Qualcomm loses ruling in legal battle with Nokia

Both Nokia Corp.’s and Qualcomm Inc.’s stocks were down a few percent each on news that the United States International Trade Commission had rebuffed Qualcomm on its complaint that Nokia infringed on three Qualcomm patents regarding GSM technology.
The two parties are in arbitration, under the auspices of the American Arbitration Association, aimed at replacing a cross-licensing agreement that lapsed in April.
Many analysts have said that the flurry of legal and trade complaints raised by both sides since April have been largely tactical moves aimed at garnering court victories that could strengthen their negotiating hand in the cross-licensing talks. Qualcomm has said that view is accurate, while Nokia has said that each individual case should be viewed on its own merits.
“Although the ruling is favorable for Nokia, we don’t see it as a significant change in the conflict between the two companies,” analyst Ittai Kidron at CIBC World Markets wrote in a note to investors. “The key event in our opinion is the ongoing arbitration process invoked by Qualcomm.”
Analyst Mark McKechnie at American Technology Research said the ruling was a “relief” for Nokia, which is planning on improving its weak position in the U.S. market by ramping up 3G handsets at AT&T Mobility in 2008.
Qualcomm filed the complaint in question with the ITC in June 2006, alleging that Nokia’s GSM/GPRS/EDGE handsets infringed on the former’s patented, power-control technologies and demanding that those handsets be barred from importation into the U.S.
‘Initial determination’
Administrative Law Judge Paul Luckern issued an “initial determination” yesterday that absolved Nokia of the charges. Qualcomm said it would appeal the ruling. A final ruling is expected April 14.
The two companies’ cross-licensing talks focus on, among other things, a dispute over their relative positions in W-CDMA (define) intellectual property, crucial to the global ramp from 2G to 3G(define).
The balance of W-CDMA IP portfolios, prior to April, had Nokia paying Qualcomm a royalty rate on every W-CDMA handset it shipped; analysts have estimated that undisclosed rate in the neighborhood of 4% to 5% of each handset’s wholesale price. Nokia has said that its IP portfolio, if factored in fairly, would vastly reduce that royalty rate. Qualcomm has sought to simply renew the lapsed agreement, keeping the former royalty rate.
A high-profile case
At stake in the negotiations is hundreds of millions of dollars that Nokia might save on royalty fees that wouldn’t reach Qualcomm’s coffers. And Qualcomm, which earns revenue on its chips and on licensing its IP, sees its business model threatened by an adverse decision in the high-profile case.
“It’s hard to say which way the Nokia-Qualcomm saga will tip next,” said Tero Kuittinen, analyst at Avian Securities L.L.C., in a column today for RealMoney. “In a nutshell, Nokia thinks Qualcomm deserves 1% licensing fees for its W-CDMA patents. Qualcomm is presumably gunning for about 4% from Nokia. Multiply that gap by hundreds of millions of phones and factor in (a W-CDMA handset) average sales price yet to decline below $200, and the scale of the dispute becomes clear.”
“Neither (company) got a big break from their auxiliary litigation that would have enabled them to force the other guy to settle the central dispute,” Kuittinen concluded. “We may well be heading into the thorniest, most expensive tangle of new and ongoing telecom lawsuits in 2008 as the giants ponder their next moves.”