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Apple files $1 billion lawsuit against major iPhone partner

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Apple just did the unthinkable: The tech giant is suing Qualcomm, maker of the iPhone's baseband processor — the smartphone's modem for connecting to mobile networks — to the tune of $1 billion.

First reported by CNBC, the lawsuit portrays Qualcomm as an extortionist over basic smartphone technology and accuses the San Diego-based chip company of withholding payments to Apple in "retaliation" for cooperating with investigators.

Apple's move is related to another legal action from earlier this week, when the FTC filed an antitrust lawsuit against Qualcomm, alleging it was using its patents to strong-arm competitors into paying exorbitant patent royalties, even for devices that don't use Qualcomm-made components.

SEE ALSO: The anti-trust lawsuit that could shape the future of smartphones

Apple was prominently named in the FTC lawsuit, which also alleges Qualcomm pressured Apple in specific ways to guarantee it would use its modem tech exclusively for a five-year period, from 2011 to 2016. The agreement essentially shut out every other manufacturer of baseband processors from the world's most popular smartphone, which the lawsuit says unfairly hampered competitors' development. (With the iPhone 7 and 7 Plus, Apple began producing some iPhones with Intel modems.)

In Apple's statement about its own lawsuit, the company says Qualcomm has been charging royalties "for technologies they have nothing to do with." Apple casts Qualcomm as a lazy company that no longer innovates because its business is built around "older, legacy technologies" and that it collects many royalties "for no reason" — essentially accusing the chipmaker of being a patent troll.

Apple specifically accuses Qualcomm of withholding "nearly $1 billion" in payments in an act of corporate revenge against Apple, since it cooperated with "law enforcement agencies" tasked with investigating the chipmaker. Those investigations are what likely led to the FTC lawsuit.

Apple also gave some detail on just how large Qualcomm's royalties are. According to the company's statement, the royalties Qualcomm collects on the iPhone are five times those of the device's other "cellular patent licensors" combined. 

Apple’s lawsuit offers a rare glimpse into the behind-the-scenes dealmaking around intellectual property that goes into building the world’s most popular tech products. While lawsuits over designs and patents happen occasionally, the world’s most valuable company going after one of its own partners, especially one as important to the iPhone as Qualcomm, was something few could have predicted.

The lawsuit will certainly have reverberations in the wireless industry for years to come, and could lead to big changes in the cellular modem market as 5G technology — the successor to 4G LTE — takes hold. In 2016, Qualcomm held a whopping 65 percent of the market for mobile baseband modems (and 50 percent of the revenue), figures that could tumble as these lawsuits proceed and competitors pounce.

In addition, considering Apple has already begun to use competing modems in the iPhone 7, the incendiary tone of Apple’s statement implies Apple will show Qualcomm the door for the iPhone 8, expected to be unveiled in the fall.

Qualcomm responded to Apple's lawsuit late on Friday, with the company's executive vice president and general counsel, Don Rosenberg, calling the accusations "baseless." He also said Qualcomm was eager to have the case go to court since it would involve "full discovery" of Apple's practices, which comes across as a thinly veiled counter-threat.

Apple's full statement, sent to Mashable, is below, followed by Qualcomm's, then Apple's full legal filing:

Qualcomm's statement:

Updated at 8:40 p.m. ET  on 1/20/17 with Qualcomm's statement.

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