Nokia Corp. and Qualcomm Inc. both insisted last week that they continue to talk, seeking only fair and reasonable terms in a new cross-licensing agreement potentially critical to both parties’ future. Their 2001 cross-licensing agreement expired at midnight on April 9.
Nokia, the world’s largest handset vendor, would like a new agreement that places higher value on its own intellectual property portfolio, effectively lowering the overall royalty rate it would pay Qualcomm in the future-specifically as it relates to next-generation W-CDMA technology, a growth area.
Qualcomm, the CDMA innovator with a stake in W-CDMA technology patents, declared itself satisfied with the now-expired agreement and said it would like the old agreement renewed.
In fact, it said last week that Nokia’s actions since April 9 constituted a renewal. Nokia does not agree. Qualcomm has appealed to the American Arbitration Association for rulings in its favor on several points.
The skinny
Under the expired agreement, which is confidential and whose details are known only to the two participants, Nokia paid cash royalties to Qualcomm based on an undisclosed percentage of the wholesale price of multimode phones that include W-CDMA shipped by the Finnish vendor. Widespread speculation by industry observers has pegged that royalty rate at about 4.5 percent. Qualcomm publicly said its royalty rates, in general, are capped at 5 percent, though it won’t discuss specific agreements, citing non-disclosure clauses. Nokia said last week that it has paid less than 3 percent in cumulative license fees under all its agreements for W-CDMA products.
Nokia’s primary concern appears to be that paying what it considers a significant percentage of its wholesale price of handsets with W-CDMA will hamper its business in a critical growth segment of the market where it is already well-positioned-especially when it views that royalty rate as unjustified. Qualcomm said that should Nokia succeed in renegotiating its own rate, that could undermine Qualcomm’s business model for IP licensing-a segment of its business with higher profit margins than sales of its chipsets-and lead to renegotiation efforts by other handset vendors.
Public quarrel
While the two parties have various, tangentially related litigation and appeals to regulatory bodies pending, no new litigation had been filed by last Friday’s press deadline. The past week, since the parties’ agreement expired, was instead marked mostly by efforts to clarify positions and respond to each others’ statements in the ill-defined arena known loosely as the “court of public opinion.”
Nokia said last Friday that Qualcomm is the single largest user of Nokia’s “essential” patents, which have contributed to industry standards. The Finnish handset maker “rejected” Qualcomm’s past statements to the contrary and reiterated its position that a $20 million payment to Qualcomm, announced last week, gave it the right to use Qualcomm’s “early patents” royalty free “in perpetuity.”
“Therefore, Nokia’s licensing agreements with Qualcomm for the future will focus only on the terms for Qualcomm’s newer patents,” the Finnish company said.
Qualcomm subsequently “rejected” Nokia’s $20 million “offer” and its terms, as well as Nokia’s assertions characterizing the 2001 agreement and its provisions.
“Both the amount of the payment and the terms that Nokia sought to unilaterally impose in connection with it are at odds with the parties’ 2001 license agreement,” Qualcomm said in a statement.
Nokia said that it has paid less than a 3 percent gross royalty rate to Qualcomm for W-CDMA handsets. Qualcomm retorted that if such a statement were true, then Nokia had “seriously underpaid” royalties owed to Qualcomm under the 2001 agreement-and it would address the “potential breach” through legal and contractual channels.
Nokia’s attempt to pay Qualcomm $20 million to settle what it considered certain elements of the 2001 agreement came on the heels of statements by Qualcomm’s CEO, Paul Jacobs, to the Financial Times on April 1, in which he said he hoped the two parties could avoid “Armageddon.” The biblical term refers to a climactic battle between “good” and “evil,” but in secular use in the cellular industry it appeared that Jacobs was referring to an escalation in patent litigation.
