using new 15 00:00:57,440 --> 00:01:01,160 Speaker 1: technologies from Imagination and then continue to pay out royalties 16 00:01:01,240 --> 00:01:07,759 Speaker 1: through through potentially the beginning of UM and Imaginations side 17 00:01:07,760 --> 00:01:11,080 Speaker 1: of the story is that Apple has claimed it's no 18 00:01:11,160 --> 00:01:13,800 Speaker 1: longer going to use the technologies and is taking advantage 19 00:01:13,800 --> 00:01:16,360 Speaker 1: of kind of a step down provision in the company's 20 00:01:16,400 --> 00:01:20,000 Speaker 1: existing agreements that allows them to pay a lower of royalty. UM. 21 00:01:20,120 --> 00:01:21,760 Speaker 1: Kind of what what all this means is there's a 22 00:01:21,840 --> 00:01:24,400 Speaker 1: there's a dispute as to how long the tech is 23 00:01:24,440 --> 00:01:28,480 Speaker 1: going to remain in the chips and the processors that 24 00:01:28,520 --> 00:01:31,360 Speaker 1: Apple is using, and as a results, there's a dispute 25 00:01:31,360 --> 00:01:34,160 Speaker 1: as to how long Apple will need to pay Imagination 26 00:01:34,200 --> 00:01:38,119 Speaker 1: Technologies for the use of it's of its tech. Well, Matt, 27 00:01:38,280 --> 00:01:40,600 Speaker 1: you know when I when I first read about this, 28 00:01:40,720 --> 00:01:42,880 Speaker 1: I thought, how in the world can you have this 29 00:01:43,000 --> 00:01:45,880 Speaker 1: kind of dispute between these two companies. It actually seems 30 00:01:45,920 --> 00:01:50,440 Speaker 1: like such a stark factual dispute that one wonders how 31 00:01:51,080 --> 00:01:53,400 Speaker 1: a company like Imagination could let itself end up in 32 00:01:53,400 --> 00:01:58,160 Speaker 1: a situation where it it's got this sort of open issue. Yeah, 33 00:01:58,280 --> 00:02:01,200 Speaker 1: and it's it's a difficult situation from a business perspective 34 00:02:01,240 --> 00:02:03,800 Speaker 1: if you are UM. You know, if you're a smaller company, 35 00:02:03,840 --> 00:02:06,800 Speaker 1: if you have a large customer like Apple that comprises 36 00:02:06,840 --> 00:02:10,799 Speaker 1: a huge amounts of your business, there's there's tremendous sales 37 00:02:10,840 --> 00:02:14,520 Speaker 1: pressure there. UM. You obviously want to keep customers happy. UM. 38 00:02:14,560 --> 00:02:16,440 Speaker 1: But on the other hand, if your Apple, you're looking 39 00:02:16,480 --> 00:02:20,680 Speaker 1: at kind of new new ways to UM to cut costs, 40 00:02:20,720 --> 00:02:24,120 Speaker 1: to maintain margins, on products. You know, Apple is is 41 00:02:24,160 --> 00:02:27,480 Speaker 1: more or less driven by the margin and average selling 42 00:02:27,480 --> 00:02:30,120 Speaker 1: price of the iPhones and iPads and other devices, and 43 00:02:30,160 --> 00:02:34,160 Speaker 1: so for them keeping UM keeping as much development in 44 00:02:34,280 --> 00:02:37,120 Speaker 1: house as possible is a huge plus. And so they, 45 00:02:37,360 --> 00:02:39,280 Speaker 1: you know, are looking at ways where they can start 46 00:02:39,320 --> 00:02:42,320 Speaker 1: to to bring things internal rather than pay somebody else 47 00:02:42,360 --> 00:02:45,080 Speaker 1: to do the work. So, Matt, do you see a 48 00:02:45,160 --> 00:02:49,240 Speaker 1: theme here when you look at Apple's relationship with Imagination 49 00:02:49,800 --> 00:02:55,160 Speaker 1: Technologies and Apple's relationship with Qualcom. Yes, certainly, I thinks 50 00:02:55,240 --> 00:02:57,440 Speaker 1: as we started to touch on, as Apple is looking 51 00:02:57,480 --> 00:03:00,840 Speaker 1: for ways to maintain margins to UM, you know, to 52 00:03:00,880 --> 00:03:03,440 Speaker 1: potentially improve on different and different parts of its business, 53 00:03:03,440 --> 00:03:07,880 Speaker 1: it's putting pressures on UM, on its contract manufacturers and 54 00:03:07,880 --> 00:03:10,720 Speaker 1: on its partners. You're seeing that with the Imagination situation 55 00:03:10,760 --> 00:03:13,640 Speaker 1: and transferring over to qual Calm. The root of the 56 00:03:13,720 --> 00:03:17,400 Speaker 1: Apple Qualcom dispute is the royalty rate that Apple is 57 00:03:17,440 --> 00:03:22,200 Speaker 1: paying for technologies that it get incorporated into communication protocol 58 00:03:22,840 --> 00:03:25,760 Speaker 1: and the ways those deals were struck with Qualcom is 59 00:03:25,800 --> 00:03:30,799 Speaker 1: actually Apple UM pays its contract manufacturers, the people who 60 00:03:30,840 --> 00:03:34,160 Speaker 1: put the iPhone together, who then pays qual Calm. And 61 00:03:34,200 --> 00:03:36,280 Speaker 1: so there's a middleman that Apple is trying to cut 62 00:03:36,280 --> 00:03:39,280 Speaker 1: out of this deal, uh and and bring prices down. 63 00:03:39,360 --> 00:03:41,280 Speaker 1: They say the middleman didn't do a good job of 64 00:03:41,320 --> 00:03:44,240 Speaker 1: negotiating royalties, and so they're really just trying to bring 65 00:03:44,320 --> 00:03:47,760 Speaker 1: those costs down to protect margins on the iPhone. Well, 66 00:03:48,040 --> 00:03:52,320 Speaker 1: Apple has been pretty aggressive in its litigation with qualcom. 