Earlier this month we saw that Qualcomm for the first time was officially ruled guilty of infringing on someone else's patent. While the chip maker escaped an outright ban on phones that incorporate its chips, an International Trade Commission administrative law judge ruled that Qualcomm's chips infringed on five claims of a patent owned by Broadcom. The judge rejected claims that Qualcomm infringed on two other patents Broadcom cited. Qualcomm in the past has always either won these types of disputes or resolved them before the courts rule on the matter. Does this latest ruling represent a chink in the company's IPR armor?
For sure, the stakes are high as royalties are a primary source of income for Qualcomm. Not only does Qualcomm hold the majority of IPR for IS-95-based mobile technologies, but asserts the same patents for WCDMA--a technology that has a far bigger footprint than CDMA2000--and charges the same rates on WCDMA as it does for CDMA2000. Vendors are fed up with Qualcomm's approach to technology licensing, filing patent infringement lawsuits and anti-competitive complaints. Yet, Qualcomm is intent on sticking by the company's current IP-licensing approach, charging an estimated 4 percent to 5 percent of the wholesale price of every CDMA2000 and WCDMA handset shipped.
The pressure mounting against Qualcomm includes lawsuits filed by and against Broadcom and Nokia, a European Commission investigation into allegations the firm does not license its technology at a reasonable price and calls for the company to separate its chipset division from the technology-licensing business.
A big headache for Qualcomm right now is its dispute with Nokia, the world's largest handset maker. The lawsuits are flying between the two as they attempt to strike a new deal on an expiring license agreement that allows Nokia to sell CDMA and WCDMA handsets and Qualcomm to sell GSM chips that rely on Nokia patents. The original deal expires in April.
During Nokia's third-quarter conference call, management spelled out the issue this way: "In 1992 when Nokia made its initial licensing agreement with Qualcomm, mobile phones were only intended for voice calls. And CDMA2000, and or WCDMA technologies standards rather did not even exist. As a result, Qualcomm owned the majority of relevant patents relating to its own priority CDMA qualification however, today, as we're six months away from the partial exploration of our licensing agreement with Qualcomm, we believe--and research--shows that we are a world leader in WCDMA IPR and Qualcomm's relative contribution to the development of technology used in mobile devices is significantly lower than that in 1992. And our dependence on Qualcomm's CDMA2000 IPR becomes less relevant as we continue R&D by April of next year. Nokia will need a license only for Qualcomm's GSM and WCDMA IPR. Qualcomm will need access to Nokia's CDMA IPR in addition to Nokia's GSM and WCDMA IPR. As Nokia's IPR position is stronger than the early days of CDMA, we believe our future licensing agreement should reflect this fundamental change. This is essentially the base for our debate with Qualcomm as it relates to April 2007."
Clearly, Nokia won't be backing down. Is Qualcomm in danger of a forced cut in royalty rates? The next six months will prove crucial in determining the company's direction, but you can bet this highly seasoned player in the patent litigation realm has some tricks up its sleeve. But as vendors continue to unleash their anger, you just have to wonder how much pressure Qualcomm and its investors can bear going forward. -Lynnette