With their patent cross-licensing agreement scheduled to end today, Qualcomm Inc. and Nokia Corp. each fired last-ditch legal salvos last week in hopes of gaining an edge in negotiations where potentially billions of dollars hang in the balance.
At the heart of the issue are patents covering CDMA and W-CDMA technologies, which comprise the vast majority of the world’s wireless networks. In July 2001, Nokia and Qualcomm came to a cross-licensing agreement whereby Nokia had access to Qualcomm’s patents, and vise versa. Specific details of the agreement remain undisclosed.
Over the past several months, as the end of the agreement dawned, both Nokia and Qualcomm have been working toward a renegotiated patent-licensing pact. However, in light of a variety of patent lawsuits-and less-than-conciliatory comments on both sides-it appears the talks have made little forward progress.
Last week, as the April 9 deadline loomed, Nokia attempted a new maneuver: The company announced it will pay Qualcomm $20 million in patent royalties for the second quarter of this year. In announcing the $20 million payment, Nokia offered fiery rhetoric uncharacteristic of the usually staid Finnish vendor.
Harsh words
“Nokia believes that Qualcomm’s patent portfolio is concentrated in the United States, and that it has few or no alleged UMTS patents in many of the countries in which Nokia has substantial UMTS handset sales. When Qualcomm’s early patents become paid up and royalty-free on April 9, 2007, Qualcomm’s share of all patents relevant to Nokia UMTS handsets will significantly decrease,” said Rick Simonson, Nokia’s CFO. “It is important to note that as of April 9, 2007, Qualcomm’s entire chipset business becomes exposed to Nokia’s extensive GSM, W-CDMA and CDMA patent portfolios and Nokia will use all rights from those portfolios when defending itself against any new Qualcomm litigation.”
Interestingly, Nokia said that, until this year, it has paid less than 3 percent in license fees for all of its patent license agreements involving W-CDMA products.
Just a day later, Qualcomm fired back with its own legal maneuver: The company asked the American Arbitration Association to rule that Nokia’s continued use of its patents constitutes “an election by Nokia to extend its license under the parties’ existing agreement. Such an extension would obligate Nokia to pay Qualcomm the same royalty specified in the current agreement and prohibit Nokia from asserting patent claims against Qualcomm’s CDMA products.”
Qualcomm offered some fiery words of its own: “Nokia has no more right to unilaterally set a price (like $20 million) than the average consumer has a right to walk into a store, take a product off the shelf, and walk out with it after leaving only a fraction of the established price on the counter. Leaving some money on the counter does not make the act any less unlawful.”
Qualcomm also took issue with Nokia’s contention that it has paid less than 3 percent in licensing fees.
“Nokia has been paying a royalty on W-CDMA handsets in excess of 3 percent to Qualcomm alone,” the firm contended.
Finally, Qualcomm offered a glimpse into the complexities of patent licensing. Qualcomm said that Nokia “has taken the position that a fair and reasonable royalty rate for a single essential patent is 2.5 percent, for two essential patents, 3.5 percent, for three patents, 4 percent, and for 10 or more, 5 percent or higher.”
Nokia was not immediately available for comment on the statement.
Although Qualcomm does not discuss its own licensing terms, industry watchers generally agree the company charges around 4 to 5 percent for access to its full patent portfolio.
As the stalemate heads into the final hours, some do expect an eventual resolution. Maynard Um, an analyst with UBS, said he believes the companies will ultimately come to some sort of licensing agreement-although which company would end up the winner in such an accord is unclear.
