The Billion Dollar War

Over an $18 Part

Apple doesn’t mind buying Qualcomm’s modem chips— but it’s had it with paying $10 in patent fees for every iPhone it makes

- Max Chafkin and Ian King

iPhone season, that extravaganza of novelty and surprise, began in mid-September with a two-hour-long presentation at Apple Inc.’s brand-new, spaceship like campus. Amid oohs, ahs, and an embarrassing number of standing ovations, Chief Executive Officer Tim Cook introduced two phones. The iPhone 8, an updated version of the current model, is already out in the wild. True Apple devotees are holding out for the iPhone X, the 10th anniversary edition, which will cost $1,000 and go on sale in early November. “This really is the future,” Cook said.

The iPhone X—which will boast a full screen display and facial recognition capabilities and is made out of a “special Apple-designed alloy that’s both durable and more pure,” according to marketing materials—is almost certain to be a hit. There will be block-length lines in front of Apple Stores, moody TV spots, and ecstatic unboxing videos. By Christmas, 75 million or so people will have bought new versions of a device that, before any of this pomp and circumstance, was already the most successful consumer product of all time.

But Apple can be as coldly calculating as it is dazzling. There will be lots of romantic stories about 10 years’ worth of iPhones published in the coming weeks. This is not one of those stories. This is a story about the power dynamics in one of the world’s largest industries.

It’s based in part on court documents filed as part of a dispute over one of the most expensive and, arguably, most important parts of the phone: the wireless modem. The story starts two summers ago, at a conference in Idaho, where a senior Apple executive, probably Cook, and a senior Samsung Electronics Co. executive, most likely Vice Chairman Jay Y. Lee, shared a quiet word.