By Tatum Anderson for Intellectual Property Watch
A German court has thrown out a case involving patents brought by Finnish phone manufacturer Nokia against US chipmaker Qualcomm. The case is one of several internationally between the two companies that could have an impact on telecommunications and information access.

The Regional Court of Mannheim ruled on 23 October that Nokia’s claim – an objection to a practice Nokia calls patent exhaustion – was not admissible. The court has yet to explain why it rejected the case, although a written judgement setting out the reasons is expected in around two weeks.

Qualcomm believes it knows why the case was inadmissible. “We expect the judge to say there was no case against us under German law,” said George Whitten, vice president, patent counsel at Qualcomm.

Nokia has alleged that Qualcomm charged chip manufacturer Texas Instruments royalty fees for technology incorporated into chips it makes for Nokia. However, Nokia objects to being charged royalty fees for incorporating those chipsets into its handsets – a practice it calls patent exhaustion. Nokia maintains that if TI has already paid royalty fees on the technology, it should not have to pay fees too.

Nokia says it is considering whether to appeal the court’s decision. “[E]xhaustion of patent rights in the telecommunications industry is an increasingly important issue,” it said in a statement. “Nokia is confident that its substantive claim is well-founded.”

Another patent exhaustion case between the two companies was held in the Netherlands in September, with a decision expected next week.

These are two of several cases pending between Qualcomm and Nokia. The two telecoms companies are embroiled in acrimonious disputes over patents for different technologies.

The first set of disputes relates to patents based on a so-called second generation mobile phone technology called GSM. Qualcomm has asserted that Nokia is infringing its GSM patents in courts from the US, to Europe and China.

A major European case related to GSM patents is due to begin at the end of November at the High Court of Justice in London.

The most high-profile of the GSM infringement cases is one filed by Qualcomm against Nokia at the US International Trade Commission. That is because the ITC has significant powers of remedy and can potentially prevent the import of mobile phones to the US if it finds evidence of patent infringement.

A two-week hearing was held in September and the judge is expected to make a preliminary ruling by 12 December. If the ITC’s board agrees with the judge’s decision, a final ruling – and imposition of a remedy – will be made next year.

For its part, Nokia does not view Qualcomm’s GSM patents as valid and believes the ITC will rule in its favour. “Nokia’s products do not infringe any of the patents,” it said in a statement. “This position was supported by the ITC staff as well as testimony by industry experts.”

Qualcomm is widely believed to have brought the GSM cases in retaliation against complaints made to the European Commission by six manufacturers, including Nokia, in 2005. They accused Qualcomm of indulging in anti-competitive practices.

At the beginning of October this year, the Commission’s Competition division finally decided to open formal antitrust proceedings against Qualcomm and determine whether its licensing terms and conditions are not “fair, reasonable and non-discriminatory” (FRAND) and breach Article 82 of the Commission’s competition rules related to abuse of a dominant market position.

All manufacturers have welcomed the Commission’s announcement that it will make the case a priority. However, Qualcomm insists the proceedings do not imply that the Commission has any proof of an infringement.

3G Disputes in Arbitration

The second set of disputes between the two companies relates to a third generation mobile technology, called UMTS or WCDMA.

But Qualcomm has yet to file a patent infringement case in court related to this technology. It has preferred to refer its grievances to the American Arbitration Association instead.

Nokia filed a patent infringement case, but it was thrown out of the ITC last week on the basis that the same ground was already being covered by the Arbitration Association.

Andrew Gilbert, European President of Qualcomm says: “[Court] could be a route open but the arbitration process appears to be a positive and constructive way to resolve a dispute so why not use it?”

The arbitration case relates to a licensing agreement which has allowed the companies to use each other’s technology for some years.

That contract, called the 2001 Subscriber Unit and Infrastructure Equipment License Agreement, enabled Nokia to use some of Qualcomm’s patents in the manufacture of its mobile phones. In return, Qualcomm was granted rights to sell Nokia’s components in its equipment.

However the agreement expired in April and nothing has replaced it, since the companies have been unable to agree on a new set of terms.

Nokia believes it should pay less than Qualcomm is willing to accept. The Finnish manufacturer believes the value of Qualcomm’s patents has decreased as a result of advances in technology and some patents are now fully paid up and royalty-free (IPW, Patent Policy, 10 July 2007).

As a result, it has tried to pay Qualcomm royalty fees at levels based on its own calculations.

Last week at Nokia’s results announcement, the company stated that had made a second payment of $20 million to an escrow account to cover patent fees on third generation handsets, or UMTS for the third quarter of 2007. It made a payment for second-quarter sales earlier in the year.

Talking to analysts, Rick Simonson, chief financial officer at Nokia said, “We believe that it forms kind of a fair, reasonable compensation for the potential use of their essential patents in Nokia UMTS handsets. Nothing’s really changed from Q2 to Q3, frankly.”

Qualcomm has maintained that these payments are arbitrary and not based on the existing contract terms. “Having a dominant company like Nokia dictating the price of innovation is quite disturbing,” says Qualcomm’s Gilbert.

Qualcomm has asked the Arbitration Association intervene – which is an option contained in the original contract.

It wants the association to conclude that because Nokia is continuing to sell equipment containing its patents it should be assumed that the Finnish manufacturer has elected to extend the original contract terms until next year – an option contained in the original contract. If Nokia is seen, by the arbitrators, to have extended the contract terms, then it should be forced to pay the fees laid out in the 2001 contract says Qualcomm. The decision of the association will be binding on both parties.

Nokia, for its part, says it has not extended the contract, and maintains that royalty payments should reflect the value of patents in today’s technological environment.

Earlier in the year, Qualcomm stated that if it did not receive the correct payments by August it would assume that the 2001 agreement was in fact terminated. It refused to speculate as to how that might affect the arbitration process and, indeed, what the next step may be.

Tatum Anderson may be reached at info@ip-watch.ch.

Source: Nokia, Qualcomm, European Commission