Possible Qualcomm-Nokia Patent War Delayed Until August

By Tatum Anderson for Intellectual Property Watch
US technology firm Qualcomm this week raised the spectre that if Finnish mobile phone manufacturer Nokia does not comply with demands within four months, a long-running worldwide intellectual property dispute between the two companies could potentially escalate. But so far, Nokia has stated its position and shows no sign of moving.

For now, the expected patent war between Qualcomm and Nokia has been delayed.Industry observers had expected Qualcomm to bring a slew of costly suits against Nokia in April for allegedly infringing its extensive patent portfolio. A patent war would pitch two of the largest mobile technology companies in the world against each other, which could have an impact on worldwide consumers’ access to mobile technology products.

Instead, Qualcomm confirmed this week that it is waiting for Nokia to make its next royalty payment in August for manufacturing mobile phones and other equipment based on Qualcomm patents. If Nokia does not pay up but continues to sell mobile phones based on Qualcomm’s patented technology, Qualcomm may take the position that Nokia is infringing its patents.

“The environment may change if they don’t pay royalties in August,” says Derek Aberle, vice president and general manager of Qualcomm’s licensing division. However, he will not speculate on how Qualcomm will proceed beyond that date.

The dispute revolves around a deal originally signed in1992 and extended in July 2001. Under the terms of the so-called cross-licensing deal, Nokia was permitted to use some of Qualcomm’s patents. In return, Qualcomm was granted rights to market Nokia’s components until April 2007. By the expiry date, it was expected that a new cross-licensing deal would be negotiated between the two companies. There was also an option for Nokia to extend the existing contract until 2008 under the terms of the deal.

The deal expired on 9 April with no replacement because the companies were unable to agree new royalty payment terms.

The relationship has already soured to such an extent that each has launched patent infringement suits and investigations against the other (IPW, Subscribers, 22 February 2007).

However, further patent infringement suits have been delayed, at least for the time being. Just before the contract expired on 9 April, Qualcomm asked the American Arbitration Association to rule that if Nokia continued to sell mobile phones based on its technology beyond that date, it could be assumed that the company was extending its contract.

But if Nokia does not pay the royalty fees Qualcomm expects by the next due date, scheduled for August, it can only be assumed that the cross-licensing deal is over.

“Our view is that if Nokia’s actions have constituted an election [to extend the contract], the companies cannot assert patents against each other because these licences have effectively been extended,” Aberle said in an interview.

The likelihood that Nokia will pay the royalty fees Qualcomm expects looks very slim. In Nokia’s view, the 2001 agreement is finished and it has not opted to extend the licence until next year. The Finnish giant says it is unwilling to extend the contract because it believes royalty fees charged by Qualcomm must change to reflect advances in mobile technologies since the 1990s.

Nokia concedes that when the contract was originally signed, Qualcomm’s intellectual property portfolio was very strong. The company was largely responsible for the CDMA standard, used by 373.5 million mobile phone users worldwide by the end of 2006.

But it argues that several factors have changed since then. Newer technologies have since emerged, for which Qualcomm cannot claim as much responsibility, it argued. Nokia has invested close to €30 billion in research and development over the last 15 years to build a much stronger intellectual property rights portfolio of over 11,000 patent families. In addition, far more companies have contributed to the development of new generation technologies. And finally, some of Qualcomm’s earlier patents that were covered by the cross-licensing agreement are now fully paid-up and royalty free.

As a result, Qualcomm’s share of all patents used in new generation phones, based on a technology called WCDMA, has shrunk, Nokia says. “We think the new contract should reflect that Qualcomm has made a lower contribution to WCDMA,” a Nokia spokesperson said. “The new contract should reflect the changes in the industry landscape.”

Last month Nokia offered to pay US$20 million to Qualcomm for the use of its patents in Nokia WCDMA handsets during the second quarter of 2007 – until June 30. According to Nokia, the sum reflects a contractual commitment made by Qualcomm some years ago.

Qualcomm, along with many other manufacturers, contributed its intellectual property to the development of WCDMA and other technologies – a process overseen by standards bodies like the European Telecommunications Standards Institute (ETSI). Companies that contributed to the technology standard signed agreements with ETSI to charge each other royalties on a fair, reasonable and non-discriminatory (FRAND) basis (IPW, Subscribers, 22 February 2007).

Today, Nokia believes any new cross-licensing agreement with Qualcomm should be based on FRAND principles. Those principles indicate that royalty fees should reflect the company’s less substantial role in the development of WCDMA and amount to US$20 million, it says. A Nokia spokesperson said, “This payment was based on licenses that Qualcomm has agreed and provided through ETSI.”

Qualcomm has rejected the payment, consistently arguing that its royalty levels reflect the substantial value of its patent portfolio. The company estimates that it has over 35,000 patents and applications worldwide.

Qualcomm’s Aberle says the US$20 million was based on a non-existent cross-licensing agreement and on the sales of handsets that had not even taken place. “I don’t know how they came up with that number,” he said. “It’s a small fraction of what they would owe under the 2001 or any other agreement given the accepted value of licences we’ve established with a number of other companies that have signed licenses with us.”

Qualcomm also charged the Finnish company with inconsistency for, it said, demanding in the past through court action that other manufacturers pay higher royalty fees for using Nokia-patented technology in the courts.

Since Qualcomm will not accept the payment Nokia has offered, Nokia says it will deposit this, and future payments it intends to make, in an escrow account for Qualcomm’s benefit.

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