67 00:03:52,520 --> 00:03:56,080 Speaker 1: It's filed some new allegations at some of Qualcomms uh 68 00:03:56,200 --> 00:03:59,880 Speaker 1: intellectual property claims are false. Uh. You know, can we 69 00:04:00,040 --> 00:04:04,160 Speaker 1: expect that Apple is really going to litigate this thing, uh, 70 00:04:04,200 --> 00:04:06,480 Speaker 1: you know, completely full speed ahead, as strongly as it 71 00:04:06,520 --> 00:04:10,600 Speaker 1: can in order to protect the strategy you're talking about. Yeah, 72 00:04:10,640 --> 00:04:15,640 Speaker 1: absolutely absolutely. Um Apple has made a number of overtures 73 00:04:15,680 --> 00:04:19,599 Speaker 1: and kind of legal policy decisions that that impact the 74 00:04:19,640 --> 00:04:22,920 Speaker 1: way that royalties are calculated in the smartphone market. There 75 00:04:22,960 --> 00:04:25,560 Speaker 1: are a lot of companies that have patents in this area. 76 00:04:26,160 --> 00:04:30,600 Speaker 1: Um Apple is previously litigated disputes with Ericsson and Nokia, 77 00:04:30,720 --> 00:04:33,479 Speaker 1: who are two of the behemoths in in terms of 78 00:04:33,480 --> 00:04:37,440 Speaker 1: patent licensing. Qual Calm actually their their annual patent licensing 79 00:04:37,480 --> 00:04:41,200 Speaker 1: revenue is more than twice that of either Nokia or Erickson. 80 00:04:41,279 --> 00:04:43,640 Speaker 1: So this is going to be a kind of a 81 00:04:43,760 --> 00:04:48,760 Speaker 1: landmark litigation where they're setting rates for next generation technologies 82 00:04:48,800 --> 00:04:50,839 Speaker 1: and and can start to plant a flag for what 83 00:04:50,960 --> 00:04:54,960 Speaker 1: other customers and patent license ors should expect to get 84 00:04:55,000 --> 00:04:57,000 Speaker 1: in terms of deals with Apple. But this is this 85 00:04:57,080 --> 00:04:59,400 Speaker 1: is a pretty pretty big line in the sand. So 86 00:04:59,440 --> 00:05:01,599 Speaker 1: I think Apple gonna throw a lot of resources at this. 87 00:05:02,680 --> 00:05:06,960 Speaker 1: Matt about thirty seconds. What's happening now to Imagination as 88 00:05:06,960 --> 00:05:09,799 Speaker 1: far as UK regulators are they looking at the company? 89 00:05:11,279 --> 00:05:16,440 Speaker 1: I think so Imagination has announced as has announced a sale. Um, 90 00:05:16,480 --> 00:05:20,279 Speaker 1: there are things are kind of winding down there looking 91 00:05:20,320 --> 00:05:24,240 Speaker 1: at the UM at the two year timeline or the 92 00:05:24,320 --> 00:05:27,000 Speaker 1: year and a half timeline where Apple Apple royalties are 93 00:05:27,000 --> 00:05:28,800 Speaker 1: going to be paid. I saw there was a story 94 00:05:28,839 --> 00:05:31,800 Speaker 1: today that Apple has set up a graphics shop right 95 00:05:31,839 --> 00:05:35,160 Speaker 1: down the street from Imagination in in the u K. 96 00:05:35,480 --> 00:05:39,560 Speaker 1: And so as as Imagination starts to prepare itself for 97 00:05:39,680 --> 00:05:43,000 Speaker 1: a sale and looking um looking at potential suitors, there 98 00:05:43,000 --> 00:05:46,200 Speaker 1: are always regulatory concerns there and so this is this 99 00:05:46,279 --> 00:05:49,520 Speaker 1: is something that could potentially draw um draw concern but 100 00:05:49,560 --> 00:05:51,760 Speaker 1: I think it's it's yet to be seen at this point. 101 00:05:53,080 --> 00:05:56,200 Speaker 1: Thanks so much for joining us on Bloomberg Law. As always, 102 00:05:56,320 --> 00:05:59,479 Speaker 1: that's Matt Larson. He's a Bloomberg News litigation analyst, coming 103 00:05:59,520 --> 00:06:02,560 Speaker 1: to us from the Bloomberg nine sixty newsroom in San Francisco. 104 00:06:02,839 --> 00:06:04,640 Speaker 1: You can go to be I go on the Bloomberg 105 00:06:04,800 --> 00:06:10,000 Speaker 1: terminal to get more of MATS litigation research coming up. 106 00:06:10,000 --> 00:06:13,520 Speaker 1: How Gudtanamo Bay prisoner convicted of killing a US soldier 107 00:06:13,680 --> 00:06:15,440 Speaker 1: became a multi millionaire.