It’s been all quiet on the Nokia Corp.- Qualcomm Inc. front for months-only the two parties really know whether minions in suits and toting bulging briefcases are actually meeting on a cross-licensing agreement and whether either’s lawyers ever actually shout in frustration.
Shouting would be understandable. Potentially, billions of dollars in future revenue hang in the balance.
But Qualcomm confirmed last week that it will look to the results of pending litigation this summer and fall for guidance in reaching a cross-licensing agreement with its rival. Nokia declined to offer comment last week and said it had nothing new to report on the situation beyond previous public statements.
Since negotiations began-the previous cross-licensing agreement lapsed April 10 and the two parties have never said how long they’ve been talking about a new one-both sides have fired off salvos of litigation on various issues related to the balance of intellectual property portfolios between them. So it makes sense that, when the two sides possess disparate corporate cultures and business models-add a generous dash of caustic public statements-they would look to decisions by courts or regulatory bodies as arbiters of their respective arguments.
Qualcomm executives said as much in their July 25 conference call and last week a company spokesperson confirmed the company’s essential outlook.
The chip vendor’s conference call on fiscal third-quarter earnings was somewhat unusual in that Qualcomm executives had enviable earnings to discuss, but CEO Paul Jacobs and President Steve Altman chose to preface their remarks with caveats on the unknown variables of time and cost in addressing pending litigation-between Qualcomm and Nokia as well as between Qualcomm and many other industry players.
Sizing each other up
Qualcomm’s rare acknowledgement-apparently a signal to investors that the company takes its legal issues quite seriously-also came with a sense that the company is able to execute admirably despite distractions. But statements regarding Nokia, in retrospect, spell out more clearly than ever how the two sides are warily eyeing each other.
“Looking forward regarding Nokia, there are some important cases that will be heard this year,” Altman said. “In the arbitration filed by Nokia in 2005, we expect a decision in the coming weeks. In September, the first of our patent-infringement cases against Nokia’s GSM products begins in Germany, followed by the U.K. case in November. Just this week we’ve learned that Nokia’s case in Germany alleging patent exhaustion as a bar to our infringement claims against Nokia’s GSM products likely will be significantly delayed.
“The trial of a similar case brought by Nokia in the Netherlands is scheduled to begin in September,” Altman continued. “In addition the stay of our action against Nokia at the ITC has been lifted and a trial will take place in September of this year.”
Altman’s brief explanation of the legal no-man’s-land that lies between Qualcomm and Nokia may have leaned on oblique references and been short on specifics, but few can read it and come away without a sense that the two rivals are up to their proverbial keisters in charges and cross-charges that reflect their difficult negotiations.
Investors worried
From Qualcomm’s perspective, the “legal overhang,” as analysts like to call it, has dampened its stock price and positioned a cloud over future revenue and profit, not to mention its business model. Qualcomm and financial analysts already have factored out Nokia-related income from Qualcomm’s outlook for the current quarter.
Altman’s explanation of Qualcomm’s dealings with Nokia came right after a summation of the chip vendor’s legal hassles with rival chipmaker Broadcom Corp.
Analyst Tim Long of the Banc of America asked on the conference call whether the U.S. International Trade Commission’s decision in Broadcom’s favor upholding the latter’s IPR (Qualcomm is appealing the decision)-seen by some as a fundamental U.S. policy statement on the importance of protecting intellectual property rights-was a favorable sign for Qualcomm in its complaint against Nokia before the ITC, Altman offered further insight into his company’s outlook.
“(Though) continued negotiations and discussions occur with Nokia, there’s still no significant progress that I can report to you,” Altman told analysts. “As we continue down our path with Nokia, certain things are going to happen in the litigation process that are going to cause the companies to get closer and closer together on a deal. Both of us are looking to see how this litigation with Broadcom transpires. I think that impacts the various thinking (by both Qualcomm and Nokia).”
